Tiger Woods' Woes Cost Endorsers $5 Bill To $12 Bill In Wealth
Tiger Woods receives winner's check for 2006 Ford Championship at Doral. Wilfredo Lee/AP Photo hide caption
Tiger Woods receives winner's check for 2006 Ford Championship at Doral.
Wilfredo Lee/AP PhotoWe know that Tiger Woods' indiscretions have had a incalculable emotional cost on his family. He's admitted as much.
But what have the financial costs been on his endorsers?
According to two economists, the costs to marketers who have used Woods to pitch their products have been staggering. Christopher Knittel and Victor Stango, both of the University of California, Davis, estimate the costs at $5 billion to $12 billion in market value, or shareholder wealth.
As if Woods didn't have enough to worry about already, does this study now mean he needs to be concerned about some investors, using this economic paper as a basis, filing a class-action lawsuit against him for letting his bad behavior harm their portfolios?
The abstract from their study explains their findings this way:
We estimate that in the days beginning with Tiger Woods' recent car accident and ending with his announced "indefinite leave" from golf, shareholders of companies that Mr. Woods endorses lost $5-12 billion in wealth. We measure the losses relative to both the entire stock market and a set of competitor firms. Because most of the firms that Mr. Woods endorses are either large or owned by large parent companies, the losses are extremely widespread. Mr. Woods' top five sponsors (Accenture, Nike, Gillette, Electronic Arts and Gatorade) lost 2-3 percent of their aggregate market value after the accident, and his core sports-related sponsors EA, Nike and PepsiCo (Gatorade) lost over four percent. The pace of losses slowed by December 11, the date on which Mr. Woods announced his leave from golf, but as late as December 17 shareholders had not recovered their losses.
I'm no economist but the $7 billion range on this study seems pretty vast. The economists acknowledge that their study may be off by a significant amount:
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.
For those interested in the methodology, here's part of the economists' explanation:
To estimate shareholder losses following November 27, we estimate an event study. What an event study does is quite straightforward: after a discrete event (here, the accident), it compares stock market returns for affected firms (here, the sponsors' parent companies) to stock returns for a group of 'control' firms. Comparing to control firms is important because after any event, stock prices may move for reasons having nothing to do with the event. Presumably, those changes will be felt by both the affected firms and control firms. One therefore can view the difference between affected and control returns as measuring the effect of the event.