The economic value of a corporate sponsorship
Tymen Ambrosius 0111082
Bachelor thesis
University of Amsterdam
Bachelor: International Economics and Finance Supervisor: P. Sengmuller
Chapter division
1 Introduction 2
2 Corporate sponsorship 5
2.1 Studies about the economic value of corporate sponsorship 6
2.2 Summary 8
3 Empirical research 9
3.1 Hypothesis 10
3.2 Event study methodology 12
3.3 Data 13
3.4 Results 15
4 Discussion and conclusion 20
1 Introduction
Corporate sponsorship of athletes, facilities, and events is not a new phenomenon in the sport marketing world. Sponsorship appears to be everywhere, from sponsored stadiums and fields to apparel and clothing (McGlone and Martin, 2006, p. 184). Through the media and television attention in the last two decades the sport business has grown explosively (Meenaghan and O’Sullivan, 1999, p. 241). To get an
impression of how much money is going on in the sport business see table 1. Table 1 shows a list of U.S. companies spending more than $15 million a year on sponsorship deals. Linking a brand with an event via sponsorship enables firms to gain consumer attention and interest by associating with events that are important to them (Roy and Cornwell, 2003, p. 377). Advertising is presumably aimed at increasing the
company’s market share in the product market, at a minimum it should make the company’s name and product better known to both consumers and investors (Grullon, Kanatas and Weston, 2004, p. 440).
Although several definitions of sponsorship have been given in the literature, the definition of the International Events Group (IEG) is adopted in this study.
Sponsorship: The relationship between a sponsor and a property, in which the sponsor pays a cash or in-kind fee in return for access to the exploit-able commercial potential associated with the property (IEG Glossary and Lexicon, 2001).
In recent years, corporate sponsorship is one of the fastest growing forms of
marketing communications and has become an increasingly important element of the marketing communication mix (Cornwell, Clark and Pruit, 2005; Farrel and Frame, 1997; Meenaghan and O’Sullivan, 1999; McGlone and Martin, 2006; Mishra, Bobinski and Bhabra, 1997; Miyazaki and Morgan, 2001; Roy and Cornwell, 2003; Verity, 2002). According Verity (2002) there are five explanations of the growth in sponsorship in the last 20 years:
1. Restrictive government policies on tobacco and alcohol advertising. 2. Escalating costs of media advertising.
3. Increased leisure activities and sporting events and interest in them. 4. Greater media coverage of sponsored events.
The rate of growth in sponsorship expenditures is greater than for tradition media advertising and sales promotion (IEG sponsoring report, 2003, pp. 1-5). The sponsorship industry in North America was estimated to rise 8.7 percent in 2004 to $11.14 billion (Chart 2). Chart 2 shows the annual growth of the three marketing categories (advertising, sales promotion and sponsorships) from 2001 to 2004 in the United States. Worldwide the sponsoring industry will rise 8.1 percent to $28 billion in 2004. In 2003 the spending worldwide on sponsorship was $25.9 billion (IEG sponsoring report, 2003, pp. 1-5). European companies will spend $7.9 billion in 2004, a rise of 6.9 percent from $7.4 billion in 2003 (IEG sponsoring report, 2003, p 4). According to the International Event Group (IEG), sporting events are the most popular event type, with an estimated 69 per cent of all North American sponsorship spending are invested in sporting event (chart 3).
Brand names are valuable because of their ability to maintain and create earnings for the company (Lane and Jacobson, 1995, p. 63). In some way companies think that corporate sponsorships have economic value for the company. It’s hard to find financial results of corporate sponsorships. If companies seeing it like an investment they will expect positive current and future cash flows for the company. The chance that a company will accept a project whit a negative net present value (NPV) is almost zero. If a company is for sure they will lose money when they get involved in a corporate sponsorship they simply don’t get into the sport business.
What I said before there is no easy way to see some financial results of a corporate sponsorship. It’s hard to prove if there is a relationship between a corporate sponsorship and company’s profits. The return on investments (sponsorship) is also really hard to find. There have been some studies with financial analysis about the stock market reaction to corporate sponsorships recently in the past. The main
question in this paper is: Is there a relationship between the stock market return and a corporate sponsorship?
Table 1
Chart 1
IEG Sponsorship reports (2003)
Chart 2
IEG Sponsorship reports (2003)
2 Corporate sponsorship
There has been some earlier research about the relationship between a corporate sponsorship and the stock market reaction.
