POSTED: December 28th 2009

Tiger Woods scandal price tag for shareholders could hit $12bn

Woods' endorsements have brought him around $100m annually / Image: fotosports
Woods' endorsements have brought him around $100m annually / Image: fotosports

LAURA WALDEN / Sports Features Communications

TAMPA, Dec. 28: According to a new study issued by The University of California, Davis the economic tsunami of the Tiger Woods scandal could reach up to $12bn for shareholders of Nike, Gatorade and his other sponsor entities.

Two economics professors from UC Davis Graduate School of Management, Victor Stango and Christopher Knittel, co-authored the study assessing the market returns for 13 trading days starting from Nov. 27th the date of Woods' car incident and Dec, 17th one week after he announced his break from the sport.

This does not include estimates of personal losses for the billion dollar golfer with top dollar sponsorship contracts being put under scrutiny.

“Total shareholder losses may exceed several decades’ worth of Tiger Woods’ personal endorsement income,” said Stango.

The economists compared the returns for Woods’ sponsors during the interim for the total stock market and each of the sponsor’s closest competitors. They also took into account the four years prior to the car incident to calculate how each sponsor normally correlates with the total market and their competitors.

The study was based on nine sponsors with publicly available stock prices: Accenture; American Express; AT&T; Tiger Woods PGA Tour Golf (Electronic Arts); Gillette (Proctor and Gamble); Nike; Gatorade (PepsiCo); TLC Laser Eye Centers; and Golf Digest (News Corp.).

Sobering reality

It was deduced that the golfer’s scandal reduced shareholder value in the sponsor companies by approximately $12bn or 2.3 percent overall.

Reaction has been that Gillette and AT&T took their distance from the issues as Gillette said they will cut back on his marketing role and AT&T is reconsidering a logo sponsorship for his golf bag.

Faring the worst were investors in the three sports oriented companies Nike, Gatorade and the Tiger Woods PGA Tour Golf. These were hit by a 4.3 percent drop in value cashing in at a staggering $6bn.

Knittel said, 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.”

Pros and Cons of celebrity athletes

Prior to the revelations of the scandal Woods was signing about $100m annually in sponsorship endorsements topping any other athlete.

Stango noted, “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?

“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.”

To note, Accenture, a global management consulting firm, did not undergo a loss due to the scandal.

“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.”

Tiger Woods turns 34 on December 30th and has not confirmed how long he plans to stay away from the golfing circuit.

Link to the report :

Keywords · Tiger Woods · Accenture · American Express · AT&T · Tiger Woods PGA Tour Golf (Electronic Arts) · Gillette (Proctor and Gamble) · Nike · Gatorade (PepsiCo) · TLC Laser Eye Centers · Golf Digest (News Corp.)

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