Science Essay (Quality Work, On Time, A++ work)

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Summary Brief

Olympic Sponsorships: A Winning Investment?

Robert D. Evans, Jr., Texas A&M International University

Olympic sponsorships are considered by many marketing

managers to represent the premier opportunity to have their

product advertised on a global stage. Two previous studies

examining the changes in shareholder wealth associated with

Olympic sponsorship announcements have returned mixed results.

Miyazaki and Morgan (2001) found that these sponsorship

announcements produced neutral to positive abnormal returns,

while Farrell and Frame (1997) found that these sponsorship

announcements produced negative to neutral abnormal returns.

In an effort to clarify the value of Olympic sponsorships, the

author uses announcements of the most elite Olympic sponsorship,

TOP (The Olympic Partner Program) announcements, and finds

that these elite sponsorships produce almost universal negative

abnormal returns to the sponsoring firm over individual days

surrounding the announcement date and various event windows.

The results suggest that not all sponsorships are created equal

and that investments in the Olympic TOP Program are penalized

by shareholders.

Introduction Sponsorship has increasing become a focal point for

promotion in corporate and brand communications marketing

strategies. This is evidenced by the fact that the pace of

sponsorship-linked marketing expenditures has consistently

outstripped that of traditional advertising and was $43 billion

worldwide in 2008 (IEG 2009). Further support is found in the

fact that overall advertising expenditures declined 4.1% in 2008

while spending on sponsorship increased 3.9% (IEG 2009). This

reflects the sentiment that despite overall declining advertising

expenditures, sponsorship is considered such an important

medium that spending continues to grow, and many firms continue

to utilize sponsorship as a preferred marketing medium.

The dramatic growth of this medium has drawn increased

interest from academic researchers and a considerable literature

base has developed in recent years. Within the context of the

marketing-finance interface, a number of studies have assessed the

impact of various categories of sponsorship announcements upon

changes in shareholder wealth. Overall, marketing studies have

tended to confirm that investors generally hold a favorable view of

these marketing investments. The evidence relating to specific

types of sponsorship announcements, however, remains less than

clear. For instance, Cornwell et al. (2005) are unable to identify a

significant positive abnormal return for firms announcing official

sponsorship status for five major U.S. sport leagues, leading them

to support their hypotheses using longer event windows. Miyazaki

and Morgan (2000) interpret their results as suggesting a positive

financial effect for firms announcing sponsorships for the 1996

Atlanta Olympics, whereas Frame and Farrell (1997) reach the

opposite conclusion in their study of sponsors of the very same

event. Thus, the question of whether Olympic sponsorship is an

economically sound marketing strategy remains a point of

contention.

Data and Methodology Announcements of The Olympic Partner Program (TOP)

were identified using information gathered directly from the U.S.

Olympic Committee, Lexis-Nexis database, corporate websites,

and other online sources. The TOP program was designed to

designate and reward the most elite group of official Olympic

sponsors and extend to them exclusive rights to claim that they are

the official product of the Olympics as well as to receive special

placement at Olympic venues. No title or event sponsorships were

included in the sample. As recommended by Brown and Warner

(1985), all sources were scrutinized to ensure the date of the very

first communication was identified. The stock data analyzed in the

study were obtained from the University of Chicago’s Center for

Research in Security Prices (CRSP) data tapes.

The Scholes-Williams standardized cross-sectional market

model (Cowan Research 2000; Scholes and Williams 1977) was

utilized to test for changes in stock prices associated with the

sponsorship announcement and was estimated over event days t =

-275 to -26. The Scholes-Williams approach eliminates the

problems associated with nonsynchronous trading that sometimes

occurs in event-based studies with firms of widely varying market

values. A 51-day event window beginning 25 trading days prior to

and ending 25 trading days following each announcement was

analyzed for evidence of stock price changes. The CRSP value-

weighted index of all stocks was employed as the stock market

proxy. All statistical calculations were performed using the

EVENTUS program developed by Cowan Research, LLC.

Empirical Results Table 1 presents a summary of the mean abnormal returns

for individual days and their associated test statistics for TOP

sponsorship announcements while Table 2 presents a summary of

various event windows. In addition, nonparametric tests reflecting

the fraction of firms registering positive abnormal returns is

provided.

Table 1 presents a summary of the mean abnormal returns

and their associated test statistics for the interval from t = -5 to +5

for the overall sample of TOP sponsorship announcements. Also

reported in Table 1 is the number of events in the sample

registering positive and negative abnormal return changes and

their associated test statistic for this fraction for each event day.

Using the assumption of a no-sponsorship announcement wealth

effect, the returns for each firm should approximate zero, whereas

the fraction of firms registering abnormal increases should

approximate the random chance probability of .5. Significant

negative abnormal returns were found for two days with six of the

ten days examined returning negative abnormal returns.

