The price of the crisis in sports industry: the effects of media coverage about the sports industry crisis on the stock prices of the sponsors

The price of the crisis in sports industry:

the effects of media coverage about the sports

industry crisis on the stock prices of the sponsors

Saori Sakaguchi

Student number: 11571713

Graduate School of Communications

Master’s programme Communication Science Thesis supervisor: Toni van der Meer

0. Abstract

The study is aiming to create a cross-disciplinary model based on the overlap between three streams in communication science: sports sponsorship communication research, crisis communication and the studies on the correlation between media coverage and the stock market. The aim of the study is to investigate, how crises emerging in the sports industry, effects the stock prices of the sponsor. This research examined the stock market prices of four major international sports events sponsors on the days of the media publications about

different catastrophes occurred in the sports industry between 2007 and 2017, such as corruption crisis at FIFA and Olympic doping scandal. An event-study methodology in a combination of content analysis of 279 media publications was conducted to test the

hypothesis. Based on results, there is evidence of the correlation between the media attention to sports industry crises and the sponsor’s stock prices. Linear regression analysis showed that there is a relationship between abnormal stock returns of some companies and different characteristics of the media coverage of the crises. However, these results are company-specific. The study has an explorative nature and is one of the first tries to investigate the possible negative effects of the sports sponsorship.

1. Introduction and research question

Last decade can be considered as the darkest hour of the international sports and the Renaissance of the sports media. Several huge industry crises took place nearly at the same time: FIFA senior figures are being accused in corruption, Russia’s and Qatar’s bid for World Cups in 2018 and 2022 are demanded to be annulled, WADA publishes Anti-Doping

Violations Reports, a massive match-fixing case in Greek football. These events put the sports organizations into a difficult position and took an important place in the media agenda across the globe. Also, it created a lot of challenges for the official sponsors of the athletes, organizations and events connected with the crises. Some of them remained neutral, but some companies have chosen a pro-active attitude. For example, The Coca-Cola Company,

McDonald’s and others demanded Sepp Blatter, ex-leader of FIFA, to leave his position and stop the corruption crisis in the international football.

From the communication science point of view, sports sponsorship is a unique

phenomenon, which benefits and risks remain unclear. The significant investments required to become an official sponsor of a sports event, federation or team, however, many

companies do not evaluate their sponsorships in an appropriate manner (Crompton, 2004; Meenaghan & O’Sullivan, 2013). One of the most common approaches to measure the

benefits of the sponsorship is marketing approach and assessment of the effects of the sports sponsorship on the consumer. It is clear that the possibility to advertise products at the major international sports events such as Olympic Games or FIFA World Cup is an invaluable opportunity for the companies in terms of potential reach and consumer’s engagement. On the other hand, major sports event sponsors are mostly multinational companies with a very complex stakeholders system. Moreover, the ability to deliver are sustained shareholder revenue is equally essential for the companies nowadays as straightening their positions on the consumer market. Thus, stock market prices of the companies should be considered as one of the important aspects of the decision-making process about the sponsorship.

Also, there is a growing demand for the integration of the business aspects to the field of communication science (van der Meer and Vliegenthart, 2017). Despite several attempts to investigate the effect of the sponsorship on sponsor’s stock prices, the research in this field remains explorative both in terms of aiming to find a consistent model and the research method. In other words, it is still unclear, how to find empirical evidence of this relationship and what predictors should be included in the study. However, there are some established patterns in corporate communication research which can be useful. There is evidence, that the media coverage has a significant effect on the stock market (Li et al., 2014; Birz and Lott, 2011; van der Meer and Vliegenthart, 2017). Media coverage of the sports industry crises will be used as the primary factor influencing the stock market for several reasons. First, media is an essential source of information for shareholders, especially the small private investors (Fang and Peres, 2009). The second reason is methodological: news publications can be considered as physical evidence of the crisis and can be compared with the historical stock market data.

The present literature on sports sponsorship emphasises the need to investigate the benefits of sponsorship as well as potential risks for the sponsor company in the times of sports industry crisis (Dumitru and Nichifor, 2017; Fortunato, 2017; Johnston, 2015). Sports is a highly dynamic industry, and a quick and relevant response to the crisis is critical (Dart, 2012). One of the most recognised studies on crisis response strategies is Situational Crisis Communication Theory (Coombs, 2007). According to this theory, the effective crisis response strategy has the power to reduce the negative effects of the crisis. Hence, the crisis response strategies of the sponsored event can be another important element that influences the stock prices of the sponsor.

The present study is aiming to create one of the first create cross-disciplinary models based on overlap between three streams in communication science: the sports sponsorship

communication research, the studies on the correlation between media coverage and stock market and the crisis communication theories.

RQ: To what extent is media coverage of the sports industry crises is related to the

sponsor’s stock prices? What effects do crisis response strategies of the sponsored event have on this relationship?

