Study: Tiger Costs Shareholders Billions
/UC Davis Assistant Professor Victor Stango has studied stock market tendencies, stock value and the timeline of Tiger's accident, concluding (PDF) that significant shareholder losses resulted from the ensuing saga.
We estimate that shareholders of Tiger Woods’ sponsors lost $5-14 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.
The losses that we measure are distinct from any personal losses suffered by Mr. Woods in the form of lower current and future endorsement income. The total economic loss associated with the scandal is the sum of the two: the direct losses to Mr. Woods and the spillover losses suffered by shareholders of his sponsors. Our estimates of the latter are a cost associated with Tiger Woods’ actions that was likely ignored when he chose to make his “transgressions.”Mr. Woods’ sports-related sponsors seem to suffer more than his other sponsors. That is to be expected. 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.
On the other hand, 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 be 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.
Finally, we should caution that our estimates are statistically ‘noisy,’ in that they could be significantly higher or lower than the numbers we report. One must make that caveat in any statistical study like this, and in our case the statistical margin of error is particularly large in part because Mr. Woods’ sponsors are (with the exception of Nike and EA) subsidiaries of larger parent companies.