In this paragraph I will describe the findings of some studies with valuable information for this paper.
2.1 Studies about the economic value of corporate sponsorship
Study 1: The relationship between major-league sports official sponsorship announcements and the stock prices of sponsoring firms.
Cornwell, Clark and Pruitt (2005) made a study about the relationship of major-league sports official product sponsorships on stock prices of sponsoring companies. Using the announcement dates from the five most popular professional sports in the United States (baseball, basketball, football, hockey and golf). The primary finding of their study is that, in the main, official sponsorships announcements were accompanied by increase in shareholders wealth (Cornwell, Clark and Pruitt, 2005, p. 401). According Cornwell, Clark and Pruitt (2005), the mean increase in stock prices of the 53
analyzed sponsors around the time of the sponsorship announcements was about $257 million. Although corporate cash flow is statistically unrelated to shareholder
approval, sponsorships by high-technology companies were associated with stronger stock price reactions than otherwise. Finally, product congruence with the sponsored sport was positively related to changes in stock prices (Cornwell, Clark and Pruitt, 2005, pp. 401-410).
Study 2: Assessing the economic worth of corporate event sponsorship: a stock market persective.
Mishra, Bobinski and Bhabra (1997) investigate the economic worth of corporate sponsorship via the event study method to understand if sponsorships are efficient investments. Mishra, Bobinski and Bhabra (1997) hypothesized that a corporate sponsorship announcement provides positive information to the financial market and therefore expected to positively impact the market value of the sponsoring company. They investigate the announcements of 76 sponsorship events analyzed using the event-study method. The results of their study indicate that on average, corporate sponsorship announcements impact the stock market positively and that sponsorships are viewed as worthwhile investments by the financial markets (Mishra, Bobinski and Bhabra, 1997, p. 149).
Study 3: The economic worth of celebrity endorsers: an event study analyses
Agrawal and Kamakura (1995) asses the impact of celebrity endorsement contracts on the expected profitability of a company by using event study methodology. They
assume that the announcement of a celebrity endorsement contract, usually widely publicized in the business press, is used as information by market analysts to evaluate the potential profitability of endorsement expenditures, thereby affecting the
company’s expected return (Agrawal and Kamakura, 1995, p. 56). Announcements of 110 celebrity endorsement contracts were analyzed. Results indicate that, on average, the impact of these announcements on stock returns is positive and suggest that celebrity endorsement contracts are generally viewed as a worthwhile investment in advertising (Agrawal and Kamakura, 1995, p. 56).
Study 4: Corporate stadium sponsorships, signalling theory, agency conflicts, and shareholders wealth.
Cornwell, Clark and Pruitt (2002) presented in their study an analysis of the impact of stadium-naming-rights sponsorships on the stock prices of sponsoring firms. The results of their investigation of 49 stadium- and arena-naming-rights agreement announcements provides that corporate sponsorship deals have a positive effect on the stock prices of sponsoring companies (Cornwell, Clark and Pruitt, 2002, p. 16). According Cornwell, Clark and Pruitt (2002) are there large and statistically
significant positive changes in mean stock prices at the time of first announcement of these sponsorships. The sponsorship agreements are interpreted by the financial market participants as effective signals of expected future profitability of the
company. Sponsorships deals undertaken by high technology companies are perceived much more positively by the financial market than sponsorship deals by traditional companies (Cornwell, Clark and Pruitt, 2002, p. 30).
Study 5: Assessing market value of event sponsoring: corporate Olympic sponsorships.
While the use of event sponsoring, particularly in the form of sports-related sponsorships, is growing at an increasing rate, marketers have had difficulties assessing the value of such advertising strategies (Miyazaki and Morgan, 2001, p9). Miyazaki and Morgan (2001) assess the market value of corporate sponsorship of the Olympic Games, they examined the effects of sponsorship announcements on changes in company’s value are examined. Miyazaki and Morgan (2001) examined 27
sponsorship announcements of the 1996 Summer Olympics in Atlanta and the results of their study provides significant increases in stock prices of sponsoring companies.
Study 6: The Nascar Phenomenon: Auto racing sponsorships and shareholder weath.
Cornwell, Clark, Pruitt (2004) present an analysis of the impact of NASCAR sponsorship announcements on the stock prices of sponsoring firms. They find that NASCAR sponsorship announcements were accompanied by large increases in shareholder wealth. Cornwell, Clark, Pruitt (2004) analyzed 24 sponsors in their study and find a mean increase in shareholder wealth of over $300 million dollars.
