There has been much debate over how much sports sponsorship announcements impact advertisers’ stock prices. While many studies have found a positive abnormal return associated with corporate sponsorship announcements—including one recent study focused on NBA jersey patch sponsorships—others suggest the correlation is negligible. But a quantitative meta-analytic review of 34 event studies in sports sponsorship (over 20 years) shows definitively that these announcements have a positive influence on stock markets. T. Bettina Cornwell (Philip H. Knight Chair, University of Oregon and co-author of the research) said the study indicated, “There is a significant effect for sponsorship announcements [on shareholder wealth] in the pre-window. Not the day of the announcement, but in the days preceding it.”
Our Take: It’s reasonable to wonder why event studies would deliver mixed results. Cornwell explained that conflicting conclusions do not necessarily indicate someone was wrong. Studies are drawing conclusions from the information they have. In some cases, the sample size is simply too small for the researcher to truly assess what has happened. Variables in how studies are conducted (including the statistics used) could also explain differences in findings, as could the nature of control for confounding variables in the study.
Meta-analytic studies are useful in identifying trends individual event studies may miss due to their relative lack of data points. In other words, they provide a more holistic vantage point. Cornwell stated her latest study, with first author and previous Ph.D. student, Y. Kwon, on sports sponsorship and stock market returns included 34 independent event studies focused a host of different sports–“not just [those] done on the Olympics or pro sports in the U.S.”
Each of the 34 studies included in the meta-analytic review contained findings related to the date the sports sponsorships were announced, along with the windows immediately prior to and following the news. By taking the analysis up a level and looking at the various windows across multiple studies, Kwon and Cornwell were able to identify statistically abnormal positive stock returns in the period leading up to the announcement. No other period showed sponsorship announcements having a positive or negative effect.
That’s not to say there weren’t individual studies that reflected abnormal positive returns upon announcements of sponsorship news. Jonathan Jensen (Analytics and Sports Marketing Professor, University of North Carolina and co-author—along with Brian Walkup and Adrien Bouchet—of the study on advertiser returns for NBA jersey sponsorships) found that “abnormal returns increased monotonically as time elapsed. Meaning, the bump occurred in every event window and [sponsor] returns increased the longer the timeframe increased” (study included the 20 days post-announcement). He reasoned “as the first jersey sponsorship [opportunity] in the big four North American sport leagues, [the patch] is novel and significant enough that the market not only pays attention to it (hence the abnormal returns), but that the market also believes it is a good investment” (which would explain the gradual increase in the days post-announcement).
It certainly makes sense that publicly traded companies would see a positive uptick in their share price in the days prior to a high-profile sponsorship announcement—at least for those inking deals the markets perceive as beneficial to the company’s future (think: STP Oil Treatment & NASCAR). “These types of deals are negotiated, and there are teams [of people] on both sides. So, people know [it’s coming]. And they may talk about it or they may invest [themselves],” Cornwell said. In short, information may leak to markets before an official announcement is made.
To be clear, while relatedness matters, companies do not have to be functionally related to a sport/team/league for the markets to react positively to sponsorship news. “The brand simply needs to be believed to work well with the sport, [property or rights owner],” Cornwell said (think: Visa/Olympics).
It’s important to understand the stock market approach used in event studies is not really applicable to analysis of the response a single sponsorship announcement received (or did not receive). Cornwell explained that one needs to analyze “the weight of all the individual examples against the entire stock market and its movements at the exact time of the sponsorship announcement, cleaned for counter-veiling events,” to objectively determine if the set of companies benefited. There are simply too many variables in the marketplace to otherwise make a determination. Meta-analysis is then a step up from this as a study of studies.
That’s not to say there aren’t individual company event studies. There are, “they’re just usually longitudinal [in nature]–gathering information about [a company’s] activities and the stock market’s response to them over the course of two decades,” Cornwell said.