RESULTS
Study Shows NASCAR Deals Greatly Improve Sponsors’ Stock Price
NARSCAR TEAM SPONSORSHIP'S IMPACT ON MARKET VALUE*
*Average increase in sponsors’ total market value in the day following announcement of primary sponsorship of a NASCAR Nextel Cup team
: While the sponsorship industry continues to make strides in developing methods to measure return on investment, one area often speculated about–but rarely researched–is the effect of sponsorships on shareholder value.
A recent study by a team of U.S. and Australian academics addresses that question as it pertains to one category of high profile deals: primary sponsorships of NASCAR Nextel Cup teams.
And the answer, as stated by the research-ers, is dramatic: “NASCAR sponsorship announcements were accompanied by the largest increases in shareholder wealth ever recorded in the marketing literature in response to a voluntary marketing program.”
In other words, no other marketing, advertising or promotional campaign analyzed for its stock price effect has ever received such ringing approval from Wall Street.
The numbers behind what the researchers call “a striking and unambiguous stock market endorsement”: an average increase in market value for the 24 sponsors studied of more than $334 million in the day following the deal announcement. That figure is net all of the estimated expenses associated with the eight-figure sponsorships.
The study’s results provide strong ammunition to sponsorship sellers and corporate managers who need to sell deals internally. In addition to the medium’s already demonstrated positive impact on consumers, business customers, employees and other stakeholders, sponsorship can have a direct effect on the ultimate bottom line, the company’s overall value.
David Jessey, vice president of Evernham Motorsports, which fields multiple NASCAR Nextel Cup entries, called the study’s findings “very exciting” and useful information to help sell deals. “I would put this information into my presentation in trying to sell our major sponsorships. We know that the dollars are large enough that the people we are talking to within a company are going to have to go to the CEO with a business case, and this evidence would be well received by senior executives,” he said.
“Every fact helps make the case, and this type of information is valuable because it comes from a third party with no ties to the industry.”
Jessey said the study’s results would be useful for other properties selling multimillion-dollar deals that require C-level approval.
Zak Brown, president of Just Marketing, the agency for the Army National Guard; Diageo North America, Inc.; Subway Restaurants and other NASCAR sponsors, agrees.
“For smaller sponsorships, the managers who sign off are more focused on case sales and moving the needle in local markets. Stock price is too big an issue for them. But for larger expenditures you must have CEO approval, and shareholder value is the key interest point at that level. This type of information is not just fluff, but a key selling point.”
What Was Studied
The researchers used long-established methodology for measuring the effects of a single event–in this case the announcement of a new primary Nextel Cup team deal–on a company’s stock price. The companies analyzed included General Mills, Inc.; The Home Depot, Inc.; Newell Rubbermaid Inc.; Pfizer Inc.; and United Parcel Service of America, Inc.
The analysis estimated the expected stock price changes for each company over a 126-day window beginning 25 trading days prior to and ending 100 trading days following the announcement of the sponsorship deal.
Knowing the expected changes, the model can then isolate the effects of a single announcement from the many other influences on shareholder value by subtracting the expected returns from the actual daily stock price changes. The result is termed an “abnormal return.”
The average abnormal return for the 24 companies in the study was a 1.13 percent gain in value in the day following the announcement. The researchers note that this “striking result” is large and statistically significant. Furthermore, the average was not the result of a few companies doing extraordinarily well; rather, two-thirds of the sponsors recorded abnormal return increases.
The study also showed that the immediate price increases following the sponsorship announcements were not subsequently given back, as it found no “statistically significant reductions in stock prices in the 100-day post-announcement window.”
Specific Factors That Increase Value
The study also looked at a handful of variables to determine their relationship to stock price change. Of most interest were:
Industry-related companies. “There is clear evidence that NASCAR sponsorships involving automotive-related companies were perceived more positively by shareholders than those involving unrelated companies,” the study found.
The abnormal return was a 1.94 percent gain in value–a figure 72 percent higher than the overall 1.13 percent–resulting in an average increase in dollar value of $518 million. Seven out of the nine automotive-related companies recorded abnormal return increases.
Investors likely believe that “sponsorships that are strongly linked to the sponsored event are substantially more effective than those that are unrelated,” according to the study.
Corporate vs. brand sponsorships. The study also found that “sponsorships that cover an entire corporate enterprise were received more favorably by investors than sponsorships targeted toward a single product or operating division,” as in the case of General Mills’ Cheerios and Pfizer’s Viagra teams. The average corporate-oriented sponsorship generated increases in shareholder wealth almost three percent higher than the average subsidiary or brand-focused deal.
The researchers point out that in many cases a brand-centered sponsorship is likely to be more beneficial than a corporate deal when a parent company is not easily identified with its brands. However, they reason that investors prefer corporate-level sponsorships because they offer more opportunities to leverage the deal acrossa company’s entire range of products or services.
Successful vs. non-successful teams. The research found that deals with teams that had high year-end point totals were more positively received by investors than mid- or lower-tier teams.
Indeed, the researchers report that based on their findings, a company signing a new primary deal with the defending Nextel Cup champion could expect an increase in share price almost 64 percent greater than the increase resulting from a new deal with the lowest-finishing driver.
The researchers responsible for the study are Stephen Pruitt, professor at the Henry W. Bloch School of Business and Public Administration at the University of Missouri-Kansas City; T. Bettina Cornwell, professor of marketing at The University of Queensland; and John Clark, assistant professor at The University of Southern Mississippi.
Sources
Evernham Motorsports, Tel: 704/978-2326
Just Marketing, Tel: 317/870-9922
University of Queensland, Tel: 61/7-3365-8295