Tiger Woods Scandal Cost Shareholders up to $12 Billion

Dec 29, 2009

(PhysOrg.com) -- Shareholders of Nike, Gatorade and other Tiger Woods sponsors lost a collective $5 to $12 billion in the wake of the scandal involving his extramarital affairs, according to a new study by researchers at the University of California, Davis.

The losses are separate from - and potentially much larger than - damage to Woods’ own earnings.

“Total shareholder losses may exceed several decades’ worth of ’ personal endorsement income,” said Victor Stango, a professor of economics at the UC Davis Graduate School of Management and co-author of the study.

With fellow UC Davis economics professor Christopher Knittel, Stango looked at stock market returns for the 13 trading days that fell between Nov. 27, the date of the car crash that ignited the Woods’ scandal, and Dec. 17, a week after the golf great announced his indefinite leave from the sport.

To assess shareholder losses, the economists compared returns for Woods’ sponsors during this period to those of both the total and of each sponsor’s closest competitor.

Knittel and Stango also reviewed returns for four years before the car accident to determine how each sponsor’s market performance normally correlates with that of the total market and of competitor firms.

The study looked at eight sponsors for which stock prices are available: Accenture; AT&T; Tiger Woods PGA Tour Golf (Electronic Arts); Gillette (Proctor and Gamble); Nike; Gatorade (PepsiCo); TLC Laser Eye Centers; and Golf Digest (Conde Nast).

Overall, Knittel and Stango concluded that the scandal reduced shareholder value in the sponsor companies by 2.3 percent, or about $12 billion.

“(This) pattern of losses is unlikely to stem from ordinary day-to-day variation in their stock prices,” the researchers wrote.

Investors in the three sports-related companies (Tiger Woods PGA Tour Golf, Gatorade, and Nike) fared the worst, the study found. They experienced a 4.3-percent scandal-generated drop in stock value, equivalent to about $6 billion.

On the other hand, Accenture, a global management consulting firm, experienced no ill effects following the accident.

“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.

“However, 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.”

The pace of losses had slowed by Dec. 11, the day Woods announced his leave from golf, Knittel and Stango found. But as late as Dec. 17, shareholder had yet to reverse their losses.

“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?” Stango said.

“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.”

Before the scandal, Woods earned about $100 million a year in endorsement income, more than any other athlete.

Explore further: Moving to the 'burbs is bad for business: Study reveals a surprising truth about location

More information: The UC Davis study is available online at: faculty.gsm.ucdavis.edu/~vstango

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User comments : 14

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joekid
3.7 / 5 (7) Dec 29, 2009
this is not science or tech, and really not any of my business. Leave the man alone and stop jumping on the old bitty gossip bandwagon.
Drumguy
4.5 / 5 (4) Dec 29, 2009
Must have been really good sex! But seriously, I agree with joekid; how is this tech or science?
designmemetic
not rated yet Dec 29, 2009
I thought the stock market money just moved to other brands. The money didn't disapear, other stocks went up as the money moved. Would it be fair to say the tiger woods scandal resulted in 12 billion dollars being spread around to everyone else. I imagine investors might have left the sports sector completely and added incrementally to the stock price of other funds such as involved in agriculture or transportation.
Yes
not rated yet Dec 29, 2009
Playing on the stock market is like gambling on horses.
The horses are not to be blamed for loosing and keep running after failing. Unless they are unable to run.
Why does this man stops playing golf? It is his job isn't it? Or is he suddenly unable to work?
jimbo92107
4.7 / 5 (3) Dec 29, 2009
Where's the science angle? Tiger's new swing?

Come on guys, you've got a fun science site here. Keep the gossipy crap out, okay?
SincerelyTwo
not rated yet Dec 29, 2009
Tiger woods is already rich, what ever. Also, such a significant portion of an industry being built over a single persons talent should have sent red flags across the board, the risk was high when that process got started, people investing when it was already peaking were acting out of desperation, you don't invest large sums of money when indicators are screaming at you for months "OVERBOUGHT! OVERBOUGHT!". Time for some consolidation opening up new opportunities to those observing well. :]
Rynox77
3 / 5 (1) Dec 29, 2009
I thought the stock market money just moved to other brands. The money didn't disapear, other stocks went up as the money moved. Would it be fair to say the tiger woods scandal resulted in 12 billion dollars being spread around to everyone else. I imagine investors might have left the sports sector completely and added incrementally to the stock price of other funds such as involved in agriculture or transportation.


Maybe, but the economy is not a zero-sum game: Wealth does appear and disappear out of nowhere. In science the rules are much different, i.e. energy is never lost or gained... not so in the economy.
GrayMouser
5 / 5 (1) Dec 29, 2009
Maybe, but the economy is not a zero-sum game: Wealth does appear and disappear out of nowhere. In science the rules are much different, i.e. energy is never lost or gained... not so in the economy.

I disagree, the wealth you refer to can be confused with value which is less real. A company I worked for took a annual lose because of the loss of market image associated with their name (due to bad management) but had not lost any real, or material, wealth. It's a game the MBAs like to play when they can't make real money.
Paradox
5 / 5 (1) Dec 30, 2009
Wealth does appear and disappear out of nowhere.


Not so. People sell stocks in those companies, so the company looses money or those who would have invested just don't invest. The money didn't just "disappear", it's not Magic.
Mr_Frontier
5 / 5 (1) Dec 30, 2009
If you all look up at the top of the page, you can see this is in -Other News->Economics-. Therefore, however ridiculous and unscientific some articles can be, this one does have a place here and it presents some minute economic theory.
marjon
5 / 5 (1) Dec 30, 2009
It ties into another recent story on physorg about the hypocrisy of the rich and powerful.
I guess it comes down to how such power is obtained. If the power depends upon fan approval, trust matters. If it depends upon political power, trust does not seem to come into play based upon the trustworthiness of our politicians.
Oliver_k_Manuel
5 / 5 (1) Jan 02, 2010
How do i get thousands of people to put up 1.2 billion earth dollars for me to have sex with some gold digging wenches
Bob_B
not rated yet Jan 04, 2010
Media hype and total BS. The issue is between he and his wife/family. Why does this stuff excite us? Why does this stuff make you feel better? Do you run to bathroom to beat off or finger it?

Wacko world stuck on other peoples misery and sex problems.
light_echo123
not rated yet Jan 05, 2010
The profits they "anticipated" were lost, not anything that actually belonged to them, so the story is a lie for sensationalisms sake.