2. Theoretical framework

The theoretical part of this study is divided into four parts. First, I will present a brief summary of the existing literature about sports sponsorship and justify why it is important to provide empirical evidence of the sponsorship’s influence on the organization’s financial performance. Second, I will focus on the stock market returns as one of the possible

outcomes in communication science in general. Next, I will investigate the existing studies on the relationship between media attention and stock market and see if there are any implications I can use for present study. Finally, I will describe the concept of the

organizational crisis and the crisis response strategies and link them with the previous parts. At the end of this section, I will present the hypothesis and the conceptual model, which will be tested later through empirical research.

2.1. The financial outcomes of the sports sponsorship

Sponsorship can be defined as a fee-based relationship between a property (sports, entertainment, non-profit event or organization) and the organization, which is aiming the access to the exploitable commercial potential associated with that property (International Events Group, 2000). One of the examples of these relationships is the sponsorship of the sports events, federations or teams. The worldwide sports sponsorship market was estimated with 65.2 billion U.S. dollars (Global sponsorship spending from 2007 to 2018 (in billion U.S. dollars), April 2018). Sports sponsorship is the most popular type of sponsorship because the audience of sports events is larger than for any other form of entertainment (Abril, Sanchez and Recio, 2017). There are some examples of the tremendous success of the sponsorship deals, for example, in 2014 adidas AG, an official sponsor of the German

national football team who became world champions in 2014, claims to sell three million Germany jerseys with the total increase of the football product sales in Germany for more than 30% (Record results for the adidas Group in Germany, Austria and Switzerland,

There are various approaches to estimate the effects of sponsorship, and the most of them are focusing on consumer and brand relationship on different stages. For example, it

helps the sponsor to enhance brand awareness (Bennett, 1999), improve the brand image (Cliffe and Motion, 2005) and help brands to reach a global audience and avoid linguistic and cultural barriers (Abril, Sanchez and Recio, 2017). These effects are mainly achieved through the reputation merging between the sponsor and sponsored company. However, the

sponsorship literature still lacks the adequate instruments to measure the outcomes different from the marketing ones.

Nevertheless, there are ways to combine the marketing and financial approach to measuring the benefits sponsorship. For example, the organization can compare the sponsorship costs and brand outcomes of TV advertising featuring the sponsored team or athlete (Olson and Thjømøe, 2009). In general, organization’s financial performance is a system of multiple measures, which indicates the ability of the organization to operate the assets and generate revenues (Investopedia, April 2018). To measure the instant effect of the independent variables on organization’s financial performance, the average daily stock exchange rates are normally used.

Another important way to evaluate the financial performance of the company is to investigate its stock market prices. I will use the stakeholder approach to sponsorship to explain and justify, why the reaction of other interested groups, specifically shareholders, is equally important as consumers (Tsiotsou, 2011). Stakeholder theory is one of the important aspects of the sports sponsorship for multiple reasons. According to stakeholder theory, consumers are only one of the groups of individuals, who can be affected by an organization (Fassin, 2009). The sports industry has an inherent complexity of the stakeholders (Johnston, 2015): aside from the leadership of the sports teams and organizations, sports associations, government, media, sports fans, sponsors are also very influential on the decision-making process in the sports industry (Felkins and Shilbury, 2015). Also, stakeholder theory proposes that the responsibility of the organization is to generate positive returns for all its

shareholders.

Summarizing different approaches to measure the outcomes of the sports sponsorship and defining shareholders as one of the important groups of stakeholders, in this research I will focus on investigating the effects of sponsorship on the stock prices.

2.2. Sports sponsorship and stock market

The stock market behaviour is a direct reflection of the firm’s investors sentiment. To understand, how sponsorship is influencing the stock market, it is important to explain the structure of this group of stakeholders briefly. There are two types of the investors, operating

on the stock markets: institutional investors and private investors. Institutional investors typically buy the major part of their shares through initial public offerings (IPOs), when private investors mostly operate on the secondary stock market. While institutional investors mostly consist of professional players, who rely on various sources of information, it is mostly private investors who are influenced by the news media coverage to make their decisions, for example, by rumor and gossips (Fang and Peres, 2009). However, professional investors may also be influenced indirectly by the publications in the media at least for two reasons (Strauss and van der Meer, 2017). First, the investors may follow herd-like

“behaviour”: people in the similar clusters tend to follow the similar behaviour. Second, investors can get an idea about the consensus market opinion, which is normally reflected in financial media.

One of the first attempts to incorporate stock market outcomes into sponsorship was Corwell, Pruitt and Clark’s (2005) work on the impact of the announcements of the sport sponsorship with the major North American sports leagues on the stock market prices of the sponsored companies. Using the event study’s methodology, they found out that the

outcomes are negatively related with the market share of the sponsor (thus, the small

companies have bigger benefits than the large one) and positively related to the relatedness of the product and service to the sponsored event.

Several other authors used the event study technique to measure the effect of sponsorship on the stock market. Most of them are focusing on the sponsorship

announcement as the predictor (Cornwell et al., 2005; Filis and Spais, 2012; Hanke and Kirchler, 2013; Baim, 2018; Olson and Thjømøe, 2009). There are two important dimensions of the sponsorship, discussed in the sports communication literature, which have an influence on the sponsor’s stock prices: the functional congruence with the sponsored and the national congruence with the sponsored event (Abril, Sanchez and Recio, 2017). The concept of sponsorship appropriateness was first used in Millward Brown model (Kourovskaia and Meenaghan, 2013), which explains, that the more appropriate the sponsor is, the better impression of the brand the organization will achieve.

