Do Sport Sponsorship Announcements Influence Firm Stock Prices? The Wall
Street Journal Effect.
Lance Kinney, Ph.D.
Advertising and Public Relations
University of Alabama
Tuscaloosa, AL, USA
Financial Data Specialist
College of Business Administration
University of Alabama
Tuscaloosa, AL, USA
Please direct correspondence to: Lance Kinney, Ph.D.
Advertising and Public
University of Alabama
Tuscaloosa, AL USA 35487-0172
FAX: (205) 348-2401
[log in to unmask]
Do Sport Sponsorship Announcements Influence Firm Stock Prices?
The Wall Street Journal Effect.
Event sponsorship is among the fastest growing areas of marketing
communication. Sponsorship funds exceeded the 2001 expenditures for cable
television, syndicated television, national newspaper, outdoor, national
spot radio, Sunday magazines and network radio combined. However,
measuring the value of sports sponsorship is a consistent problem for event
producers and event sponsors. Event study methodology allows event and
sponsoring brand managers to assess the impact of sports sponsorship
announcements on financial markets. In this research, 61 sports event
sponsorship announcements were located in the Wall Street Journal using the
Dow Jones Interactive database. Stock prices for each sponsoring firm were
retrieved from the CRSP database at the University of Chicago. Stock
prices for sponsoring firms were compared to the overall market. While no
general sponsorship effect is observed, a significant increase in firm
stock price is noted for firms sponsoring the Olympic Games and baseball
events. Significantly positive results are also observed for announcements
reporting the rights fees paid for the sponsorship. Contrary to previous
research, a significant effect is noted for non-functionally congruent
The proliferation of sports event sponsorship opportunities, the amount of
money flowing from marketers to event sponsorship and the development of a
body of academic literature dedicated to cataloging various sports
sponsorship objectives, strategies, tactics and effects attests to its
acceptance by marketers as a viable integrated marketing communication
strategy (Cornwell and Maignan 1998). Originally considered unusual or
innovative, sports sponsorship may now be as common as more traditional
marketing communication strategies as burgeoning sports leagues compete
with established leagues for sponsor funds. Overlapping football,
basketball, baseball and hockey seasons in the United States provided 200
professional sports events during October 2000 (Petrecca 2000). Sports
saturation has resulted in declining television ratings, yet sports
sponsorship spending continues to rise. However, some prominent sponsors
are beginning to back away from sponsorship; IBM announced its long
affiliation with the Olympics would end with the 2000 Summer Olympic Games
in Sydney, Australia (Elkin 2000). Even marketing behemoth Coca-Cola is
questioning the value of sports sponsorship relative to its escalating
costs (Fatsis 1998).
A variety of consumer-oriented objectives are often associated with sports
event sponsorship, including increasing brand awareness and brand image, as
well as the ability to use promotional tie-ins and sampling at sports
events (Cunningham and Taylor 1995; Levin 1993; Nicholls, Roslow and Laskey
1994; Schreiber 1994; Shanklin and Kuzma 1992). By carefully selecting
events to sponsor, marketers gain exposure to difficult to reach target
markets and demonstrate a commitment to supporting the target's lifestyle
and interests (Jensen 1994; Schreiber 1994). In addition to consumer
objectives, Sandler and Shani (1993) note that other objectives can be
served, including corporate image building or media exposure. Internally,
event sponsorships may be used to instill pride in the organization's work
force and motivate staff (Grimes and Meenaghan 1998). A technique often
used to assess event sponsorship success is to compare the exposure
generated by the event association with the cost of purchasing similar
levels of advertising time or space. For example, if a sponsorship
requiring a $1 million commitment produced the equivalent of $5 million of
advertising exposure, the sponsorship may be considered a success,
depending upon the sponsor's objective.
Many of these objectives are long-term, intervening variables objectives
that offer little immediate justification for the expenses of incurring the
sponsorship and the subsequent expenditures required to support the
sponsorship investment (Crimmins and Horn 1996). Also, these objectives
are removed from sales measures. The development of more sophisticated,
quantitative evaluation techniques is the primary challenge facing
marketers wishing to sponsor events (Freidman 1999). Meenaghan (1999) also
notes that corporate sponsors will be looking for more tangible proof of
delivered value, if sponsorship is to sustain its rapid growth. Event
study methodology (ESM) offers sponsors a more immediate, alternative
assessment of a sponsorship's perceived value to the investment community.
