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Study: Tiger Woods
scandal may have cost sponsors' stockholders $12 billion
(December 28, 2009) Shareholders of Nike, Gatorade and other Tiger Woods
sponsors lost a collective $5 to $12 billion in the wake of the scandal
involving his extramarital affairs, according to a new study by
researchers at the University of California, Davis.
The losses are separate from - and potentially much larger than - damage
to Woods' own earnings.
"Total shareholder losses may exceed several decades' worth of Tiger
Woods' personal endorsement income," said Victor Stango, a professor of
economics at the UC Davis Graduate School of Management and co-author of
the study.
With fellow UC Davis economics professor Christopher Knittel, Stango
looked at stock market returns for the 13 trading days that fell between
Nov. 27, the date of the car crash that ignited the Woods' scandal, and
Dec. 17, a week after the golf great announced his indefinite leave from
the sport.
To assess shareholder losses, the economists compared returns for Woods'
sponsors during this period to those of both the total stock market and
of each sponsor's closest competitor.
Knittel and Stango also reviewed returns for four years before the car
accident to determine how each sponsor's market performance normally
correlates with that of the total market and of competitor firms.
The study looked at eight sponsors for which stock prices are available:
Accenture; AT&T; Tiger Woods PGA Tour Golf (Electronic Arts); Gillette
(Proctor and Gamble); Nike; Gatorade (PepsiCo); TLC Laser Eye Centers;
and Golf Digest (Conde Nast).
Overall, Knittel and Stango concluded that the scandal reduced
shareholder value in the sponsor companies by 2.3 percent, or about $12
billion.
"(This) pattern of losses is unlikely to stem from ordinary day-to-day
variation in their stock prices," the researchers wrote.
Investors in the three sports-related companies (Tiger Woods PGA Tour
Golf, Gatorade, and Nike) fared the worst, the study found. They
experienced a 4.3-percent scandal-generated drop in stock value,
equivalent to about $6 billion.
On the other hand, Accenture, a global management consulting firm,
experienced no ill effects following the accident.
"Economic theory would predict this," Knittel said. "For Tiger Woods,
having a firm like Accenture as a sponsor probably does not enhance the
overall value of the Tiger brand very much, giving Woods a lot of
bargaining power when negotiating that deal. If the company therefore
ends up paying Woods something close to its extra profit from his
endorsement, it isn't much worse off without him than with him.
"However, Nike and other premier sports-related sponsors are special for
an athlete like Tiger Woods. They are themselves powerful brands that
add value to Tiger's brand and create other financial opportunities for
him. This gives a premier sports sponsor the bargaining power to capture
some of the profits generated by an endorsement deal with Woods - so
that if the Tiger brand is tarnished, those profits may decline. Our
study measures that decline."
The pace of losses had slowed by Dec. 11, the day Woods announced his
leave from golf, Knittel and Stango found. But as late as Dec. 17,
shareholder had yet to reverse their losses.
"Our findings speak to a larger question of general interest in the
business and academic communities: Does celebrity sponsorship have any
impact on a firm's bottom line?" Stango said.
"Our analysis makes clear that while having a celebrity of Tiger Woods'
stature as an endorser has undeniable upside, the downside risk is
substantial too."
Before the scandal, Woods earned about $100 million a year in
endorsement income, more than any other athlete.