However, only a few of the studies include other events in their analysis. For example, Hanke and Kircher (2013) analyzed the influence of the sports events (for example, match days) on the stock prices of a sponsor. The main implication of the study is that the results of the stock market behaviour are firm-specific and event-specific. One of the possible

explanations is that the investors tend to be influenced by corporate’s and brand’s image as well as consumers when they are making the decision to invest in the sponsor’s company.

To sum up, there is empirical evidence of the relationship between sponsorship and sponsor’s stock prices. The previous studies do not have a huge variety of the events used an influencing factor, and they are more focused on seeking the positive impact of the

sponsorship. However, it is important to be aware of the risks of the sponsorship as well as benefits. Recently, there are many negative events shown in professional sports, such as match fixing, corruption and doping scandals, acts of violence and racism, which can be considered as sports industry crises and receives a lot of media attention. For this reason, I will investigate two dimensions of the sponsorship, which can influence the stock market: the media coverage and the crisis communication. These dimensions will be discussed in the next sections.

2.3. Media attention and stock market

It is important to mention that most of the studies were considering the media coverage about certain events as an independent variable in their research (e.g. Cornwell et al., 2005; Hanke and Kirchler, 2013). Consistently with these authors in this research, I will focus on media coverage as the independent variable as well. In the next section, I will observe the existing research on the relationship between the media coverage and the stock market in general.

In general, media plays and important role in the information dissemination and has an incomparable reach, and media coverage is assumed in the field of corporate

communication to have a serious impact on the stock market (Fang and Peress, 2009). However, there are a few empirical studies investigating this relationship (van der Meer and Vliegenthart, 2017). There are a few studies, which are trying to measure the effects of media coverage on company’s stock prices. There is evidence, that macroeconomic performance news explains around one third of the variance in stock returns (Li et al., 2014). In particular, the news about selected macroeconomic variables (such as GDP and unemployment rate) cause significant volatility on the stock market (Birz and Lott, 2011), although it is normally hard to find significant results in this kind of studies.

Some studies apply theories from other fields of communication research and try to find consistent patterns in the firm’s stock prices. For example, based on the agenda setting theory, van der Meer and Vliegenthart (2017) found a significant relationship between both media and public attention to the company and the stock prices. Media attention is negatively related to the stock market performance, while public attention’s effect is the opposite. This can be explained by several factors: first, the media negativity bias, which is also mentioned

in other papers (e.g. Britz and Lott, 2011). Hence, the more the company is mentioned in the economic media publications, the more skeptical become the investors toward the firm. On the other hand, public attention creates higher credibility of the company; thus, the more is known and talked about the company, the less risky it is.

2.3. Stock market and crisis communication

Crisis communication has been receiving a lot of attention in the past decennia within communication science. This field of the research focuses on the way organizations behave when a crisis emerges, whether it is self-imposed or externally imposed (Tække, 2017) and in both cases, a crisis usually causes a reputational threat for an organization (Coombs, 2014).

The concept of the crisis might be ambiguous, and for this research paper, I use the term crisis as defined by Coombs (2007): “a crisis is a sudden and unexpected event that threatens to disrupt an organization’s operations and poses both financial and reputational threat” (p.164). The corporate crisis is also characterized by significant consequences, low probability, ambiguity and decision-making time pressure (Pearson and Clair, 1998). The crisis affects all the groups of stakeholders, including shareholders; thus, the crisis may also have a significant effect on the stock prices.

Knight and Pretty (1999) were investigating the impact of corporate catastrophes on the stock market. The authors explain that the corporate crisis creates a unique opportunity for the company to evaluate, how the financial markets respond to the events when the

company is associated with the major risks. They found out that the stock market reacts to the disaster news instantly, although there is also a “digestion” period, which lasts three months on average. However, there they found out, that there the effect of the crisis is not necessarily negative. Some companies succeed in significantly outperforming market expectations. One possible explanation for this results might be the successful crisis communication strategy, chosen by the company.

In his later research Coombs (2011) distinguishes four different crisis response strategies: denial (organizations deny the existence of a crisis), diminishment (organizations reduce their role in a crisis or the negative impact of the crisis), rebuilding (apologizing and/or compensating in order to improve the organization’s reputation) and bolstering (repairing and improving the relationship between the organization and its stakeholders). These different response strategies have been found to cause different effects among the public (e.g. Park, Cha, Kim & Jeong, 2012; Roshan et al., 2016). It means that the use of the

proper crisis response strategy has an ability to reduce the reputational threat and other negative effects an organization is experiencing during crisis.

If we take in mind, that one of the goals of the sponsorship is a reputation merge between the sponsor and the sponsored event, and it is logical to expect that during the sports industry crisis the sponsor suffers as well. In this case, the public and other stakeholder groups perceive the sponsor and the sponsored event as a united body, so the response strategy of the event will be taken as the sponsor’s response as well.

