Now that everyone has speculated on how many millions Tiger Woods stands to lose — between a possible divorce settlement, earnings, lost endorsement dollars, lawyers’ fees, hush money, etc. — apparently it’s time to assess how much Tiger’s transgressions have cost thousands of innocent shareholders (one of which could be you!) of Tiger’s sponsors. After conducting what appears to be a somewhat abstract “event study” of the Tiger Woods Scandal Land news cycle, UC Davis economic professors Christopher R. Knittel and Victor Stango concluded the following:
We estimate that shareholders of Tiger Woods’ sponsors lost $5-12 billion after his car accident, relative to shareholders of ﬁrms that Mr. Woods does not endorse. The losses are both economically substantial and widespread across many millions of shareholders.
So, you see, Tiger’s philandering hasn’t just hurt his family and business partners, but ordinary citizens who happen to own stock in these companies that irresponsibly decided to pay him millions to promote their product. For those that were planning to sell their shares of Nike this week to pay your kids’ college tuition, you’re totally screwed! Poor little Johnny and Sally. Rather than pursuing their dreams of attending Yale next year, they’ll have to pick up two part-time jobs and settle with community college for the time being.
Seriously speaking, I’m not an econ buff by any means. I’m not even good at math (despite what stereotypes may suggest), but the study’s conclusion sounds much more like a wild guess than any sort of definitive conclusion. I mean, $5 billion to $12 billion builds in a huge margin for error (and of course, most news outlets have chosen the higher number in their ledes).
With the exception of Nike and Electronic Arts, the companies are subsidiaries of larger parent companies — which the study does point out in an effort to explain the $7 billion margin for error. Ah, if it were only that simple. For example, it might be worth noting that while Tiger is a key endorser of Nike, the golf division makes up a very small component of the sportswear dynasty. A look at Nike’s last quarterly report reveals that the total company revenue was $4.8 billion, but “other businesses,” which include Nike Golf, Cole Haan, Hurley and Umbro, only comprised $360 million of the $4.8 billion total. As for Proctor & Gamble, its only relationship with Tiger was through its Gillette subsidiary (which represents a similarly small piece of the revenue/profit pie). So, it is absurd to infer such a strong direct relationship between the variations in P&G’s market value and the bad Tiger press.
The study also found that shareholders of Tiger’s sports-related sponsors (EA, PepsiCo, and Nike) fared the worst. Those stocks dropped 4.3 percent, shedding approximately $6 billion in the companies’ value…all because Tiger admitted to stepping out on his marriage. The economists explain:
Nike and other premier sports-related sponsors are special for an athlete like Tiger Woods, because they are themselves unique brands. It is likely that partnering with Nike adds a substantial premium to the value of the Tiger brand, and creates other ﬁnancial opportunities for Mr. Woods. If so, then Nike should have enough bargaining power to itself capture some of the proﬁts generated by partnering with Tiger Woods. It is the decline in those proﬁts measured by our event study.
Catch the “It is likely that…” at the beginning of the second sentence? Sneaky! IF partnering with Nike adds a substantial premium to the value of the Tiger brand (which I believe is a debatable point), THEN Nike should have the bargaining power to capture profits generated by partnering with Tiger. It begs the question whether that is a connection strong enough to warrant the assertion that the scandal injured Nike shareholders to the extent they allege in the study, but how many Americans will actually read past the headlines?
Now for the most mind-numbing portion of the study. Apparently Accenture, the most visible Tiger sponsor given its main marketing campaign was developed around him, suffered no decline in market value:
Economic theory predicts that Mr. Woods should be able to capture nearly all of the excess proﬁt generated by his endorsement of a ﬁrm like Accenture. For Tiger Woods, having Accenture as a sponsor probably does not increase the overall value of ‘the Tiger brand’ all that much. Mr. Woods should therefore have a lot of bargaining power when negotiating that deal, and may be able to extract a payment very close to Accenture’s incremental proﬁt from the relationship. And if Accenture is paying Mr. Woods something very close to its extra proﬁt from his endorsement, it is not much worse off without him than with him. Indeed, our estimates show no ill effect at all for Accenture after the accident.
Again, if it were only that simple. In theory the assertion is correct – if the amount Tiger is paid by Accenture mirrors the extra profit his endorsement brings to the company, the result of losing his endorsement shouldn’t “cost” the company anything. Yes, theory is beautiful – in theory, you can ignore certain other facts, such as (1) Tiger may have already been paid for future profits to be driven by his endorsement and (2) the impact of Tiger’s poor judgment may have a negative impact on its current revenue stream in addition to eliminating any prospect of future endorsement-driven profits.
As a consulting company that rebranded itself in 2001 (formerly Andersen Consulting), Accenture plastered its Tiger Woods campaign and its “Be a Tiger” tagline all over airports worldwide to highlight Tiger’s sound decision-making, keen judgment and excellence in performance — the same qualities that Accenture claimed its services would provide for its clients.
Given that Tiger no longer exemplifies those qualities to the public, Accenture is now systematically tearing down the Tiger ads in an airport near you (which apparently is taking a while, as they’re still seen in multiple locations) before you get a chance to laugh at how ironic the entire campaign now appears. Marketing may not have as much of an impact on consulting revenue as it does on, say, sales of Gatorade or Gillette razors, but it seems ridiculous to assume that this whole debacle isn’t hurting the bottom line of Accenture in some way while also assuming it has caused the other companies to shed billions in value at the exact same time.
While it may look like an informed and scientifically grounded study, careful scrutiny reveals that the result is just another example of wild speculation in the midst of the Tiger scandal. Without isolating all of the variables that could have an impact on stock price and evaluating the effect of each, the study focused on one and assumes the rest. Basically, it seems the conclusion had already been reached before the study began and the data was evaluated as needed to produce the desired result.
And that’s what we call irresponsible, rumor-mongering academic research.