An analysis of stock market returns following Tiger Woods' car accident on Nov. 27 and announcement that he is leaving golf for an indefinite period suggest the scandal has cut shareholder value in the golfer's sponsor companies by a collective $5 to $12 billion, with sports-related companies faring the worst.
The losses are separate from -- and potentially much larger than -- damage to Woods' own earnings.
"Total shareholder losses may exceed several decades' worth of Tiger Woods' personal endorsement income," says study coauthor Victor Stango, a professor of economics at the University of California, Davis.
Anne Green, senior vice president for marketing solutions at global research firm Millward Brown, tells ConsumerAffairs.com that "consumers can be very fickle" when it comes to celebrity product endorsers. She says they can be "very quick to pick up on the negative press" surrounding a product spokesman and "transfer that to brands that are most prominently associated with that individual."
Stango and fellow economics professor Christopher Knittel looked at stock market returns for the 13 trading days that fell between Nov. 27, the date of Woods' car crash and Dec. 17, a week after the golfer 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 stock market and of each sponsor's closest competitor.
Knittel and Stango also looked at 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;, which has since dropped Woods; Tiger Woods PGA Tour Golf (Electronic Arts); Gillette (Proctor and Gamble); Nike; Gatorade (PepsiCo); TLC Laser Eye Centers; and Golf Digest (Conde Nast).
Overall, they 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 write.
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 explains. "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."
He notes however, that "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."
The pace of losses had slowed by Dec. 11, the day Woods announced his leave from golf, Knittel and Stango note. 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 says. "Our analysis makes clear that while having a celebrity of Tiger Woods' stature as an endorser has an undeniable upside, the downside risk is substantial too."
For this reason, says Millward Brown's Green, companies need to be "really smart about doing their homework" when selecting a product pitchman. In other words, she says, "the need to really understand what that person stands for, who their fan base is, what values they are associated with.
At the same time, Green adds, the companies also need to bear in mind that "that individual is a human being and, as such, is subject to mistakes."
Before the scandal, Woods earned about $100 million a year in endorsement income -- more than any other athlete.