To sum up, industry catastrophes can be one of the important dimensions in sports communication, and in particular, lead to negative consequences on for the stock market prices of different stakeholder groups. On the other hand, the use of an effective crisis response strategy by the sponsored event soften the negative consequences of the crisis.

2.4. Hypothesis

Previous research in the field of sports sponsorship communication found out “the halo” effect, which differentiates sponsorship from advertising and other forms of external communications of an organization (Tsiotsou, 2011). According to this concept, a certain goodwill transfer from the sponsored event to the sponsor company is happening. The “halo effect” first of all is applied to the consumer's perception of the brand: it describes the consumer's bias toward a certain product caused by a pleasant (or unpleasant) experiences associated with this product (Vance, Raciti and Lawley, 2016). In sports sponsorship, the participation at the sports event, physically or virtually, is a pleasant experience, and the goal of the sponsor is to merge the positive emotions the consumer gets with its own and its product’s reputation. Furthermore, the same concept can be transferred to other groups of stakeholders such as shareholders. In this case, the association of the company with the huge international sports event gives the shareholder certain expectations about the company’s share prices.

The halo effect has a positive consequence in case of the positive reputation of the sponsored property. Hence, I hypothesis that in case of negative events such as the sports industry crisis, caused by the sponsored event, the sponsor will also suffer the reputation loss and stock prices will go down. Thus, I present my first hypothesis:

H1: The media coverage of the sports industry crisis is negatively related to the

sponsor’s stock prices.

However, an appropriate response strategy may convince stakeholders to change their opinion on the crisis, thus, the stock market behaviour. For example, some of the studies

found that response strategies pertaining to rebuilding the relationship between stakeholders were the most effective in decreasing the negative sentiment among public comparing to diminishing (Kim, Avery, and Lariscy, 2009; Park et al., 2012; Henger, Beldad and Kraesgenberg, 2016). This leads us to the next hypothesis:

H2: The relationship between sports industry crisis communication and stock prices

change is influenced by the sponsored event crisis communication strategy. Figure 1 shows the conceptual model of my research.

Figure 1. The conceptual model

3. Methods

The aim of the present study is to investigate, to what extent the media coverage of the sports industry crises is related to the share prices of the major sports. To achieve this goal, the event-study methodology was used consistently with the previous sponsorship research (Abril, Sanchez and Recio, 2017; Cornwell et al., 2005; Corwell, Pruitt and Clark’s, 2005) and combined with the results of content analysis of the sports industry crisis media coverage. Event studies allow to examine the actual return of the stock on during the event period and compare it with the expected or the normal return of the particular stock. This difference is called abnormal return, and which can be partly explained by the event.

The following section describes the methods and the instruments of the data collection, cleaning and preparation for the further analysis.

The sample consisted of the News Articles and stock returns of the four international companies: The Coca-Cola Company, McDonald’s, adidas AG and Nike, Inc. The companies were chosen according to the following selection criteria: they should be multinational

corporations and should be listed on the stock market, they should be official sponsors of the big international sports events or have a strong association with the sports industry through a number of sponsorship contracts with participating teams, athletes and other organizations. Table 1 presents the brief information about the sponsors. The Coca-Cola Company and McDonald’s as non-sports companies, which sponsored all the Olympic Games, FIFA World Cups and UEFA Europe Cups within last 10 years, Nike and adidas AG represent the biggest sports companies in the world. Although adidas is not an official sponsor of Olympic Games and Nike, Inc. is not an official sponsor of any of the major sports events within the selected time period, both companies are sponsoring a number of sports teams and athletes

participating in the chosen events and is strongly associated with the events. All the selected companies are using the opportunities of the sponsorship in multiple ways: starting from the billboards on the stadiums and TV advertising during the event broadcasting and ending with special promotional events and product placements all around the world. Moreover, these companies share the same values the sports event advocate, such as fair play or non-discrimination. Thus, a high level of reputation merge between the company and the sponsored events are expected for each company.

The 10-year time period between January 2007 and December 2017 was selected for the analysis. A long time period allows, first, to cover the years of biggest international sports events and sports industry crises, such as corruption crisis in FIFA and the doping scandal around Olympic Games in London 2012 and Sochi 2014. Second, it neutralizes the possible seasonal volatility of the stock prices.

Table 1. The selection of the companies

Company Sponsored events The Company specifications The Coca-Cola

Company

FIFA World Cups 2010, 2014, 2018 UEFA Euro Cups 2008, 2012, 2016 SO 2008, 2012, 2016

WO 2010, 2014, 2018

A multinational corporation headquartered in the USA, the world-wide manufacturer, retailer and marketer of non-alcoholic beverages

McDonald’s FIFA World Cups 2010, 2014, 2018 UEFA Euro Cups 2008, 2012, 2016 SO 2008, 2012, 2016

WO 2010, 2014, 2018

A multinational corporation headquartered in the USA, the world-wide fast food restaurants chain

UEFA Euro Cups 2008, 2012, 2016) Germany, the designer and manufacturer of sports shoes, clothing and accessories Nike, Inc. None A multinational corporation headquartered in

the USA, the designer and manufacturer of sports shoes, clothing and accessories

To conduct the event study, the data collection consisted of two steps: to collect the media coverage information about the crises in sports industry and the stock prices of the selected companies within selected time period.