Corporate sponsorships with a highly successful racing team are more positively received by investors than a sponsorship with a mid- or lower-tier team (Cornwell, Clark and Pruitt, 2004, p. 292). Congruent sponsorships involving racing and direct ties to the consumer automotive industry increase share prices about 2.8 percent more than sponsorships undertaken by companies in unrelated industries (Cornwell, Clark and Pruitt, 2004, p. 293)
Study 7: The value of opympic sponsorships: Who is capturing the gold?
Farrell and Frame (1997) uses in their study data from the 1996 Atlanta Summer Olympic Games to measure the value of Olympic sponsorship. Using stock return data, they find that the shareholders of sponsoring firms earn negative average
abnormal returns around announcements of Olympic sponsorship agreements (Farrell and Frame, 1997,p 17). According Farrell and Frame (1997), the results suggest that utilizing Olympic sponsorships in the marketing communications mix may not be value enhancing.
2.2 Summary
The hypothesis tested in these studies is:
Hypothesis: Corporate sponsorship announcements provide information to the
financial market about future positive cash flows and positively impact the stock prices of the sponsoring companies.
The results of the studies of Cornwell, Pruitt and Clark (2002, 2004 and 2005), Mishra, Bobinski and Bhabra (1997), Agrawal and Kamakura (1995) and Miyazaki and Morgan (2001) are supporting this hypothesis. The results of the study of Farrell
and Frame (1997) reject this hypothesis. Overall, the weight of earlier research suggests that the announcements of corporate sponsorship will positively impact the stock market (Cornwell, Clark and Pruitt, 2005, p. 403). The announcements of corporate sponsorships provide positive information to the financial markets, they expect higher future cash flows, and therefore positively impact the stock prices of the sponsoring company (Cornwell, Clark and Pruitt, 2002, 2004, 2005; Mishra, Bobinski and Bhabra, 1997; Agrawal and Kamakura, 1995; Miyazaki and Morgan, 2001). According Cornwell, Clark and Pruitt (2002 and 2005), sponsorships deals undertaken by high technology companies are perceived much more positively by the financial market than sponsorship deals by traditional companies. And congruence with the sponsored sport is positively related to changes in stock prices (Cornwell, Clark and Pruit, 2004, 2005).
3 Empirical research
In the past paragraph I described the results of some earlier studies about the reaction of the stock market to a corporate sponsorship. In these studies they did investigate the reaction of the stock market at the announcements of corporate sponsorships.
There is no information in these studies about the reaction of the stock prices of sponsoring companies around event days. So I did empirical research about the reaction of the stock prices of sponsoring companies around event days.
My research includes eight different sponsoring companies of eight different football teams in Europe. The sponsoring companies discussed in this paper are the official shirt sponsors of the teams. The eight clubs, discussed in my research, are performing well in Europe and have sponsoring companies who are listed at a stock exchange in Europe. In table 2 the clubs, official shirt sponsors and the industries they belong too, I used in my research, are listed. I compared in my research the total return index (RI)1 of a sponsoring company to the average return of the industry they’re participating in.
1
Table 2. Overview of the clubs, shirt sponsors and the industries. Clubs Shirt sponsor
1. Ajax ABN
2. Inter Milan Pirelli
3. Juventus Sony
4. Manchester Sharp / Vodafone
5. Lazio Roma Siemens
6. PSV Philips
7. Real Madrid Siemens
8. Valencia Toyota
Shirt sponsors Industry
1. ABN Banks
2. Sony Leisure goods
3. Sharp Leisure goods
4. Philips Leisure goods
5. Siemens Electronic, electrical equipment
6. Vodafone Mobile telecom
7. Toyota Automobile & parts 8. Pirelli Automobile & parts
The purpose of my research is to analyze the stock market return of the official shirt-sponsor around the event days. The events in this study are the final matches (quarter-, semi-finals and the finals) of the Champions league of UEFA-cup.
In this paragraph I will first describe the hypothesis and methodology of this study. After that, I discuss the data collection of my research. Finally, I present the results of my research.
