The Olympic Games are a time for national pride, international cooperation, and, some believe, corporate profit. Although a plethora of studies support each side of the Olympics sponsorship cost-benefit conundrum, looking to the stock market itself may provide an objective answer to this $1 billion question.
Is sponsorship worth it?
It's incredibly difficult to isolate the effect of Olympics sponsorship on a company's value. Defying conventional analysis techniques, economist Alexander Molchanov conducted a study in 2010 to determine whether the stock market could reveal whether Olympics sponsorship adds value to a corporation.
Molchanov's main findings indicate that the most significant changes in share prices occur on the date of the opening ceremony and, for the 2008 Beijing Olympics, resulted in positive returns for international sponsors and negative returns for domestic sponsors.
Molchanov's analysis used a variety of econometric tools, but just for the sport of it, I performed a rough redo of his study to see how share prices for this year's Olympics sponsors reacted to Queen Elizabeth II parachuting into the opening ceremony stadium.
To isolate the "Olympic effect," I removed nine of the 22 publicly traded sponsor companies because of recent or imminent earnings announcements and recommendation changes. Here's my first-glance data:
Source: Author, data from Yahoo! Finance.
The Worldwide segment contains both big winners and big losers: Samsung and Coca-Cola reaped returns while Panasonic
As a final level of analysis, I adjusted for S&P gains and looked at each sponsorship group separately to see if any microtrends popped out. Voila:
Source: Author, data from Yahoo! Finance.
Nothing like a little parsing to separate the gold from the silver (or the green from the red). From the chart above, it seems that the market rewarded all sponsors, but in reverse order to the level of sponsorship that each corporation paid.
Since we're playing the second-hardest game in finance, "Explain What the Market Did" (the first-hardest is "Explain What the Market Will Do"), here are a few reasons I believe this might've happened:
- The 2012 London Olympics had been bombarded with negative press and criticism, so the opening ceremony served as a pleasant surprise (read "new information" for you efficient-market hypothesizers) for viewers, sponsors, and shareholders alike.
- The competitive nature of bidding for a Worldwide Olympic Partner spot reduces the returns of this sponsorship type to next-to-nothing.
- The opening ceremony was highly nationalistic and pointed more to U.K. pride (represented by Olympic Partners and Supporters) than global progress (represented by Worldwide Olympic Partners).
Invest in the Olympics?
Analyzing the market's reaction to the Olympics is only one piece of a much larger and more complicated puzzle, but it can teach us a few important lessons:
- The link between corporate value and Olympic sponsorship is real.
- The exact value depends on factors including the company sponsorship type.
- Just as the opening ceremony can be considered "new information" by the market, a company's final ROI on its sponsorship will continue to depend on sponsorship-related decisions it makes well after the Olympic torch leaves London.
There are plenty of hidden value opportunities outside the Olympics and we work hard at The Motley Fool to uncover them. One of our top analysts recently published a special free report "Middle-Class Millionaire Makers: 3 Stocks Wall Street's Too Rich to Notice" that outlines profitable companies that make products that everybody uses, but nobody notices. It's available for a limited time only, so grab your free copy today.