First, all the articles from the major international media from 2007 to 2017,

mentioning one of the sports events and at least one of the keywords were coded. The list of the keywords was defined after several pilot coding sessions on the all the media coverage about the sports events mentioning the keyword “crisis”. The final list of keywords contained the word “crisis” and the most frequently mentioned synonyms (“scandal” and “catastrophe”) and different types of crises (“doping, “match fixing”, “fans riot”, “corruption”, “racism”, “violence”). The articles were retrieved from Major International news LexisNexis database. In total, 278 articles were coded. Figure 2 shows the number of the coded articles per each year.

Figure 2. The number of the articles coded per year (articles)

Manual coding was used to gather the media coverage data. For this purpose, the codebook with the main groups of variables was developed, such as: sponsored event mentioned (one of the Olympic Games, FIFA World Cups or UEFA Europe Cups), type of crisis mentioned (doping, match fixing, fans riot, corruption, racism, violence), event crisis response strategy (diminishment, denial, rebuilding, bolstering). Each event, crisis type and

18 8 15 10 47 19 13 27 70 30 20 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Number of he articles

crisis response strategy were treated as individual variables, hence, multiple events, crises and response strategies could be mentioned in one article. After the first version of the

codebook was created, the pilot coding was conducted, and the codebook was adjusted. Also, intra-coder was assessed: after the content analysis was complete, 10% of the sample was coded for the second time (27 articles in total). For all the variables the Krippendoff’s Alpha was .80 or higher. The final version codebook can be found in the Appendix A.

Second, the stock market data for each selected company from the list was collected. The daily stock prices of the selected organizations were extracted with Python using “pandas-DataReader” data analysis toolkit, which is gathering data from Yahoo! Finance API.

3.2. Abnormal returns

The abnormal return is a term used to describe the stock’s return that is different from the expected (Investopedia, 2018), or mathematically it can be calculated the following way:

ARit = Rit – E(Rit),

where ARit is the abnormal return of the stock i on the day t,Rit is the actual return and E(Rit) is the expected return.

First, the actual returns were calculated using the following formula:

Rit = Pit – Pit-1 / Pit-1 .

where Rit is the actual return of the stock on the day t and Rit-1 is the actual return of the previous day t-1.

Second, the expected return was calculated. There are multiple ways to calculate the expected returns, one of the most common ones is the market model (Cable and Holland, 2000). In this model, the company’s stock return equals the average market return adjusted to the volatility of the company’s stock, which can be calculated based on the comparison of the historical company’s and market stocks. Mathematically, the expected return is determined the following way:

E(Rit) = Rit +  * (MRt - Rit),

where MRt is the market return on the day t and  is a coefficient for the stock return in the Ordinary Least Square (OLS) Regression with the market return as an outcome and

stock return as a predictor. Meaningfully,  is a measure of the volatility of the stock return in comparison to market return.

For the purpose of this research, the Standard & Poor’s 500 Index was taken as the market benchmark. This index is based on the market capitalization of the 500 large companies and often used in the event studies.

Finally, the abnormal stock returns for each company was calculated as the difference between actual return and expected return.

3.3. Event Window

The next step of the event study was identifying a so-called event window – a time period when the media coverage about the crises is likely to affect the stock prices of the sponsors. Normally the event windows include the several days surrounding the event to capture the effects of rumors and leakages prior to the event (Abril, Sanchez and Recio., 2017). Some of the sponsorship events studies include more than 41 days to the event window (Cornwell et al., 2005; Samitas et al., 2008). However, these studies were

investigating the sponsorship announcements – the single event, which happens only once per sponsor and per event, and the current study is focused on media coverage, which is more complex and a large event window will cause overlapping. Also, there was another issue with the collected data: the stock market prices data is not available for the weekends and public holiday, as the trading is off, and a large part of the media publications was made during the weekends, thus, it is not possible to merge two data sets by date correctly.

To resolve these issues, the 7 day’s time periods starting from Saturday and finishing with Friday were considered as event windows. By starting the event window on Saturday, the publications made during the weekends will be treated as the same event as publications made in the upcoming week and will be compared with the cumulative abnormal stock returns in the upcoming week. In other words, the unit of analysis in the final data set were the 7-days periods (event windows), for each event window I summarized the abnormal stock returns and the number of publications and other independent variables characteristics (for example, if in the event window 1 there were 2 articles about doping, the value of m the “doping” variable was 2)”.

The final data set consisted of 27 variables, including 4 dependent variables (the Cumulative Abnormal Returns for each company) and 23 independent variables. Table 2 shows the group of variables used in the analysis.