3.1 Hypothesis
Although past event studies of sponsorship effects have produced mixed results, the weight of earlier research suggests that sponsorship is seen by the marketplace to be a good investment (Cornwell, Pruitt and Clark, 2005, p. 403). Moreover, business behaviour expressed in the growth of sponsorship-linked marketing programs during the past two decades suggest that firms find cost and communication advantages (Cornwell, Pruitt and Clark, 2005, p. 403).
The positive relationship between the stock prices of sponsoring companies and the announcements of sponsorship agreements, discussed in paragraph 2, tells us that a sponsorship agreement is seen by the financial market as positive information
for the company. The financial market will expect positive future cash flows for the sponsoring company.
Grullon, Kanatas and Weston (2004) provide empirical evidence that a company’s overall visibility with investor, as measured by its product market advertising, has important consequences for the stock market. They show that firms with greater advertising expenditures have a larger number of investors and better liquidity of their common stock (Grullon, Kanatas and Weston, 2004, p. 439).
Huberman (2001) provides compelling evidence that people invest in the familiar stock while often ignoring the principles of portfolio theory. According Grullon, Kanatas and Weston (2004, pp. 439-441), if investors buy a firm’s stock, at least in part because of their familiarity with the firm, they expect that this visibility among investors will generally lead to a larger breath of ownership of the company’s stock. Such investors make their investment decisions based on familiarity rather than on more fundamental information are characterized as uninformed traders (Grullon, Kanatas and Weston, 2004, p. 440). Company’s improved visibility may increase the number of shareholders, it also may increase the company’s value (Grullon, Kanatas and Weston, 2004, p 442). There are mixed results of the relationship between number of shareholders and company’s value. Grullon, Kanatas and Weston (2004, p 451) find in their investigation some evidence that stock returns are negatively related to the number of shareholders. Some other recent studies find a positive relationship between company’s ownership and company’s value. Amihud, Mendelson and Uno (1999) concluded that stock prices are positively related to an increase in the number of shareholders. Chen, Hong and Stein (2002) find that companies benefit from an increase in the number of shareholders.
Because the financial market interprets corporate sponsorships announcements as positive information I aspect the market will react the same way on event days. Also Grullon, Kanatas and Weston (2004) provide empirical evidence that a firm’s overall visibility may increase the number of shareholders of the company. Mathur, Mathur and Rangan (1997) show that the anticipation of Jordan’s return to the NBA, and the related increased visibility for him, resulted in an average increase in more than $1 billion in stock market value. I think the media attention on event days, and increase of visibility of the company, will provide a positive reaction of the financial market towards the sponsoring companies. So I made the following hypothesis for my research:
Hypothesis: The stock market value of a sponsoring company of a team is
positively associated with the performance, and visibility, of the team in the Champions league or UEFA-cup.
The interpretation I used in this study of “the performance” of the teams: The teams perform well if they make it to the final rounds (quarter-, semi-final and final) of the Champions league or UEFA-cup. At all 98 observations I examined in my research the teams are performing well.
3.2 Event study methodology
The basic premise of event study methodolody is that investors evaluate all relevant new information that becomes available to them and use this in their investment decisions (Mathur, Mathur and Rangan, 1997, p68). Event study analysis operates under the assumption that company’s stock prices reflect the expected current and future cash flows of the company, using all available information (Miyazaki and Morgen, 2001, p11; Agrawal and Kamakura, 1995, p57).
In generally stock market assumed to reflect quickly and correctly to all publicly available information (Miyazaki and Morgen, 2001, p11). If any important information reaches the market the stock price of a company will change
immediately. Therefore, stock prices are viewed as reliable indicators of a company’s value (Agrawal and Kamakura, 1995, p57). If the information is positive, the market will expect higher current and future cash flows, the stock price will increase. The stock price will decrease if the information is negative, the market will expect lower current and future cash flows for the company.
The change of the stock price of a sponsoring company after an event, relative to its pre-event price is the value added though the event. To examine whether an event had any impact on the company’s value, abnormal return, which is the change in stock price after it has been adjusted for changes resulting from general market movements, is measured (Agrawal and Kamakura, 1995, p57).
The basic event study mythology especially involves measuring how a certain event influences movement in particular stock prices (Miyazaki and Morgen, 2001, p 11). The return of the individual stock price compared to the average return of the
industry of the sponsoring company around the event days gives valuable information about the economic value of the corporate sponsorship.
3.3 Data
The sources for the official shirt sponsors analyzed in this study are the official-club or club-related internet sites. The data used in this paper are the total return indexes (RI) of sponsoring firms around the days of the final rounds of the Champions league or Uefa-cup. The total return indexes (RI) are collected at DataStream at the
University of Amsterdam.