In the following sections, a formal definition of sports sponsorship is
offered, along with a brief review of ESM and its appropriateness for
marketing communication strategy research. A pool of sports sponsorship
announcements is gathered and ESM is applied to assess the perceived value
of sports sponsorship. Results are presented and discussed, along with
recommendations for future sponsorship research.
Review of Literature
Sports sponsorship, sometimes known as event marketing, may be defined as
"a cash or in-kind fee paid to a property in return for access to the
exploitable commercial potential associated with that property" (Ukman p.
1, 1995). Recent estimates note the phenomenal growth of event sponsorship
as a marketing communication strategy. Expenditures across all types of
events, including sports, cultural and other types of events, were
estimated at $23.6 billion for 2002, a 3% increase over 2001 spending
levels. The majority of this spending, 67 percent, is allocated to sports
events (www.sponsorship.com). This staggering figure illustrates why
event sponsorship is one of the fastest growing areas of marketing
communication. According to Advertising Age, sponsorship funds exceed the
2001 expenditures for cable television, syndicated television, national
newspaper, outdoor, national spot radio, Sunday magazines and network radio
combined (U.S. ad spending totals 2002).
Event Study Methodology
Event study methodology (ESM) offers sponsoring marketers from publicly
traded firms an opportunity to move beyond consumer-based, indirect
intervening variables effectiveness assessment. A more immediate indicator
of the perceived value of the sponsorship could be observed in the firm's
stock price as traded on any number of stock exchanges. As noted by Lane
and Jacobson (1995, p. 67) ESM is believed to provide an unbiased estimate
"of future long-term earnings." Excess stock return measures the
difference between the actual return and the expected return if the event
had not occurred.
ESM assumes a theory of efficient capital markets based on public
information exchange (Fama et al. 1969). At any point in time, a publicly
traded company's stock value reflects the trading public's perception of
all available information about the firm. This perceived value is made
tangible in the firm's stock price. New information is quickly
disseminated and acted upon by the investment community. If information is
released that investors think bodes well for a firm's future, capital will
rush to the firm, thereby increasing the firm's stock value. Conversely,
information perceived as negative may result in selling activity, perhaps
devaluing or destabilizing the firm. Of course, information could be
perceived as inconsequential and produce no significant change in the
firm's stock price. ESM research entails isolating the date of the
information release, then examining stock prices adjacent to this time
period. The excess value created by significantly positive information is
called the cumulative abnormal return, or CAR (Agrawal and Kamakura 1995).
ESM, Marketing and Advertising
ESM has been used to assess the impact of marketing and advertising
information. Horsky and Swyngedouw (1987) report that company name changes
produce significantly positive abnormal returns. They theorize that name
changes signal to potential investors that important changes loom that
should result in profitable returns. Chaney, Devinney and Winer (1991)
report significant abnormal returns associated with new product
introduction announcements for technical firms, most notably for
introductions of genuine innovations, as compared to brand extensions and
repositioning of existing brands. Bobinski and Ramirez (1994) review the
influence of investor relations advertising appearing in the Wall Street
Journal. Overall results are inconclusive, but significant effects are
noted for small cap firms, suggesting the new visibility generated by
advertising might pique the interest of investors who were previously
unaware of the firm.
Agrawal and Kamakura (1995) note significant abnormal returns associated
with announcements of celebrity endorsement contracts. They write, "...
results clearly indicate a positive impact of celebrity endorsements on
expected future profits, which lends objective, market level support to the
use of celebrities in advertising" (p. 60). The value of the celebrity is
most clearly observed in Mathur, Mathur and Rangan's (1997) ESM analysis of
Michael Jordan's return to professional basketball following his foray into
minor league baseball. Jordan's announcement alone was enough to add value
to firms benefiting from his endorsement. Mathur and Mathur (1995)
investigate advertising slogan change announcements for 87
firms. Significant effects are observed within 10 days of the
announcement. Their analysis suggests slogan changes increased firm value
from $6 - $8 million. Mathur and Mathur (1996) also note significant
wealth effects associated with the announcement of some types of alliances
between clients and ad agencies, as do Rutherford, Thompson and Stone
(1992). Consolidation, new business activities, agency prestige and
account size seem to impact publicly traded ad agency stock prices.