Table 2. Group of variables Variable

name

Level of measurement

Explanation

t Ratio The event window number

Dependent variables

CARit Ratio Cumulative abnormal returns (CAR) is the sum of all

abnormal returns for the company i during the event window t

Independent variables

Volume Ratio The number of articles coded for the event window

Event Ratio The number of the mentions of each sport event described in the Sample section

Crisis_type Ratio The number of the mentions of the sports industry crises events, described in the Sample section

Denial

Diminishment Rebuilding Bolstering

Ratio The number of the mentions of the relative event’s crisis response strategy of the sports event

3.5.Data analysis

The final data set consisted of 131 cases. Consistently with the event study methodology, only the event windows with at least one publications were included in the final data set. For each case Cumulated Abnormal Returns for fours company were calculated (the depended variables), the number of publications for each event and the number of

mentions of different events, crises and crises response strategies.

Since I was interested in the general relationship between abnormal stock returns of the sponsors and the media coverage about the crises, and the influence of the functional congruence the sponsor and the crisis response strategy of the event on the sponsor’s abnormal stock returns, the data analysis consists of two parts.

First, I will test H1, which proposed that the media coverage of the sports industry crisis is negatively related to the sponsor’s stock prices. The event study methodology is based on the fact that in the infinite period of time the Cumulative Abnormal Returns should attend to zero, or in statistical terms, in the population, the mean of the Cumulative Abnormal Returns for each company is 0. To test H1, we need to test if Cumulative Average Abnormal Return (CAAR) for each company is significantly lower than 0. In terms of statistics, CAARi is a mean value for CARit variable. To test H1, I will perform a one-sample t-test for each company with CARit as the sample and 0 as the value of CAARi in population.

Second, I will build a series of linear regression models, which will test the influence of different media coverage characteristics and the sponsors on the abnormal stock returns and test H2.

4. Results

The first hypothesis proposed that the media coverage of the sports industry crises is influencing the stock market prices of the sponsor company. Table 3 shows the results of the t-test. Only abnormal stock returns for McDonalds showed a significant difference (p < .10) with 0. However, the CAARmcdonalds appeared to be higher than 0, that means, that on the periods of the crisis media coverage the McDonalds stock prices were abnormally rising instead of declining; thus, H1 is rejected.

Table 3. Results of one-sample t-tests for CAARs

Company Events window only

CAAR / M SD t adidas .0039 .04 1.05 Nike .0028 .02 1.37 Coca-Cola .0007 .01 .74 McDonalds .0018 .01 1.69* Notes: *p < .10

Next, twelve linear regression models were run: three for each company. The summary of each model is presented in Table 4. It is important to mention, that before running the regression analysis multiple regression assumptions were tested before interpreting the results. As each model consisted of more than one predictors, a

multicollinearity of the predictors was checked. The volume variable showed the signs of multicollinearity with other predictors and was excluded from the analysis (VIF = 24.27,

Table 4. Results of linear regression analysis

Model adidas Nike Coca-Cola McDonalds

b SE b* b SE b* b SE b* b SE b*

1. Type of crisis as predictors

Doping -.001 .003 -.045 -.002 .001 -.149** -.001 .001 .099 .000 .001 .010 Match-fixing -.002 .004 -.062 .000 .002 .800 .000 .001 -.005 .000 .001 -.002 Fans riot -.006 .010 -.057 -.006 .005 .280 .003 .002 .114 .002 .003 .080 Corruption .001 .001 .074 -.001 .001 .297 .000 .000 .002 .000 .000 -.068 Racism -.007 .008 -.081 -.006 .004 .155 .000 .002 .009 -.001 .002 -.046 Violence .003 .008 .040 .003 .004 .528 .000 .002 -.008 .000 .002 .002 Illegal betting .001 .007 .012 .002 .004 .550 .005 .002 .239* .003 .002 .123

2. Response strategy of the event as predictors

Denial .000 .004 .001 -.001 .002 .-.060 .000 .001 -.039 -.001 .001 -.063

Diminishment -.003 .006 -.053 -.005 .003 -.178** .000 .002 -.021 -.001 .002 -.069

Rebuilding .010 .004 .246** -.001 .002 -.032 .001 .001 .116 .000 .001 -.009

Bolstering -.022 .009 -.261*** .003 .005 .069 .001 .002 .028 .002 .003 .081

3. Mention of the specific events as predictors

FIFA 2010 -.001 .006 -.010 .004 .003 .126 .000 .001 -.011 .000 .002 .027 FIFA 2014 .000 .003 -.007 -.001 .001 -.096 .000 .001 -.001 .000 .001 .010 FIFA 2018 .000 .001 -.009 -.001 .001 -.103 .000 .000 -.006 -.001 .000 -.113 UEFA 2008 .001 .018 .005 -.009 .010 -.088 -.002 .004 -.033 .002 .005 .042 UEFA 2012 -.001 .005 -.023 -.005 .002 -.182** .001 .001 .087 -.001 .001 -.081 UEFA 2016 .004 .010 .035 .000 .005 -.003 .001 .002 .025 .002 .003 .062 SO 2008 .000 .008 .003 .000 .004 .008 .004 .002 .209** .003 .002 .132 SO 2016 .004 .005 .131 -.002 .002 -.127 -.001 .001 -.091 -.001 .001 -.134 SO 2012 -.001 .005 -.021 .000 .003 .023 .002 .001 .237*** .002 .001 .199*** WO 2010 -.020 .033 -.061 -.001 .017 -.004 -.002 .008 -.023 -.001 .009 -.011 WO 2014 -.033 .017 -.196*** -.013 .009 -.143*** .002 .004 .039 -.003 .005 -.067 Notes: * p = .01; **p = .05 ***; p = .15.

tolerance = .04). Before excluding it variable, the models only with the volume variable as a predictor were tested and none of them was significant (padidas = .80; pNike = .48; pCoca-Cola = .50; pMcDonalds = .42). Also, no signs of homoscedasticity were noticed. Finally, one of the common issues related to stock market analysis is autocorrelation. however, the Durbin-Watson test showed no signs of autocorrelation for all the models.