The matches are played in the evening after the closing of the stock exchange, so the first reaction on the stock market after seeing the match is at day +1. My research led to the identification of eight sponsoring companies of eight different football clubs participating in the Champions league of Uefa-cup. All these
sponsoring companies are listed at a stock exchange in Europe and traded in euros. The dates of the events are the dates of the quarter-, semi-finals and finals of the Champions league or Uefa-cup. This resulted in a final sample size of 98
observations. A list of the sponsoring companies and the dates of the matches can be found in Table 3.
Table 3
Data matches Champions league of Uefa-cup. ABN (Ajax) 1. 06/03/’96 1/4 finale CL 2. 20/03/’96 1/4 finale CL 3. 03/04/’96 semi-final CL 4. 16/04/’96 semi-final CL 5. 22/05/’96 final CL 6. 05/03/’97 1/4 finale CL 7. 19/03/’97 1/4 finale CL 8. 09/04/’97 semi-final CL 9. 23/04/’97 semi-final CL 10. 03/03/’98 1/4 finale UEFA 11. 17/03/’98 1/4 finale UEFA 12. 08/04/’03 1/4 finale CL 13. 23/04/’03 1/4 finale CL Philips (PSV) 1. 08/03/’01 1/4 finale UEFA 2. 15/03/’01 1/4 finale UEFA 3. 14/03/’02 1/4 finale UEFA 4. 21/03/’02 1/4 finale UEFA
5. 08/04/’04 1/4 finale UEFA 6. 14/04/’04 1/4 finale UEFA 7. 05/04/’05 1/4 finale CL 8. 13/04/’05 1/4 finale CL 9. 26/04/’05 semi-final CL 10. 04/05/’05 semi-final CL Sharp (Manchester United)
1. 05/03/’97 1/4 finale CL 2. 19/03/’97 1/4 finale CL 3. 09/04/’97 semi-final CL 4. 23/04/’97 semi-final CL 5. 04/03/’98 1/4 finale CL 6. 18/03/’98 1/4 finale CL 7. 03/03/’99 1/4 finale CL 8. 17/03/’99 1/4 finale CL 9. 07/04/’99 semi-final CL 10. 21/04/’99 semi-final CL 11. 26/05/’99 final CL 12. 04/04/’00 1/4 finale CL 13. 19/04/’00 1/4 finale CL Sony (Juventus) 1. 06/03/’96 1/4 finale CL No RI available 2. 20/03/’96 1/4 finale CL 3. 03/04/’96 semi-final CL 4. 16/04/’96 semi-final CL 5. 22/05/’96 final CL 6. 05/03/’97 1/4 finale CL RI available 7. 19/03/’97 1/4 finale CL 8. 09/04/’97 semi-final CL 9. 23/04/’97 semi-final CL 10. 28/05/’97 final CL 11. 04/03/’98 1/4 finale CL 12. 18/03/’98 1/4 finale CL 13. 01/04/’98 semi-final CL 14. 15/04/’98 semi-final CL 15. 20/05/’98 final CL 16. 03/03/’99 1/4 finale CL 17. 17/03/’99 1/4 finale CL 18. 07/04/’99 semi-final CL 19. 21/04/’99 semi-final CL Siemens (Lazio Roma / Real Madrid)
1. 13/03/’03 1/4 finale UEFA (Lazio) 2. 20/03/’03 1/4 finale UEFA (Lazio) 3. 10/04/’03 semi-final UEFA (Lazio) 4. 24/04/’03 semi-final UEFA (Lazio) 5. 08/04/’03 1/4 finale CL (Real Madrid) 6. 23/04/’03 1/4 finale CL (Real Madrid) 7. 06/05/’03 semi-final CL (Real Madrid) 8. 14/05/’03 semi-final CL (Real Madrid) 9. 24/03/’04 1/4 finale CL (Real Madrid) 10. 06/04/’04 1/4 finale CL (Real Madrid) Pirelli (Inter Milan)
1. 04/03/’97 1/4 finale UEFA 2. 18/03/’97 1/4 finale UEFA 3. 08/04/’97 semi-final UEFA 4. 22/04/’97 semi-final UEFA