ESM and Sports Sponsorship
The authors of this research are aware of at least two other academic
research inquiries into the relationship between sports sponsorship and
stock prices. Mathur and Mathur (1997) investigated the impact of Michael
Jordan's announcement as a result of his celebrity, rather than his
sporting activities, however, it seems difficult to separate one from the
other. Similarly, Agrawal and Kamakura (1995) also note that many of the
endorsements they review are for sports apparel endorsed by athletes,
however, their research is not sports specific. Cornwell, Pruitt and Van
Ness (2001A) use ESM to investigate the impact of winning a high profile
automobile race on the winning racing team's publicly traded sponsor
partners. They note that several controllable and uncontrollable variables
impact stock price, especially brand/event congruency. Sponsoring brands
functionally congruent with auto racing, such as motor oil and gasoline
additives, may derive significantly more benefit than functionally
incongruent sponsor brands.
Miyazaki and Morgan (2001) investigated brands sponsoring the 1996 Summer
Olympic Games in Atlanta, Georgia. While they note significant impact for
some sponsors, they do not find an overall general effect. They conclude
that their non-significant findings may indicate that the investment
community thinks sponsorships are appropriately valued, acceptable
activities that should enhance long-term corporate objectives. Similarly,
Hilsenrath (1996) reports no significant stock impact during the Atlanta
Games. Hilsenrath did not use ESM to investigate stock prices, nor was
this research reported in a peer-reviewed, academic journal.
Our objective is to analyze the broadest array of sports sponsorship
announcements possible, rather than specific sports events. A review of
extant literature did not produce a review of general sports sponsorship
and stock prices, so the research of Agrawal and Kamakura (1995) regarding
celebrity-based advertising was adopted as the model for the research
reported here. As a start, the following research question is addressed:
RQ1: Does the announcement of a firm's intention to sponsor a sports event
increase the stock value of publicly traded companies?
While other ESM research has been published examining an auto race
(Cornwell, Pruitt and Van Ness 2001A) and the Atlanta Olympic Games
(Miyazaki and Morgan, 2001), the research reported here considers the
possibility that investors might respond more favorably to sponsoring some
sports as opposed to others. Since companies listed on American stock
exchanges are used for this research, there may be a bias toward sports
more popular in America, especially American-style football, baseball and
basketball, suggesting the following research question:
RQ2: Are some sports perceived by investors to be better sponsorship
The next research question concerns the amount of information in the
coverage of the event's announcement. Investors may be able to more
accurately assess the sponsorship's potential if the announcement describes
the brand's plan for leveraging the event (Mathur and Mathur 1996).
RQ 3: Does the length of the sports sponsorship announcement significantly
impact the stock price of publicly traded firms?
A last research question is considered as suggested by Cornwell, Pruitt and
Van Ness (2001A). They note that functionally congruent sponsor brands
benefited from pairing with a winning auto racing team.
RQ 4: Are functionally congruent brand/event pairings more likely to be
favored by potential investors?
The implied hypothesis of financial ESM is that the CAR of the company
linked to the event is significantly different from zero. Null and
research hypotheses for each research question investigated here can be
expressed as Ho: CAR = 0 and Ha: CAR ? 0. A statistically significant
result is observed at p < .05.
The Dow Jones Interactive (DJI) Business Newstand database was used to
locate sports sponsorship announcements published in The Wall Street
Journal. This on-line database covers the 50 largest circulation United
States newspapers, as well as business and financial press wires. A
database search of The Wall Street Journal is often used to locate
information for ESM research (Bobinski & Ramirez, 1994; Chaney, Devinney
and Winer 1991; Mathur and Mathur 1996). The database was searched using
the keyword "sponsorship" in combination with the following
terms: "football," "baseball," "tennis," "auto racing," "soccer,"
"Olympics" and "hockey." An "other" category was included to account for
sports events that were observed infrequently, such as yacht and horse racing.
