Spurious academic study of the day, Tiger Woods edition

By Felix Salmon
December 28, 2009
concluded 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 $5-14 billion in wealth.

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You knew it had to happen at some point: a couple of economics professors at UC Davis have done an “event study” of the Tiger Woods news cycle, and concluded 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 $5-14 billion in wealth.

This is silly stuff, of course: not only are the error bars larger than the estimated losses, but a huge proportion of those multi-billions comes from the decline of the share price of enormous companies like P&G, which had just one exposure to Tiger Woods through its Gillette subsidiary. Drawing a causal relationship between the Tiger Woods scandal and fluctuations in P&G’s share price is simply impossible.

What’s more interesting to me is that the numbers got weirdly changed when the UC Davis PR department got its hands on them and led not with the $5 billion to $14 billion range, nor with the $14 billion maximum figure, but rather with this:

Tiger Woods Scandal Cost Shareholders up to $12 Billion

I have no idea where the $12 billion number came from, as distinct from the $14 billion number in the study. But that’s the number that the WSJ’s Stephen Grocer decided to go with as well.

And how do the authors explain away the inconvenient fact that Tiger’s highest-profile sponsor, Accenture, saw no losses at all? You’re going to love this one:

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.

This is completely bonkers. For one thing, the authors — Christopher Knittel and Victor Stango — have already pegged the value of the Accenture contract at $20 million a year — the same amount as the Gatorade contract, and less than the Nike contract. They then go on to say that the harm to Accenture of losing Tiger is unlikely to be much more than the $20 million that Accenture was paying him. Which might make some sense, if it wasn’t for the fact that they’re pegging the harm to everybody else of losing Tiger at $12 billion. (Or $5 billion, or $14 billion, or, well, just pull a number out of thin air, really.)

Accenture is clearly the biggest loser from the whole Tiger affair: it has to scrap its entire global marketing strategy and start from scratch. What’s more, Accenture’s total Tiger-related marketing spend is vastly greater than the $20 million a year it’s paying Tiger personally. The company has run into a large unexpected tail event, in a way that Nike and Gatorade haven’t. Those companies sponsor lots of athletes: one more or less has an affect at the margin, but that’s about it. If the Tiger scandal had no visible effect on the Accenture share price, you can be sure it had no effect elsewhere.

Update: Mike Konczal finds the real reason why P&G stock fell after Tiger Woods scandal erupted. Nothing to do with Tiger, and everything to do with revised earnings estimates.


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Well done for pointing out such a ridiculous conclusion on the part of the UCDavis team! I’m not sure how something so obviously wrong could have been published by them and have got past the most basic of smell tests!

Of course what is really difficult to tell in today’s day and age whether the publicity (“Hey, there’s no such thing as bad publicity in the PR world!”) that Accenture and Gatorade got due to the Tiger scandal will be net negative or even positive from the higher brand recall that many readers will experience! I would love to read a study that has found a way to determine this!

In the meantime, it’s good to see that at least someone will benefit from the scandal

wallstworker @ http://the-moneyverse.blogspot.com/2009/ 12/does-association-with-tiger-really-hu rt.html

Posted by wallstworker | Report as abusive

If only UC Davis had a share price, we’d be able to measure how much this press release has benefited them.

Posted by LeighCaldwell | Report as abusive

Perhaps this is indicative of the overall economic mess we’re in given that these academic economists have no clue how to value something. I pity their students entering the job market.

As to their Acceture theory, if Tiger were to capture all the excess profit his endorsement generates, then why would Accenture bother with him?

Do they honestly believe that people would sell stock in company based on an endorser’s behavior?

I agree that Accenture is clearly the biggest loser, but for reasons of who the target audience is. It’s hard to imagine that Gillette or Gatorade would suffer as much. In fact, one could make a case that tying their products to Tiger’s non-sports activities might actually boost their sales (use our razor and attract someone like Tiger’s girlfriends).

It would be an interesting experiment to see how proficient the public is with connecting products with their endorsers.

Posted by MikeK | Report as abusive

Why would anyone care anyway? Who is Woods? Did he invent cancer cure, or new clean energy source, or (like Al Gore) the Internet? He’s good (admittedly, very good) at the game of golf, but it’s just that – a game, nothing more than that. I would care about his endorsement only if it’s something related to the game of golf, and even then with a grain of salt, because what’s good for an accomplished professional is not necessarily good for a not-so-skilled amateur, and vice versa. The money companies spend on celebrity endorsements would be much better spent on R&D – at least that’s what can make their product better.

Posted by An0nym0us | Report as abusive

“effect”, not “affect at the margin”

Posted by MpressiveNglish | Report as abusive

Your blog makes exellent points, missed by so many media outlets who ran the release virtually word for word. My marketing students have learned much from the Tiger Woods case study in PR mgt., and the lessons will continue next semester with the UC Davis release and your blog (with the word use error corrected of course).

Posted by CSUSmktgfac | Report as abusive