5. 07/05/’97 final UEFA-cup 6. 21/05/’97 final UEFA-cup 7. 03/03/’98 1/4 finale UEFA 8. 17/03/’98 1/4 finale UEFA 9. 31/03/’98 semi-final UEFA 10. 14/04/’98 semi-final UEFA 11. 06/05/’98 final UEFA-cup 12. 03/03/’99 1/4 finale CL 13. 17/03/’99 1/4 finale CL 14. 14/03/’02 1/4 finale UEFA 15. 21/03/’02 1/4 finale UEFA 16. 04/04/’02 semi-final UEFA 17. 11/04/’02 semi-final UEFA 18. 09/04/’03 1/4 finale CL 19. 22/04/’03 1/4 finale CL 20. 07/05/’03 semi-final CL 21. 13/05/’03 semi-final CL 22. 08/04/’04 1/4 finale UEFA 23. 14/04/’04 1/4 finale UEFA 24. 06/04/’05 1/4 finale CL 25. 12/04/’05 1/4 finale CL Toyota (Valencia) 1. 08/04/’04 1/4 finale UEFA 2. 14/04/’04 1/4 finale UEFA 3. 22/04/’04 semi-final UEFA 4. 06/05/’04 semi-final UEFA 5. 19/05/’04 final UEFA-cup
Vodafone (Manchester United)
1. 03/04/’01 1/4 finale CL 2. 18/04/’01 1/4 finale CL 3. 02/04/’02 1/4 finale CL 4. 10/04/’02 1/4 finale CL 5. 24/04/’02 semi-final CL 6. 30/04/’02 semi-final CL 7. 08/04/’03 1/4 finale CL 8. 23/04/’03 1/4 finale CL 3.4 Results
Examination of the reaction of the stock prices of sponsoring companies around the event days was conducted by comparing the return of the sponsoring company to the average return of the industry they’re participating in. I hypothesized that the stock market value of a sponsoring company is positively associated with the performance, and visibility, of the sponsored team. The results of my research can you find in table 42.
2
Table 4. Results of the research.
Company Observations Day 0 Day 1 -1,+1 -2,+2 0,+5
Abn-amro 13 5* 7 5 5 9 38,5% 53,8% 38,5% 38,5% 61,5% Philips 10 4 6 5 3 3 40,0% 60,0% 50,0% 30,0% 30,0% Sharp 13 3 7 6 7 6 23,1% 53,8% 46,2% 53,8% 46,2% Sony 14 5 5 5 5 5 35,7% 35,7% 35,7% 35,7% 35,7% Siemens 10 5 5 4 2 3 50,0% 50,0% 40,0% 20,0% 30,0% Pirelli 25 13 13 13 11 9 52,0% 52,0% 52,0% 44,0% 36,0% Toyota 5 4 1 5 4 4 80,0% 20,0% 100% 80,0% 80,0% Vodafone 8 5 5 5 5 5 62,5% 62,5% 62,5% 62,5% 62,5% Total 98 44 49 48 42 43 44,9% 50,0% 49,0% 42,9% 43,9%
* This 5 means that 5 times of the 13 observations the return of the sponsoring company was positive compared to the average return of the industry on day 0. This means that in 38,5% of the times the return of the sponsoring company is positive compared to the average return of the industry.
* More detailed information about the results of my research can be found in the excel sheets (annex 3, p. 25).
The results of all sponsoring companies together, with in total 98 observations, of my research are listed in table 5.
Table 5
Company Observations Day 0 Day 1 -1,+1 -2,+2 0,+5
Total 98 44 49 48 42 43
44,9% 50,0% 49,0% 42,9% 43,9%
The returns of all the sponsoring firms together, tested in my research, compared to the average returns the industry they are participating in are slightly negative (table 5).
Banking industry
Abn-amro (Ajax)
The Dutch company Abn-amro is the official shirt sponsor of Ajax who’s playing in the national competition of the Netherlands. So I compared the returns of Abn-amro to the average return of the banking industry in the Netherlands. These are the banks listed at the AEX stock exchange: Tilburgsche Hypotheek Bank, ING, Fortis and Abn-amro.
Ajax (Abn-amro) played 13 matches in the Champions league of UEFA-cup (table 6). For example at day +1 (day after the match), 7 of the 13 times the return of Abn-amro was positive compared to the average return of the banking industry in the Netherlands.
