Padel's Pickleball Position

The Quick Points

🏟️ Pro to college to high school. Awesome to see new courts go up at Algonquin Regional High School, marking the opening with a tournament. We’ve long felt that an undervalued growth catalyst for the sport is going to be more formal adoption of pickleball in youth sports. For many sports, you can work backwards and see the trajectory. College athletics provide lucrative scholarship opportunities, which legitimize the sport at the high school level where students seek out recruiters, which drives families’ investment of time and money into the broader coaching & athletic infrastructure for their child to one day have the chance to chase the dream of a scholarship (or maybe even professional contract). We wrote in more depth about this topic as it relates to the importance of professional organizations like MLP, PPA, and APP to exist, and college is a natural extension. While many schools aren’t jumping into adopting it as a NCAA sport at the moment, rolling out courts on campuses to build the student community will only heighten its awareness and incremental support among college athletics departments. Seeing this happen at the high school level is equally exciting as it builds a track for it to be picked up as a high school sport, which will facilitate investment in the courts themselves, but also in training / coaching.

🎬 Center court and center stage. Fun read how the director of Priscilla, Sofia Coppola (daughter of renowned filmmaker Francis Ford Coppola) had a pickleball court built on their movie set where everyone would play at lunchtime. She considered running a raffle tournament to help fund the independent, lower-budget film, ahead of it airing at the Venice Film Festival.

What’s on our mind

Bear with us, as today’s is longer and we’re taking a slight detour from pickleball into the other hot racquet sport of Padel.

We came across a great interview breaking down the business of Padel and there were some interesting points we wanted to highlight, particularly where there seemed to be considerable overlap with pickleball.

Brief Overview
Padel is a popular sport in Europe and South America that is growing in popularity across the U.S. The sport is played on an enclosed court that’s smaller than a tennis court. It is particularly prominent in Sweden, Spain, and countries across South America and is seen as another racquet complement to tennis (and pickleball), as it has a completely different spin on the game, strategy, and skillset required to play. It’s approximately a $2bn market currently, with a majority of the market share coming from the facilities themselves (est. $1.2bn).

If we had come into this conversation midway with no context that it was about Padel, then the growth drivers, current limitations, and outlook closely resemble what we’re seeing across the pickleball market. Some areas that stood out:

Massive undersupply of courts makes facilities one of the most lucrative entry points for investors and operators

Clubs that are able to get off the ground currently experience favorable economics as there are often no alternatives for players to turn to. However, longer term, investors & operators need to avoid oversupply turning courts into a commodity product, so picking the right real estate, with favorable demographics and a good location is an important first step in the process. Second, having the right programming from day one is crucial to building a unique community and retaining players. For Padel, a common entry point for programming is introductory coaching to teach people how to play. While many players often churn off dedicated coaching, that onramp brings them up to speed quicker and can be cross-sold into clinics and leagues where they meet new players and book court time separately.

The brand / vibe of the facility creates a set of new opportunities and challenges for facility owners. Those that strictly focus on Padel often create an athletic club feel, where you’re building for dedicated players who want to get better and utilize Padel as a core part of their physical fitness, socialization, and competitive outlet. Some clubs focus on an entertainment model, where those who are successful will capitalize on food & beverage. But as we’ve discussed numerous times in the past for the pickleball eatertainment model, this requires the specialization and experience of a restaurant owner to really make a mark. As a blend of entertainment and fitness, there are some facilities trying to recreate the high-end social club experience, such as the Padel Haus (a Soho House-like vibe) in NY, however, many markets can only support one of these experiences. Further, a potential uphill battle for some of the Padel eatertainment models is that the higher cost structure often requires building in denser, more affluent urban metros. However, as we’ve noted in the past, these can be more challenging markets for eatertainment, as they no longer get to be a unique outlet of fun + food + sport for residents of a suburb, but rather they have to go head to head with a highly competitive food, bar, and nightlife market in places like NYC, LA, SF, Austin, Miami, etc.

One upside for U.S. based clubs coming online in these markets though is that the population tends to be able to support higher-priced experiences & memberships, so building a compelling product will have a base of consumers willing and able to pay.

