Winning the Racquet Game

By Bill Saporito

Andre Agassi isn't the only thing in tennis that's on the upswing. So is the game, and that's good news for racquet makers such as Wilson, Prince and Head, the company that makes Agassi's. With golf muscling in on the leisure market, racquet sales have been in a decade-long decline. This year sales could climb 5%, which is in some measure attributable to the ability of a Swedish turnaround artist to persuade the Austrian government's tobacco monopoly to sell him a sporting-goods company created by an American entrepreneur.

Let's reverse that for a moment. The entrepreneur is Howard Head, who created a metal ski and later an oversize tennis racquet, revolutionizing both sports. He sold his namesake company in 1971 to AMF, a conglomerate that was busted up in the mid-1980s. Head was sold to a leveraged buyout firm, Freeman Spogli, in 1989, which unloaded the struggling company on Austria Tabakwerke, a government-owned firm that bought Head to try to keep its manufacturing jobs in Austria. "They did even worse," says Johan Eliasch, a Swedish merchant banker who took over the company in 1996. "They threw money at it, and the company ran up huge losses. Finally, they said, 'Enough is enough.'"

Though sports-equipment companies are high profile, they have been erratic performers as businesses. They were often small parts of large outfits, and changed owners frequently. Prince, another company started by Howard Head, was sold to consumer products maker Chesebrough Pond's in the '80s. It is now owned by the Italian apparel company Benetton, which is building a sports division. Wilson, once owned by PepsiCo and then Wesray Capital, is now part of a Finnish conglomerate called Amer Group.

When Eliasch took over Head, which makes racquets, skis and diving equipment, the Austrians feared he would shut the factories there. Instead, he automated production, invested in engineering and simplified product lines, concentrating on high-end gear. "It costs roughly the same to manufacture expensive and cheap products," says Eliasch. Executive decision: expensive is better. This year Head should post sales of $410 million and operating earnings of about $45 million.

Eliasch brought an innovation to the game--titanium--a material he took directly from golf. Head's Ti5 and Ti6 models, which weigh about 7 oz. and cost up to $250, were the world's top two selling racquets last year. In Agassi, Head may have the game's top salesman too. "In the past, tennis had Borg, McEnroe and Connors. Today there's only Andre," says Eliasch.

The brutal competition in sports equipment won't go away soon--but some brands will. "There's only room for so many," observes Eliasch, who recently bought Penn Racquet Sports from yet another conglomerate, GenCorp. Head is planning an IPO to finance some additional acquisitions. Eliasch is a scratch golfer, and golf brands are struggling. Could he be teeing something up?

--By Bill Saporito