Table 6. Banking industry
Company Observations Day 0 Day 1 -1,+1 -2,+2 0,+5
ABN 13 5 7 5 5 9
38,5% 53,8% 38,5% 38,5% 61,5%
Overall, the returns of Abn-amro compared to the total banking industry in the Netherlands are slightly negative.
Leisure Goods industry
Philips (PSV) / Sharp (Manchester United) / Sony (Juventus)
These companies are participating in the leisure good business. Juventus, Manchester United and PSV are playing in Italy, England and the Netherlands. I compared
Philips, Sharp and Sony to the total leisure good industry of Europe. These companies are listed at a European stock exchange and traded in euros: Loewe, Amer Sports, Beneteau, Inforgrames Entertaiment, Piscines Desjoyaux, Rodriguez Group, Trigano, Jumbo, Accell Group, Docdata, Philips, Sony and Sharp.
PSV played 10 matches in the Champions league or EUFA-cup with Philips as official shirt sponsor. Manchester United played 13 matches with Sharp as official shirt sponsor in the Champions league of EUFA-cup. Manchester United played also 8 matches with Vodafone as official shirt sponsor. You can find these results further
on in this paper. We are now concentrating on the leisure good industry. Juventus played 14 matches in the Champions league or UEFA-cup with Sony as official shirt sponsor.
The total matches played with sponsors who’re participating in the leisure goods industry are 37 (table 7). For example on day 0, 12 of the 37 times the return of the individual company (Sony, Sharp or Philips) was positive compared to the
average return of the leisure good industry.
Table 7. Leisure good industry.
Company Observations Day 0 Day 1 -1,+1 -2,+2 0,+5
Philips 10 4 6 5 3 3 40,0% 60,0% 50,0% 30,0% 30,0% Sharp 13 3 7 6 7 6 23,1% 53,8% 46,2% 53,8% 46,2% Sony 14 5 5 5 5 5 35,7% 35,7% 35,7% 35,7% 35,7% Leisure Goods 37 12 18 16 15 14 32,4% 48,6% 43,2% 40,5% 37,8%
Overall, the returns of Sharp are normally related to the average movements of the leisure good industry in Europe. The returns of Philips and Sony compared to the average return of the leisure good industry in Europe are negative.
Philips, Sharp and Sony together participating in the leisure good industry, with in total 37 observations, gives us reliable information and results of the effects of sponsoring companies in the leisure goods business. The returns of the three
companies together compared to the average return of the leisure good industry in Europe are slightly negative.
Electrical equipment industry
Siemens (Lazio Roma / Real Madrid)
Siemens is a German company and the official shirt sponsor of Lazio Roma and Real Madrid. Lazio Roma is playing in Italy and Real Madrid in Spain. I compared the returns of Siemens to the average return of the electrical equipment industry of Germany. The companies listed at the stock exchange of Frankfurt are: Boewe systec, Repower systems, Solon Fuer Solartechnik, Suess Microtech and Siemens.
Table 8. Electrical equipment industry
Company Observations Day 0 Day 1 -1,+1 -2,+2 0,+5
Siemens 10 5 5 4 2 3
50,0% 50,0% 40,0% 20,0% 30,0%
The returns of Siemens compared to the average return of electrical equipment industry of Germany are slightly negative.
Automobile & Parts industry
Pirelli (Inter Milan) / Toyota (Valencia)
Pirelli is an Italian company and the official shirt sponsor of Inter Milan who’s playing in the national competition of Italy. I compared the return of Pirelli to the average return of the total automobile & parts industry of Italy. The companies listed at the stock exchange in Milan are: Brembo, Carraro, Ducati motor holding, Fiat, Pininfarina, Sogefi and Pirelli.
Toyota is a Japanese company and the official shirt sponsor of Valencia. Valencia is playing in the national competition of Spain. I compared the return of Toyota to the average return of other Japanese companies listed at the stock exchange in Frankfurt. These companies are: Mazda, Nissan, Mitsubishi, Daihatsu, Suzuki, Honda and Toyota.
Table 9. Automobile & Parts industry
Company Observations Day 0 Day 1 -1,+1 -2,+2 0,+5
Pirelli 25 13 13 13 11 9 52,0% 52,0% 52,0% 44,0% 36,0% Toyota 5 4 1 5 4 4 80,0% 20,0% 100% 80,0% 80,0% Automobile & 30 17 14 18 15 13 Parts 56,7% 46,7% 60,0% 50,0% 43,3%
The returns of Pirelli are normally related to the average return of the automobile & parts industry in Italy. The returns of Toyota are positive compared to the average return of Japanese automobile & parts industry listed in Frankfurt.
