F1 Sponsor - Stock Mkt Impact, Cobbs et al.

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Seventy-three alliances between Formula One racing teams and their affiliated corporate partners (sponsors) are analyzed via the event study methodology. Contrary to previous research restricted to the US market, the cross-sectional results of this global study indicate that the market value of firms entering into Formula One sponsorship declined as a result of the alliance announcement.
Transcript
  • 1. A Global Markets’ Perspective of International Commercial Sponsorship <ul><ul><li>AMA Summer Conference </li></ul></ul><ul><ul><li>Sunday, August 15, 2010 </li></ul></ul>Joe Cobbs Northern Kentucky University Mark Groza University of Massachusetts Stephen Pruitt University of Missouri - Kansas City
  • 2. Presentation Overview <ul><li>Research question: </li></ul><ul><li>Does commercial sponsorship of Formula One racing add shareholder value to the sponsoring firm? </li></ul><ul><li>Theory: Commercial sponsorship as a strategic alliance </li></ul><ul><li>Context </li></ul><ul><li>Method & Results </li></ul><ul><ul><li>Event study stock analysis </li></ul></ul><ul><li>Implications & Conclusions </li></ul>
  • 3. Sponsorship as a Strategic Resource <ul><li>Strategic Alliance: a manifestation of interorganizational cooperative strategies that entails the pooling of skills and resources by the alliance partners, in order to achieve one or more goals linked to the strategic objectives of the cooperating firms. ( Varadarajan & Cunningham, 1995) </li></ul>Promotional Alliance: a strategic alliance based on resource exchange between a promoting enterprise and a firm seeking to fulfill promotion-based objectives through an ongoing collaboration with the enterprise. Sponsorship: the provision of assistance either financial or in-kind to an activity by a commercial organization for the purpose of achieving commercial objectives. ( Meenaghan, 1983)
  • 4. Sponsorship as a Strategic Resource <ul><li>Value to the sponsoring firm </li></ul><ul><ul><li>Contingent goodwill (Meenaghan, 2001) </li></ul></ul><ul><ul><li>Image transfer (Gwinner & Eaton, 1999) </li></ul></ul><ul><ul><li>Interest  Favorability  Use (Speed & Thompson, 2000) </li></ul></ul><ul><ul><li>Critical sales event (Clark et al., 2003) </li></ul></ul><ul><li>Source of a competitive advantage? </li></ul><ul><ul><li>Corporate image and reputation (Amis et al., 1997) </li></ul></ul><ul><ul><li>Leveraged with marketing resources (Fahy et al., 2004) </li></ul></ul><ul><ul><li>Collaboration (Amis et al., 1997; Farrelly et al., 2003) </li></ul></ul><ul><ul><li>Brand differentiation (Cornwell et al., 2001) </li></ul></ul>
  • 5. Investigative Context <ul><li>Formula 1 motor racing </li></ul><ul><li>International spectacle </li></ul><ul><ul><li>Massive global TV audience (Edgecliffe-Johnson, 2008) </li></ul></ul><ul><ul><li>Annual season of 17-20 races </li></ul></ul><ul><ul><li>on 5 continents </li></ul></ul><ul><ul><li>Teams representing 7 nations </li></ul></ul><ul><ul><li>Drivers from 12 countries </li></ul></ul><ul><li>Intense corporate involvement </li></ul><ul><ul><li>41 of Interbrand’s Top 100 global brands </li></ul></ul><ul><ul><li>Annual corporate commitments over US $100M </li></ul></ul><ul><ul><li>Considerable involvement beyond monetary investments </li></ul></ul><ul><ul><li>(Jenkins & Floyd, 2001) </li></ul></ul><ul><ul><ul><li>i.e. technological development, credentialing, B2B networking </li></ul></ul></ul>
  • 6. Investigative Context
