Tiger Leaves Shareholders in the Rough

“While most media discussions of the economic impact of [the Tiger Woods scandal] have focused on Mr. Woods' diminished earning prospects, our estimates suggest that the losses incurred by sponsors' shareholders are at least as great as those sustained by Mr. Woods, and may be much greater.”

So sayeth Victor Stangel and Christopher Knittel, two economics professors from the University of California, Davis, in a report released yesterday.

Stangel and Knittel compared stock market returns for Woods’ sponsors between the November 27 car accident -- which set in motion the ensuing sex scandal -- and December 17 -- seven days after Woods announced he'd be taking an open-ended leave from golf.

The methodology used was described as an “event study” which is “commonly used in economics and finance to measure changes in shareholder value following unanticipated events." The researchers go on to state that “it seems plausible that the events beginning on November 27 materially affected shareholder value.”

How much did shareholders actually lose?

The data suggest a number in the range of $12 billion, or about 2.3% on average in the six publicly traded companies that had endorsement deals with the embattled golfer:
 

• Nike (NKE)
  
  
• Electronic Arts (ERTS)
  
  
• Gatorade/PepsiCo (PEP)
  
  
• AT&T (T)
  
  
• Gillette/Procter & Gamble (PG)
  
  
• Accenture (ACN)

Electronic Arts, manufacturer of the Tiger Woods PGA Tour Golf video game; PepsiCo, manufacturer of an entire line extension of Tiger Woods-branded Gatorade; and Nike, manufacturer of just about everything Woods could possibly lend his name to, were hit hardest.

Taking into account the companies’ diminished share prices compared with the 2.4% gain in the S&P 500 during the same period, the net losses were as follows:

Nike:
November 27: $65.05
December 11: $64.16
Net loss: -3.8%

Electronic Arts:
November 27: $17.01
December 11: $16.43
Net loss: -5.8%

Pepsi:
November 27: $62.30
December 11: $60.98
Net loss: -4.5%

Messrs. Stangel and Knittel wrote:
 

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.

(This) pattern of losses is unlikely to stem from ordinary day-to-day variation in their stock prices.

The non sports-related companies with ties to Woods didn’t fare as badly, but -- with the exception of Accenture -- still slid lower:

AT&T:
November 27: $26.15
December 11: $26.60
Net loss: -0.68%

Procter & Gamble:
November 27: $62.48
December 11: $63.01
Net loss: -1.55%

Accenture:
November 27: $40.51
December 11: $41.96
Net gain: +3.58%

As for Accenture and why the consulting firm didn't suffer the same losses as the others in the group studied, Knittel said:
 

Economic theory would predict this. 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.

Will Tiger Woods ever return to the salad days he once enjoyed? That’s anyone’s guess. But, the next time someone says he didn’t hurt anyone other than himself -- and you own a sizeable chunk of PepsiCo stock -- just show them your monthly statement.