Tiger Woods costs shareholders $5-12 billion

January 3, 2010



Reuters recently reported that the Tiger Woods sex scandal may have cost shareholders of companies endorsed by him between $5-12 billion USD in losses.  The article referenced a study written by University of California, Davis Associate Professor of Economics Christopher R. Knittel and Assistant Professor of Management Victor Stango sublimely entitled Shareholder Value Destruction following the Tiger Woods Scandal

The professors followed the stock market returns for the 13 trading days after November 27 when Woods’ SUV struck a fire hydrant and ignited the scandal.  The companies examined included Accenture, AT&T, Tiger Woods PGA Tour Golf (Electronic Arts), Gillette, Nike, Gatorade, TLC Laser Eye Centres and Golf Digest.  They measured these company’s losses relative to both the stock market as a whole and a control group of competitor firms which are not endorsed by Tiger Woods (i.e. Reebok rather than Nike).  Knittel and Stango also tracked the returns from 1 January 2005 to 17 December 2009 to estimate how each sponsor’s returns normally co-vary with market and competitor firms.  The study was limited by the difficulty in calculating losses to a sponsor which is a subsidiary of a parent company (i.e. Gillette is part of Proctor and Gamble which has a market value approaching $150 billion USD) which gave rise to a statistical margin of error that was particularly large. 

The bottom line is that there was a drop of 2.3% or a loss of approximately $12 billion USD in shareholder value for the full group of sponsors.  The authors break down the losses further by sub-groups.  For example, the ‘Big Five’ companies (Accenture, EA, Gatorade, Gillette and Nike) which comprise Tiger Woods’ largest endorsement deals lost 2.4% or $8.11 billion USD in market value while just EA, Gatorade and Nike dropped 4.3% or $5.71 billion USD.  They describe the results as statistically significant and that the overall pattern of losses was unlikely to stem from ordinary day-to-day variations in their stock prices.

The story isn’t just about Accenture and AT&T dumping Tiger Woods and the extent to which it will dent his nearly $100 million in annual earnings.  Nor is it about those companies who continue to maintain a relationship with him as epitomized by the curious ‘Tag Heuer stands by Tiger Woods’ website banner. 

It is about the value sponsorship of a sports superstar can bring to or take away from a company’s bottom line.  Tiger Woods is a one-of-a-kind sports marketing juggernaut who made the markets move.  Given that this study showed the shareholder value of a positive association with a premium sports brand and also the risks it brings when things go south, it will be interesting to see how sponsorship contracts are negotiated in the future.

The full report can be found here – http://faculty.gsm.ucdavis.edu/~vstango/tiger003.pdf

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