“Close only counts in horseshoes and hand grenades” generally means that close doesn’t count; a close loss is still a loss. “Pitching horseshoes is about the only game where being ‘close’ counts” was cited in print in 1914.
 
“Elwood had a lot of good shots come close in the early and middle stages, but like they say—close counts only in horseshoes and hand grenades—and the Rebs got all the bangs” was printed in the Elwood (IN) Call-Leader on December 4, 1965. “But close doesn’t count—except in horseshoes and hand grenades” was said by Minnesota Twins pitcher Jim Kaat in 1967.
   
A similar expression is “close, but no cigar.” Variations include “Close only counts in horseshoes, hand grenades and ballroom dancing” and “Close only counts in horseshoes, hand grenades and drive-in movies.”
   
     
Wikipedia: Horseshoes
Horseshoes is an outdoor game played between two people (or two teams of two people) using four horseshoes and two throwing targets (stakes) set in a sandbox area. The game is played by the players alternating turns tossing horseshoes at stakes in the ground, which are traditionally placed 40 feet apart. Modern games use a more stylized U-shaped bar, about twice the size of an actual horseshoe.
(...)
Scoring
In horseshoes, there are two ways to score: by throwing “ringers” or by throwing the horseshoe nearest to the stake. This scoring system gives rise to the popular expression “Close only counts in horseshoes”. A ringer is a thrown horseshoe such that the horseshoe completely encircles the stake. Disputes are settled by using a straightedge to touch the two points at the ends of the horseshoe, called “heel calks”. If the straightedge doesn’t touch the stake, then the horseshoe is a ringer.
 
29 July 1914, Marshfield (WI) Times, pg. 8, col. 3:
Pitching horseshoes is about the only game where being “close” counts.
 
3 October 1921, Decatur (IL) Daily Review, pg. 6?, col. 2:
CLOSE COUNTS IN
HORSESHOES ONLY
(This is a baseball story—ed.)
 
16 August 1922, Augusta (GA) Chronicle, pg. 10, col. 4:
There’s only one place where “coming close” counts—that’s in horseshoes.
 
16 August 1955, Rockford (IL) Register-Republic, “Lowly Pirates Lead Loop In Hustling, Says Haney” by Jack Cuddy, pg. 4B, col. 5:
“Now I realize that being close only counts in pitching horseshoes and it doesn’t bring you even one more game in the win column in baseball, but it definitely does show our club is on the way up.”
(Pittsburgh Pirates Manager Fred Haney—ed.)
 
26 May 1959, Chronicle-Telegram (Elyria, Ohio), pg. 18, col. 3:
Close only counts in pitching horseshoes, so Johnny Podres can simply take his place on line as the latest among the near-miss, no-hit victims.
 
Newspapers.com
4 December 1965, Elwood (IN) Call-Leader, “Rebels Muscle ‘n Hustle Past Panthers, 72-48” by Gene Conard, pg. 6:
Elwood had a lot of good shots come close in the early and middle stages, but like they say—close counts only in horseshoes and hand grenades—and the Rebs got all the bangs.
 
7 June 1967, Fergus Falls (MN) Journal, “Killebrew Gaining with Bat in Hand” (AP), pg. 12, col. 3:
“The only thing that would make me feel better would be to have won. But close doesn’t count—except in horseshoes and hand grenades.”
(Minnesota Twins pitcher Jim Kaat—ed.)
 
26 January 1970, The Guthrian (Guthrie County, IA), pg. 2, col. 1:
Close only counts in horse shoes and grenades.
 
1 August 1971, The Plain Dealer (Cleveland, OH), “Candidates Hear Inaudible Calls” by Robert Burdock, pg. 4AA, col. 4:
Close only counts in such divertissements as horseshoes and hand grenades.
 
OCLC WorldCat record
Dove
Author: Dove (Musical group)
Publisher: Waco, Tex. : Myrrh, 1972.
Edition/Format:  Music LP : Gospel music : English
Contents:
Hand grenades & horseshoes
 
OCLC WorldCat record
Horse shoes and hand grenades : western humor and lies etc.
Author: Neal Hughs
Publisher: Quanah, Tex. : Nortex Press, ©1977.
Edition/Format:  Book : English
 
OCLC WorldCat record
CLOSE ONLY COUNTS IN HORSESHOES, HAND GRENADES, AND PATENTS?: THE SUPREME COURT UPHOLDS THE EACH-ELEMENT TEST OF THE DOCTRINE OF EQUIVALENTS AND “CLAR FIES” THE ROLE OF PROSECUTION HISTORY ESTOPPEL IN WARNER-JENKINSON CO. V.
Author: Charles Robert Lewis
Publisher: [Chapel Hill, North Carolina Law Review Association, etc.]
Edition/Format:  Article : English
Publication: North Carolina law review. 76, no. 5, (1998): 1936
Database: ArticleFirst