The returns of Pirelli and Toyota together are similar, maybe a little positive, compared to the average return of the automobile & parts industry.
Mobile telecom industry
Vodafone (Manchester United)
Vodafone is a British company and the official shirt sponsor of Manchester United. Manchester United is playing in the national competition of England. I compared the return of Vodafone to the average return of the European mobile telecom industry. These are the companies listed at a European stock exchange traded in euros: Mobistar, Cosmote mobile telecom, Sonae com limited data and Vodafone.
Table 10. Mobile telecom industry
Company Observations Day 0 Day 1 -1,+1 -2,+2 0,+5
Vodafone 8 5 5 5 5 5
62,5% 62,5% 62,5% 62,5% 62,5%
The returns of Vodafone are positive compared to the average return of the mobile telecom industry in Europe.
4 Discussion and conclusion
The major objective of this study has been to investigate the economic value of corporate sponsorships via the event study method. Is there a relationship between the stock market return and a corporate sponsorship was the main question in this paper.
In paragraph two I described the results of some earlier studies about the reaction of the stock market to a corporate sponsorship. In these studies they investigate the reaction of the stock market at the announcements of corporate sponsorships. The hypothesis that corporate sponsorship announcements provide information to the financial market about positive future cash flows and positively impact the stock prices of the sponsoring companies is supported by Cornwell, Pruitt and Clark (2002, 2004 and 2005), Mishra, Bobinski and Bhabra (1997), Agrawal and Kamakura (1995) and Miyazaki and Morgan (2001). Overall, these studies find that the announcements of corporate sponsorships provide positive information to the financial market, the financial market expects higher future cash flows, and therefore positively impact the stock prices of the sponsoring company (Cornwell, Clark and
Pruitt, 2002, 2004 and 2005; Mishra, Bobinski and Bhabra, 1997; Agrawal and Kamakura, 1995; Miyazaki and Morgan, 2001).
The hypothesis that the stock market value of a sponsoring company is positively associated with the performance, and visibility, of the sponsored team is tested in my research. If I look at the results of my research in table 4, I have to reject the hypothesis and conclude that the stock market value of a sponsoring company isn’t positively associated with the performance, and visibility, of the sponsored team in the Champions league or Uefa-cup. The results of my research find slightly
negative returns of the sponsoring companies compared to the average returns of the industries they belong to around event days (table 5). Also the returns of sponsoring companies in the leisure good business compared to the average return of the total leisure good business are negative (table 7). Only the returns of Toyota and Vodafone around the event compared to the average return of the industry they are participating in are positive. Overall, there is a slightly negative reaction on the stock prices of companies around event days in my research. The good performance, and increased visibility, of the teams in this study wasn’t value enhancing for the sponsoring companies.
Annex 1
Datastream (2007)
Annex 2
Explanation of the calculation of the results: Take for example ABN-AMRO
These calculations are for the event day 03-04-1996.
1. Return day 0 = (RI (03-04-1996) / RI (02-04-1996)) -1 = (364,58 / 363,7) -1 = 0,00242 (p.1 and 2 excel sheets ABN)
2. Return day +1 = (RI (04-04-1996) / RI (03-04-1996)) -1 = (366,78 / 364,58) -1 = 0,00603 (p.1 and 2 excel sheets ABN)
3. Return (1,+1) = (RI (04041996) / RI (01041996)) 1 = (366,78 / 364,58) -1 = 0,00603 (p.-1 and 2 excel sheets ABN)
4. Return (-2,+2) = (RI (05-04-1996) / RI (29-03-1996)) -1 = (366,78 / 361,5) -1 = 0,014606 (p.1 and 3 excel sheets ABN)
5. Return (0,+5) = (RI (10-04-1996) / RI (02-04-1996)) -1 = (368,98 / 363,7) -1 = 0,014517 (p. 4 and 5 excel sheets ABN)
Market return = average of the return of the individual companies in this industry. For example day 0 (03-04-1996) average daily returns of the market is
(0,00242 (ABN) + 0 (Tilburgse Hyp.bank) + -0,01739 (ING) + -0,01575 (Fortis)) / 4 = -0,00768 (p.2 excel sheets ABN)
The return of Abn-amro (0,00242) compared to the average return of the total banking industry (-0,00768) is positive at event day 0.
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