These search terms yielded 69 sponsorship announcements in The Wall Street
Journal. The event study date is defined as the date of newspaper
publication. In the case of announcements appearing over several days, the
earliest announcement date is used as the event study date. Multiple
references to a single sponsorship were excluded assuring that each
announcement is examined only once. During the initial search phase, all
announcements located in the database were recorded. Private firms were
identified and excluded later. Only publicly traded firms' sponsorship
announcements are examined here. In addition to the announcement date and
event/brand sponsor partners, each announcement was coded for sport type
and total word count.
Stock price data were located using the Center for Research in Security
Prices (CRSP) database at the University of Chicago. The CRSP database
contains stock prices for the Dow Jones, AMEX and NASDAQ stock
exchanges. Observed event date stock prices were compared to the CRSP
value-weighted portfolio of NYSE and AMEX stocks, then regressed on and
compared to the value-weighted portfolio. Excess return is calculated as
the actual return minus the market model expected return (Lane and
Jacobson, 1995). A full ESM statistical review is beyond the scope of this
report. For more detail, the reader is referred to Lane and Jacobson
(1995), and Brown and Warner (1985; 1980). At the time of this analysis,
stock prices were available through the end of the 2001 calendar year.
For all analyses reported here, stock prices were obtained for the 255
days prior to the actual event announcement for the sponsoring
firms. (This is one trading year. By using exactly one year, we eliminate
seasonality and month effects from the data.) ESM regressions were
conducted for the event announcement date (denoted as day 0), and the five
days prior to and subsequent to the event date. Announcing firms' stock
prices were compared to the CRSP value-weighted portfolio as a statistical
test for significant differences. Excluding all announcements for private
firms, multiple announcements for publicly traded firms and firms for which
complete data were not available yielded 61 unique events for
analysis. The number of announcements by sport are detailed in Table 1.
Insert Table 1 about here.
RQ 1 addressed the possibility of a statistically significant general
effect for sports sponsorship announcement similar to the celebrity effect
noted by Agrawal and Kamakura (1995). There appears to be no significant
general sports sponsorship announcement effect for the announcements
analyzed here. As suggested earlier, RQ 2, there is the possibility that
investors with funds in U.S. stock exchanges could prefer sponsorships for
some sports, therefore, each announcement was coded for sport type and
separate ESM analyses were conducted for each sport, including the
catch-all "other" category. It appears that investors do respond
positively to baseball and Olympics sponsorships. No significant effects
were observed for auto racing, basketball, hockey, golf or other. A
negative effect indicating stock price decline is observed for
American-style football and tennis, however, the declines do not approach
conventional levels of statistical significance. A significant decline is
noted for soccer sponsorship announcements on the fifth day after the event
(CAR = -3.63%, Standardized CAR = 18.36%, p < .05). Results for positive
significant abnormal returns sports can be reviewed in Table 2.
Insert Table 2 about here.
Early in the coding we realized word count was an invalid method for
assessing the information content of the sponsorship announcement. Many
announcements were included as brief lines in longer articles devoted to
business or marketing news. While the DJI Interactive News Service does
report word count for each article returned in the search, very few of
those words might be devoted to sponsorship announcement coverage. We
decided to use reported sponsorship rights fees as a proxy for information.
The information variable was dummy coded as 0 or 1 for regression
analysis. Of the 61 sports sponsorship announcements analyzed here, 36
included an estimate of sponsorship rights fees. A significant positive
effect is noted for sponsorship announcements reporting these costs. Daily
results are detailed in Table 3.
Insert Table 3 about here
As suggested by Cornwell, Pruitt and Van Ness (2001A), brand/event
associations were investigated for functional congruency. This concept
suggests that the brand may somehow be used in or enhance the performance
of the sport being sponsored. We identified seven functionally congruent
pairings: Powerade sports drink and the National Hockey League, Powerade
sports drink and the Women's National Basketball Association, Nike and the
National Football League, Nike and Major League Soccer, Reebok and the
Olympics, Reebok and the National Basketball Association, and Sara
Lee-Sanex (sports apparel) and the women's Professional Tennis
Association. Contrary to Cornwell, Pruitt and Van Ness, we observed
significant results for the 54 non-functionally congruent brand
pairings. Results for this analysis are detailed in Table 4.