In model 1 only all variables, describing the mentioning of different crisis types were included. None of the models were significant (p < .15), however, some of the coefficients were significant. The abnormal stock returns of Nike were significantly decreasing, when the articles mentioning doping scandals were published (b* = -.149, t = -1.66, p = .10) and the abnormal stock returns of The Coca-Cola Company were significantly increasing (b* = .239, t = 2.63, p = .01), when the articles mentioning illegal betting were published. There might be a theoretical explanation for positive coefficient for The Coca-Cola company. The halo effect of the sponsorship might be lower for this company, as it is not functionally congruent with the sponsor: it is not a sports company. Thus, the association of between company and sponsored events, hence, the crisis is not strong. For this reason, there could be some positive factors for the company’s stock prices happening at the same time with the news about illegal betting and their positive effect covered the possible negative effect of the crisis.

In model 2 all the variables, describing the use of different crisis response strategies by the sponsored event were used. Again, none of the models were significant, but some of the coefficients were significant. For example, the use of bolstering (b* = -.261, t = -2.45, p = .02) strategy showed a significantly negative and rebuilding (b* = .246, t = 2.13, p = .04) strategy – a significantly positive influence on the abnormal returns of adidas AG.

Next, the effects of the mention of different sports events were tested in Model 3. From table 3 we can see that the mentioning of UEFA Euro Cup2012 and Winter Olympics in Sochi 2014 were significantly decreasing the abnormal returns of adidas and Nike, when Summer Olympics 2008 in Beijing and Summer Olympics in London 2012 were significantly increasing the abnormal returns of 2012 the stock prices of The Coca-Cola Company and McDonalds respectively.

The individual model for each company was built, using only significant predictors from Models 1 to 3. I succeeded to build significant models for three of the companies, excluding McDonald’s, which can be found in Table 5. For some of the companies, the response strategy of the sponsored sport event was a significant predictor of the abnormal stock returns, thus, H2 is partly confirmed.

Table 5. Individual linear regression models

Notes: * p = .01; **p = .05; *** p = .15.

5. Conclusion and discussion

5.1 Discussion

The present study was aiming at performing one of the first attempts to combine elements of the crisis communication and sports sponsorship theories to investigate effects of the media coverage about sports industry crises on sponsor’s stock prices.

The conceptual model was developed and included the following hypothesis: the media coverage of the sports industry crises is influencing the stock market prices of the sponsor company, moreover, this relationship is moderated by the response strategy of the sponsored event to the crisis and functional congruence of the sponsor. To test these

assumptions, the media coverage of the sponsored industry crisis between 2007 and 2017 was investigated and compared with the stock market returns of the four sponsors of the biggest international sports events.

The finding of the current study provides some first insights on the relationship between media coverage, sports industry crisis and stock market. First, only one of the four companies showed significantly different abnormal stock returns during the sports industry crisis, however, the cumulative average abnormal returns were higher than 0, that means the prices were growing instead of declining. One of the possible explanations of these findings is that there is a plethora of other factors influencing the stock market prices of the selected

Company b SE b* adidas** (adj. R2 = .053, F (3;125) = 3.32, p = .022) WO 2014 -.024 .015 -.142*** Bolstering -.021 .004 -.256** Rebuilding .008 .008 .204** Nike* (adj. R2 = .078, F (2;125) = 5.22, p = .007) Diminishment -.007 .003 -.219** WO 2014 -.017 .008 -.181** Coca-Cola* (adj. R2 = .060, F (2;125) = 5.01, p = .008) SO 2012 .002 .001 .150*** Illegal betting .004 .002 .215** McDonalds

companies, and the crises media coverage does not have enough weight to cover them. The selected companies are salient organizations, and their stock prices are too stable to be influenced by external factors in the long term. Also, the publications on the big sports industry crisis are often becoming breaking news, and nowadays the shareholders can track media in the online basis, for this reason even the reaction of the investors can be immediate. For this reason, it will make sense to choose even smaller event window in future research, as it is possible to extract and hourly or even more detailed stock market data.

Second, the use of the particular crisis response strategy by the sponsored event indeed had a significant effect on the returns of the sponsor. For instance, the use of

bolstering and diminishment was decreasing the stock returns of the sponsors, and the use of rebuilding was, on the contrary, increasing the returns. These findings can be explained by the halo effect of the sponsored event on the sponsor’s reputation. It is important to mention, that the media coverage of the crisis itself was not a significant predictor of the abnormal returns. In other words, for the shareholders of the sponsor it is more influential, how the sponsored organization response to the crises rather than its occurrence. Summarizing my findings, I conclude that further analysis with the bigger sample and adjusted methodology is needed on the proposed model. However, even the findings of the current study can give communication professional several practical implications.