Some challenges to the unit economics of Padel facilities:

• Moderately capital-intensive businesses compared to sports clubs, other hospitality venues, and even pickleball

• For the math to work, facilities need to try to get to ~6 courts, however, going much above 6 also starts to become a challenge given the larger space requirements of Padel compared to pickleball (and finding that much extra space in urban markets is very costly)

• Typical costs range from ~$1M to construct a facility outdoors, to ~$3M for an indoor facility (some large premier indoor facilities can run $6-8M)

• Land use in the U.S. is difficult, making it very hard to build from scratch on quick timelines; Markets like CA are nearly impossible to build; Existing indoor warehouse space is highly competitive (very low vacancy)

Community and programming is critical to building a player pool and retaining members

We’ll keep reiterating this point, since we still come across a lot of places in the U.S. that assume throwing concrete down on the ground is a sufficient business model. Yes, that route does capture a slice of the producer surplus out there, as almost all court space that gets put down is eaten up at relatively high utilization rates for now. However, in the long term, all of these clubs require building community through a unique member experience, differentiated and enjoyable programming, and the right mix of people coming through the door. Some Padel clubs are capitalizing on this, which can be illustrated through a common customer acquisition funnel. Many tennis players first learn about padel through their country club / tennis club, but after a few experiences, they take a group of their friends and migrate to specialized Padel clubs where there are more players (i.e. more competition), more court availability, specialized coaches, and specialized programming (leagues, clinics, tournaments). We believe that the private pickleball facilities benefit from a similar customer acquisition funnel, except here it’s often public park courts —> private facilities. Though, it’s worth noting that many of those draws to the private facilities often closely mirror the Padel players.

There’s an uphill battle to convince landlords of industrial space to take on Padel as a key tenant —> maintaining the undersupply problem 

We’ve seen this dynamic at play in Austin and heard it from numerous investment consortiums looking to build in other markets. Industrial commercial real estate is an extremely hot market right now with very low vacancy rates and attractive tenants like Amazon continually in the market for prime warehouse space (no pun intended). If the market cools here, then more clubs will be able to open and address the court supply issue, but even if demand tempers, there’s still a hurdle to educate land owners and property owners that these sports aren’t simply fads, and are lucrative investment opportunities if you bring in the right operating group to run them.

Last point, the warehouse supply problem isn’t helped by the fact that the bare minimum ceiling height to build a competitive padel court is 24 feet.

Highly fragmented but growing equipment and apparel market creates a lot of opportunity, but difficult to distinguish obvious investments

New Padel companies are entering the space by designing and manufacturing new Palas (a racquet for Padel), however, it’s still early days to see who gains the largest market share in terms of dollars and consumer mindshare. As the sport evolves, new technology is designed, and more name-brand pro players emerge, then some pala companies will be able to position themselves as the premier paddle brand the way Joola has done with the Johns brothers, etc. Further, the apparel market is still highly fragmented like pickleball, as the sport doesn’t necessarily require too many specialized pieces of clothing to get out on a court. Similarly, this is still a green-field opportunity for players, personalities, and celebrities to attach themselves to existing clothing lines, or design one with its own feel, function, and style. The sport is starting to see the initial signs of big brands looking to get exposure through product sponsorships and building their own lines.

Other Quick Points

Areas where pickleball appears to have an initial head start compared to padel

Pickleball was able to gain a foothold and skyrocket in popularity in public parks. Much of this is a function of the lower capital intensity of pickleball relative to padel, as well as the more efficient footprint (can get more pickleball courts in the same sized space). Padel is more expensive and not an investment cities are making, even in places like Europe where the sport is clearly popular. In Europe, the investment in new courts is coming privately in new builds, or existing tennis/country clubs converting existing space.

Areas where padel may have an initial head start compared to pickleball

There are pros and cons to this, but the target market for Padel is comparatively younger across the spectrum in the 25-50-year-old range. While it’s exciting to people older than 50 and younger kids as well, the physicality makes it less accessible and more challenging to get people across age and skill ranges to play together. Again, on one hand this narrows your total addressable market, however, it shifts the demographics slightly younger where there is higher conversion among working professionals.