Insert Table 4 about here
As with any research, a number of limitations must be considered. This
research's focus upon general sports event sponsorship ignores specific
sports event sponsorship opportunities, with the exception of the
Olympics. Similar research questions for specific events or other types of
sponsored events might produce different results. ESM has a number of
method-specific limitations. This method is only applicable to publicly
traded firms. Information leaked prior to the announcement date can
diminish the impact of the formal, public announcement. There is also the
possibility of other "noise" affecting stock prices, such as general market
fluctuation based on consumer confidence, although theoretically the ESM
analytical technique should account for this. However, a sponsor brand
could be a subsidiary of a larger firm. The sponsorship announcement could
be deemed insignificant or overwhelmed by information from other corporate
partners. The method used to locate announcements could impact
results. The DJI Newsstand will not contain sponsorships that were never
announced. Perhaps some sponsorships did return significant stock price
value despite no formal, public announcement or without being covered by
The Wall Street Journal.
While ESM research has uncovered significant findings for other marketing
communication activities, no significant general effects were observed for
the sports sponsorship announcements analyzed here. There may be several
explanations for this. In the case of sports sponsorship announcements,
there is often a long delay between the sponsorship announcement and the
actual event. In fact, years may pass between announcement and
competition. A lengthy time lag between the announcement and event could
make it difficult for potential investors to determine if the sponsorship
is a sound, profit-building strategy. Initial non-significant effects
could mean that investors don't expect a significant return on investment
until the time of the event. Non-significant effects could also mean that
the investment community thinks the sponsorship is appropriately priced for
the value delivered, as suggested by Miyazaki and Morgan (2001). If so,
the firm's stock price should be stable. There is also the possibility
that sports sponsorship strategies have become so common as to be accepted
as a standard integrated marketing communication activity. If sponsorship
is not perceived as novel, then the firm's stock price should not be
impacted. Similarly, sponsorship announcements may not be dramatic enough
to capture an investor's attention. In other words, a sports sponsorship
announcement is not likely to be perceived as bad news, and it may not be
viewed as positive enough to impact perceptions about a firm's profit
An interesting condition is reported by Mathur and Mathur (1996) that
might help interpret these sports sponsorship results. They note that the
information content of the announcement appears to make a significant
difference, with more informative announcements demonstrating more positive
impact. The impact of information was considered as an important variable
for the sports announcements investigated here. Initially, sponsorship
announcements were observed for word length. We abandoned this variable as
invalid, opting instead for some mention of the sponsorship rights
fee. Firms reporting expenditures did see a significant increase in stock
price. When fees were not included in the announcement, we often noted a
disclaimer such as "financial terms were not disclosed." Generally,
sponsorship announcements did not warrant lengthy editorial treatment and
were frequently observed as brief components of general business articles.
This suggests the possibility that investors could better evaluate the
profit potential of sports sponsorships if more detail was reported in the
announcement. Investors might respond more positively if the announcement
included some information about how the sponsorship enhances the firm's
marketing communication activities. Firms that are frequent sponsors might
even delay announcing a sponsorship until the firm is ready to announce a
number of sponsorships at once. This might attract enough attention from
media to warrant fuller coverage, thereby alerting the investment community
of increased earnings potential. However, each brand must consider the
impact of too much disclosure and how competitors could use the information
to derail sponsorship-based marketing objectives.
This research also reveals contradictory findings about the perceived value
of Olympics sponsorship (Miyazaki and Morgan 2001) and functionally
congruent brand/event pairings (Cornwell, Pruitt and Van Ness 2001A). We
suggest these contradictions are based on our general review relative to
the specific reviews of previous research. For example, Miyazaki and
Morgan investigated brands associated with the Atlanta Olympic
Games. Their results for this specific event may well be valid and
accurate. Cornwell, Pruitt and Van Ness also review the results of brands
associated with a specific race. Investors in their research would be
responding to a specific, observed event outcome, rather than speculating
on what the outcome might be. Also, they place a number of conditions on
their auto race findings.