The results of the study should be interesting to a number of sports industry

stakeholder groups. First, the consistently with the previous research on crisis communication the current study showed that the crisis response strategies migh lead to different effects for the organizers of the sports events and other sports organizations. For instance, PR specialists of the international sports events should be aware, that the crisis response may affect not only their own reputation, but also the behavior of the investors of the sponsors. Thus, the

communication professionals of the event can collaborate with the sponsors to build up a consolidated crisis response strategy. Second, it is important for current and future sponsors to consider the influence on the stock market and their relationship with the investors as an important outcome of the sponsorship and be aware of the risks coming with the sponsorship. For example, the sponsor organization can investigate the crisis history of the sponsored event during due diligence procedure before signing new or renewing the old sponsor contract. Finally, the investors should investigate the media coverage of the sponsored organizations in addition to the publications about the company itself when they are making their decisions on the stock market.

5.2. Limitations and future research

The present study showed a number of limitations that need to be taken into

consideration in future research. The first block of the limitations is related to the conceptual model. As this is one of the first studies on the relationship between sponsorship, crisis communication and stock market, the model was simplified to the possible degree and needs to be optimized. In the future research, some of the important features of the media coverage like the length, the origin or the source of the article can be taken into account. Also, more elements of Situational Crisis Communication Theory can be included in the model. For example, the organization’s reputation prior to the crisis can be one of the independent variables.

The next block of the limitation attributed to the sample. The LexisNexis Major International News was used as a source for the media coverage analysis, however, the majority of the articles were coming from UK and USA media, and this might cause the bias in the media coverage. For example, the Olympic doping scandal was mostly mentioned in the light of Winter Olympics 2014 in Sochi rather than Summer Olympics 2012. Also, only four sponsors and a large number of events, were included in analysis and it in future research it will be reasonable to combine the number of events and sponsors in a different way.

Thirdly, the use of the event study methodology causes a number of limitations. One of the most important issues of the chosen method is that even the significant results do not claim causal relationships between variables (Sorescu, Warrem and Ertekin, 2017). The right way to interpret the results is that the abnormal stock returns and certain publications

happened at the same time. It is not correct to claim that the abnormal stock returns of the companies can be explained by certain factors. In addition, the abnormal returns were investigated on the daily level and a rather large event window was chosen. The future research should focus on micro periods of time and, for example, investigate the hourly returns of the sponsors around the times of the sports industry crisis publications.

The present research should be considered as one of the first attempts to find

empirical finding of the influence of the sports industry crises on the associated organizations such as sponsors. Nevertheless, the current study is contributing to the emerging field of studies aiming to explain the relationship between sponsorship communications and stock market and crisis communication in particular in several ways. First, this research is the first try to apply Coomb’s (2011) Situtational Crisis Communication Theory to the field of Sports

Communications. Second, the study was tested with the real data and based on real cases instead of hypothetical experimental setting. Third, the research is focused on the stock market performance of the organization, which is a relatively new dimension in crisis communication theory. Moreover, the stock market studies methodology is still emerging, and the methods part of the current paper could be interesting for other researchers

investigating the effects of the events in the field of communication science.

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7. Appendices

Appendix A. The Codebook 1. Article ID

Instructions: Starting from #1.

2. Date of the publication Instructions: dd.mm.yyyy.

3. Which of the sports event is mentioned in the article:

 FIFA World Cup 2010 in South Africa

 FIFA World Cup 2014 in Brazil

 FIFA World Cup 2018 in Russia

 UEFA Euro 2008 in Austria and Switzerland

 UEFA Euro 2012 in Poland and Ukraine

 UEFA Euro 2016 in France

 Summer Olympic Games 2008 in Beijing

 Summer Olympic Games 2012 in London

 Summer Olympic Games 2016 in Brazil

 Winter Olympic Games 2010 in Vancouver

 Winter Olympic Games 2014 in Sochi

 Winter Olympic Games 2018 in Pyongyang

Instructions: if more than one events mentioned, choose the most relevant one.

4. Which type of the crisis is mentioned in the article?  Doping fraud  Match fixing  Fans riot  Corruption  Racism  Violence

 Other

5. Is the information about the event’s reaction to crisis provided?

 Yes

 No - > finish coding

6. Which crisis response strategy does the sponsored event use?

 Denial  Diminishment  Rebuilding  Bolstering  None Instructions:

More than one strategy can be chosen. Choose Denial if the organization is:

- confronting anyone that claims the crisis exists; - denying the existence of the crisis;

- blaming someone outside of the organization for the crisis

Choose Diminishment if the organization is:

- Minimizing the organization’s responsibility for the crisis; - Minimizing perceived damage associated with the crisis.

Choose Rebuilding if the organization is: - Compensating victims;

- Apologizing for the crisis.

Choose Bolstering if the organization is:

- Reminding stakeholders about past good works; - Praising stakeholders;