Further, many of these urban populations where padel courts are going up have higher rates of disposable income than other markets across the country, making conversion to private facilities a little easier, as these consumers are less price sensitive compared to some pickleball consumers who may be seriously evaluating the tradeoff between free public park courts and private facilities.

Financial and Business Model Highlights

Some quick generalized stats from the interview:

• 35% profit margins make the facility play attractive

• 2-3 yr payback periods

• If clubs can reduce the ramp-up period to get players in, teach them the sport, convert them to members, and set up further coaching, programming, and tournaments, then the margins and payback could get to higher levels and on a shorter timeframe

Business model points:

• Still most often comp’d to higher-end gyms; Not particularly analogous to tennis clubs

• Many tennis club operators push their facilities to drive revenue off clinics, whereas padel revenue drivers are predominately led by court time; Players come in and take lessons + join clinics to get good at the sport, but then spend a disproportionate share of their time playing against people of similar level through private court reservations

• The slower ability to grow courts should benefit the unit economics for longer, as it will take time to build out court capacity

Streaming and Broadcasting Potential

Still early days and Padel investors and pro league operators are trying to figure out how to get more airtime. The fast nature and physicality of the sport do show well on a screen, so they’re trying to figure out how to formalize broadcast and streaming arrangements in the U.S. The glass courts and more visible ball make it a little easier to translate to TV, as well. Hard to speak definitively about where these opportunities lie and how to compare / contrast its viewing potential to pickleball at the moment, as both are still iterating to figure out the right approach.

Future Growth Catalysts

Some of the investors in the space are optimistic that the sport doesn’t have to see mass adoption in order to be a viable investment opportunity. The U.S. is a place of massive variety in terms of how people spend their free time, what sports they love to play vs. watch, and how they pick up new hobbies. The big driver of adoption will similarly be building a density of courts close enough to large markets where people will have a variety of opponents who are both fun and competitive. Some of the pro leagues and operators see Padel gaining a seat at the Olympics as a key growth catalyst to drive legitimacy and recognition - pushing for the 2032 Olympics. We’d also love to see that push for pickleball, but definitely needs to get better distribution globally for that to happen.

Next on The Reset’s Agenda

First…we need to go play it, we know some people who frequent the few courts we have in Austin and we need to give it a try. We also know someone building padel courts as part of a broader racquet club experience in Austin with whom we’ll have a more in-depth conversation and see where we can expand on our thoughts.

That’s all for now - would love to hear from you if you have thoughts, perspectives, or experiences in the Padel space.

Breaking Ground

The Reset tracks publicly available court construction data to better understand the locations, costs, and development priorities going into projects across the nation. Our tracker can be found here.

Featured Developments:

Austin Pickle Ranch opened on October 1st in Austin, TX. We’ll do a more in-depth write-up on the facility and team soon, but they’re one of the first private facilities to get up and running in our city that’s in desperate need of courts. They took an interesting approach to the problem, being quicker to market by working with an office landlord to convert unused parking garage space into 8 pickleball courts. The location has already seen pretty high usage, between weeknight leagues and pay-to-play court rentals. We’d encourage everyone in Austin to go give them a spin and see if their membership is right for you at $40/mo.

Center Court Pickleball Club is opening three locations in the Phoenix area. The facility is aiming to create a ‘gym-feel’, where the location will host player lounges, locker rooms, showers, massages, cryotherapy chair, and food & bev. On the surface we like this model. Have long held the view that someone should invert the Life Time Fitness model with pickleball as the core offering. Then give people many reasons to spend every additional minute of their day in the facility and cancel their existing gym memberships (before work, at lunch, taking calls, after work, etc.). The club will be run on a membership basis of ~$140 a month.

Best of the Rest:

• Alton, IL has begun construction of 8 new courts at Gordon Moore Park

• Crush Yard, backed by Rob Gronkowski officially opened in Charleston