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TABLE 1

Mean Abnormal Return Levels and the Number of Firms

Registering Positive/Negative Abnormal Returns for

Olympic TOP Sponsorship Announcements

Abnormal

Return Changes

Event

Day

Mean

Abnormal

Return

Sample Z-

Statistic N

Positive:

Negative Z-Statistic

-5 -0.39% -1.259 40 20:20 0.278

-4 -0.24% -0.776 40 15:25 -1.305*

-3 0.32% 1.044 40 20:20 0.278

-2 0.10% 0.314 40 21:19 0.595

-1 -0.33% -1.064 40 15:25 -1.305*

0 0.32% 1.043 40 24:16 1.544*

1 -0.67% -2.177*** 40 11:29 -2.571***

2 -0.20% -0.651 40 17:23 -0.672

3 0.30% 0.962 40 22:18 0.911

4 -0.79% -2.552*** 40 10:30 -2.887***

5 0.14% 0.453 40 19:21 -0.038 ***, **, * indicate significance at the 1, 5 and 10 percent levels respectively

This result suggests that investors and the market may not view

investments in Olympic TOP sponsorships positively. In fact, the

day following the announcement of Olympic TOP sponsorships,

29 of the 40 firms examined registered negative abnormal returns

and the mean abnormal return for the day was -0.67%.

To further examine the effects of Olympic TOP

sponsorships on firms, various windows were examined. Table 2

reports the results of tests of mean cumulative abnormal return

levels over six different event windows surrounding the official

sponsorship announcements. The most striking result in Table 2 is

that each window examined produced negative abnormal returns,

with four of the six windows registering significant abnormal

returns ranging between -0.35% to -3.24%. The results suggest

that when viewed from the standpoint of a longer event window,

Olympic TOP sponsorships are shown in this study to be viewed

in a negative light by investors.

TABLE 2

Mean Cumulative Abnormal Return Levels and Number of

Firms Registering Positive/Negative Abnormal Returns Over

Select Intervals Around the Date of Announcements of

Olympic TOP Sponsorship Announcements

Abnormal

Returns

Event Window N

Mean

Cumulative

Abnormal Return Z-Statistic

Positive: Negative Z-Statistic

0 to +1 40 -0.35% -0.746 14:26 -1.621*

0 to +2 40 -0.55% -1.387* 17:23 -0.672

-1 to +1 40 -0.68% -1.448* 15:25 -1.305*

-2 to +2 40 -0.78% -1.377* 16:24 -0.988

-5 to +5 40 -1.44% -2.115** 14:26 -1.621*

-10 to +10 40 -3.24% -3.047*** 9:31 -3.204*** ***, **, * indicate significance at the 1, 5 and 10 percent levels respectively

Conclusions Results indicate that firm investments in Olympic TOP

sponsorships are almost universally viewed in a negative fashion.

Potential reasons for this shareholder reaction are that Olympic

sponsorships are expensive and infrequent. TOP participants

typically pay in excess of $40 million for sponsorships during the

Olympic Games, and for an event that is as infrequent as the

Olympics, shareholders could view it as a poor investment of

marketing funds. Results of this study signify that shareholders

view investments in Olympic sponsorships as a poor investment.

This shows that not all sponsorships are equal, and that a careful

examination of the context of a sponsorship investment is critical.

These results also add to the growing literature examining

the marketing-finance interface and provide direction to managers

wishing to invest in Olympic TOP sponsorships. By examining the

returns to marketing investments, the study provides guidance to

those seeking investment opportunities for their desired marketing

medium, in this case, Olympic sponsorship investment

opportunities. Also, this study provides guidance for investors

seeking to evaluate firm marketing investments. Not all

sponsorships are created equal, and by examining this specific

sponsorship program, this study adds to that literature base. The

Olympics provide several different levels of investment

opportunities for firms seeking to invest in sponsorships. Future

research should examine those different levels to assess the value

of those levels of Olympic sponsorship investment. Also,

comparison of official and unofficial sponsorship investments

should be examined, whether at the Olympic level, or through

investments in other sponsorship opportunities.

References Brown, Stephen J. and Jerold B. Warner (1985), “Using Daily

Stock Returns: the Case of Event Studies,” Journal of

Financial Economics, vol. 14(1): p. 3-31.

Cornwell, T. Bettina, Stephen W. Pruitt and John M. Clark (2005),

“The Relationship Between Major-league Sports’ Official

Sponsorship Announcements and the Stock Prices of Sponsoring

Firms,” Journal of the Academy of Marketing Science, vol. 33(4):

p. 401-412.

Cowan Research. 2000. Eventus User’s Guide. Version 6.3C.

Ames, IA.

Farrell, Kathleen and W. Scott Frame (1997), “The Value of

Olympic Sponsorships: Who is Capturing the Gold?” Journal of

Market-Focused Management, vol. 2(2): p. 171-182.

IEG Guide to Sponsorship 2009. Chicago, IL.

Miyazaki, Andrew D. and Angela G. Morgan (2001), “Assessing

Market Value of Event Sponsoring: Corporate Olympic

Sponsorships,” Journal of Advertising Research, vol. 41(1): p. 9-

16.

Scholes, Myron and Joseph Williams (1977), “Estimating Betas

from Nonsynchronous Data,” Journal of Financial Economics,

vol. 5(3): p. 309-327.

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