Golf champion Tiger Woods’ recent indiscretions have provided the media with plenty of bulletins. They also gave two UC Davis professors inspiration for a study that found the scandal has cost Woods’ sponsors’ shareholders $12 billion.
Victor Stango, an assistant professor of management in the UC Davis Graduate School of Management, said that in the wake of the Woods’ scandal most media discussions focused on the losses Woods himself would suffer. However, Stango and UC Davis associate professor of economics, Christopher Knittel, wanted to determine the losses that Woods’ sponsors, such as Gatorade, Nike and Buick, suffered.
In doing so, the study addressed the question of whether or not celebrity endorsements actually add value to a company.
“If [celebrity endorsements] did not add value, then a scandal surrounding the richest athlete in the world, in terms of endorsement income, would not influence stock prices,” Knittel said.
In order to conduct the study, the pair tracked changes in Woods’ sponsors’ stock prices after the news broke of Woods’ infidelities. Stango said that these changes measured how much stocks dropped daily and the effect on the company’s value. Through their observations of the stock prices the two professors estimated the value of Woods’ entire set of sponsors fell by 2.3 percent.
Nike, PepsiCo and Electronic Arts emerged as the greatest losers out of all of Woods’ sponsors with a 4.3 percent loss.
The results of the study showcase that celebrity endorsements do make a difference in regard to a company’s value. Findings from other researchers, such as Nielson Company, a marketing and advertising research company, appear to support this claim, as well.
Take Woods’ recent dismissal by former sponsor AT&T and Nielsen Company’s report that Woods’ last prime time television commercial aired Nov. 29. If Woods had no influence on the value of his sponsors, they would have no reason to drop him, Knittel said.
The losses Woods may suffer if other sponsors take AT&T’s lead and begin phasing him out of their advertisement campaigns would be extremely detrimental. Thanks mainly to his endorsements, Woods maintains his position as the first and only athlete to earn $1 billion dollars. Golf.com reported in 2008 Woods’ earned around $100 million with only $7.7 million coming directly from tournaments and other course activities.
Knittel and Stango created their study to concentrate specifically on Woods’ sponsors, instead of Woods himself. They produced one of the first projects to target the economic consequences of the scandal, and in doing so, attracted much media attention in the process. The study has been the source of articles and news coverage for The Huffington Post, Yahoo News and CNBC.
Apart from garnering nation-wide attention, the study has also proven to be a great real-world example of marketing, finance and economics for many of Stango’s students.
“One of the nicest things to come out of this, actually, is the positive feedback I’ve heard from some of my MBA students,” Stango said. “I plan to bring some of what [Knittel and I] learned into the classroom this winter.”
The study was conducted over the winter break, when the university was officially closed. This did not prevent UC Davis staff from playing an integral role in the study’s development.
“The PR staff took time out from their busy holiday schedules to assist us in releasing the results,” Stango said. “They really went above and beyond the call of duty.”
KELLEY REES can be reached at firstname.lastname@example.org.