Future Research Areas
There remain several sponsorship questions that ESM could address,
especially in terms of specific events. ESM applied to specific sports
events, rather than the generic sports sponsorship strategy, might produce
different results. While tennis as a general sports category does not
appear to produce significant value, sponsoring Wimbledon might. As noted
earlier, Cornwell, Pruitt and Van Ness did (2001A) report significant
effects as a result of winning a specific auto race, but only under very
limited conditions. Similarly, the research reported here does note a
significant effect for Olympics sponsors. Of course, sports events aren't
the only events a firm can sponsor. Sponsorships are available for arts
and civic groups, music tours, festivals, etc. Sponsoring other types of
events might produce significant effects. Lastly, the functional
congruence concept noted by Cornwell et al. (2001A) and addressed here does
not consider image-based congruence (Gwinner and Eaton 1999; Gwinner 1994)
Readers are encouraged not to interpret any non-significant results as
diminishing the value of sports sponsorship generally or the value of
sponsoring a specific sport or event. Instead, these results may best be
interpreted as suggesting that sports sponsorship is undertaken as a single
component of long-term, brand equity building integrated marketing
communication strategies. Cornwell at al. (2001B) note that active
managers do expect immediate financial value from sports sponsorship and
integrate other strategies and tactics to support the
sponsorship. Sponsorships are managed for the long term, especially as
they relate to the more general brand equity elements of corporate image,
brand image and brand awareness. Therefore, not seeing immediate financial
market results should not discourage marketing communication managers from
sport sponsorship opportunities.
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Sponsorship Announcements for Each Sport Type
Sport Number of Announcements
Olympic Games 16
Auto racing 3
Auto racing 7
* This category includes announcements for sports observed infrequently,
such as track and field events, or bicycle, horse and yacht racing.
Abnormal Returns for Positively Statistically Significant Sport Sponsorship
Window Return Return
-5, 0 2.66% 1.510
-4,0 3.13% 1.949
-3,0 3.38% 2.354
-2, 0 2.87% 2.308
-1, 0 3.29% 3.236
-1, +1 4.24% 3.409***
-1, +2 4.20% 2.921**
-1, +3 3.09% 1.927*
-1, +4 3.40% 1.936*
-1, +5 3.29% 1.730*
*** p < .001
** p < .01
* p < .05
Table 2 (continued)
Abnormal Returns for Positively Statistically Significant Sport Sponsorship
Window Return Return
-5, 0 1.57% 1.689
-4,0 1.54% 1.822
-3,0 1.47% 1.945
-2, 0 1.66% 2.524
-1, 0 .85% 1.582
-1, +1 .96% 1.471
-1, +2 1.39% 1.840*
-1, +3 2.10% 2.485**
-1, +4 2.04% 2.203*
-1, +5 2.16% 2.153*
** p < .01
* p < .05
Abnormal Returns for Reported Announcements with Expenditures1
Window Return Return
-5, 0 .71% 1.003
-4,0 .94% 1.455
-3,0 .76% 1.310
-2, 0 .55% 1.100
-1, 0 .60% 1.463
-1, +1 .94% 1.871*
-1, +2 .86% 1.478
-1, +3 .70% 1.073
-1, +4 .62% .868
-1, +5 .28% .370
* p < .05
1 36 of 61 announcements included some reference to the sponsorship fee.
Abnormal Returns for Functionally Incongruent Brand/Sponsor Announcements1
Window Return Return
-5, 0 .59% 1.040
-4,0 .75% 1.434
-3,0 .51% 1.091
-2, 0 .42% 1.048
-1, 0 .32% .976
-1, +1 .68% 1.683*
-1, +2 .77% 1.663*
-1, +3 .69% 1.331
-1, +4 .49% . 856
-1, +5 -.01% -.015
* p < .05
1 54 of 61 announcements were deemed to be functionally incongruent pairings.