  • 7. Method & Data <ul><li>Event Study Analysis </li></ul><ul><ul><li>Measures stock price impact (Fama, 1970; Karafiath, 1988) </li></ul></ul><ul><ul><ul><li>Announcement of brand extension (Lane & Jacobson, 1995) </li></ul></ul></ul><ul><ul><ul><li>Addition of an internet marketing channel (Geyskens et al., 2002) </li></ul></ul></ul><ul><ul><ul><li>Product placement in films (Wiles & Danielova, 2009) </li></ul></ul></ul><ul><ul><ul><li>Celebrity endorsement (Agrawal & Kamakura, 1995) </li></ul></ul></ul><ul><ul><ul><li>Commercial sponsorship (Cornwell, Pruitt, Clark studies) </li></ul></ul></ul><ul><ul><li>Does sponsorship value outweigh costs, creating an expectation of future cash flows? </li></ul></ul><ul><ul><li>Sample </li></ul></ul><ul><ul><ul><li>- Alliances involving public firm with identified announcement (n=73) </li></ul></ul></ul><ul><ul><li>Stock parameters determined in estimation window (-250 days) </li></ul></ul><ul><ul><ul><li>Event window (0,+1) designated to capture announcement of event </li></ul></ul></ul><ul><ul><ul><li>Thomson Reuters Datastream </li></ul></ul></ul>
  • 8. Event study models & results E(R it ) = α i + β i R M t + e it   2-Step Market Model Full Indicator Model Event Window Mean CAR (%) t-statistic Evt. Wdw. Dummy β t-Statistic -5, +5 -0.6764 -0.81   -0.00077 -0.99   -2, +2 -0.4572 -0.94   -0.00084 -0.74   -1, +1 -0.5338 -1.51   -0.00172 -1.18   -1, 0 0.2483 0.82   0.00155 0.87   0 -0.1669 -0.97   -0.00110 -0.44   0, +1 -0.9442 -3.30 *** -0.00468 -2.62 *** 0, +10 -1.8135 -2.22 ** -0.00170 -2.19 ** 0, +20 -0.2978 -0.24   -0.00008 -0.14   ** p < .05; *** p < .01
  • 9. Results & limitations <ul><li>Negative influence on value </li></ul><ul><ul><li>Contrary to prior research </li></ul></ul><ul><ul><ul><li>International context </li></ul></ul></ul><ul><ul><ul><li>No difference between markets </li></ul></ul></ul><ul><ul><ul><ul><li>Asia, Japan, Europe, U.S. </li></ul></ul></ul></ul><ul><li>Limitations </li></ul><ul><li>Stock price – one measure of value </li></ul><ul><ul><li>- Reliant on efficient markets hypothesis </li></ul></ul><ul><li>Methodology tradeoffs </li></ul><ul><ul><li>- Limits sample size, reaction window </li></ul></ul>
  • 10. Implications <ul><li>Research contribution </li></ul><ul><li>Counters dominant view of sponsorships’ market impact </li></ul><ul><ul><li>Promotional alliance commitments as costs v. investments </li></ul></ul><ul><ul><li>Relative consistency across international markets </li></ul></ul><ul><ul><li>Statistical significance at the firm level in dummy model </li></ul></ul><ul><li>Applied contribution </li></ul><ul><li>Potential agency conflict </li></ul><ul><li>Necessary public reformulation of “sponsorship” </li></ul><ul><ul><li>Bilateral imperative </li></ul></ul><ul><ul><li>Process of market understanding & categorization </li></ul></ul>
  • 11. Conclusion <ul><li>“… the perception of a Formula One deal is extraordinarily expensive because the vast majority of people don’t understand the value that a company gets out of the relationship. …[Analysts] would just see the bottom line figure of a marketing spend and not see the benefits come back in the other way.” </li></ul><ul><li> - F1 Team Executive </li></ul><ul><li>Moving Forward: Modeling significant negative returns </li></ul><ul><li>Magnitude of investment </li></ul><ul><li>Nationality & functional congruence </li></ul><ul><li>Leverage initiatives </li></ul><ul><li>“ We tried to justify that (ROI) as much as we possibly could. Where most (sponsored) organizations fell short was in providing activation activities that would provide you with a positive return on investment .” </li></ul><ul><li>- Sponsoring Firm Executive </li></ul>
  • 12. Thank You Questions/Comments?
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