Athlete off-field misconduct, sponsor reputation risk, and stock returns

ABSTRACT

Research Question: Does athlete off-field misconduct affect the stock price of sponsors of the athlete's team, stadium and league? No research on the impact of athlete off-field misconduct on indirect sponsors like team, stadium, or league sponsors exists.

Research Methods: The paper employs quantitative analysis using an event study methodology. The paper performs an analysis of stock price data for 179 publicly traded firms sponsoring the National Football League (NFL), NFL teams, or NFL stadiums, based on 863 individual incidents of NFL player off-field misconduct over 2000–2017.

Results and Findings: Off-field misconduct affects team sponsors, but not stadium or league sponsors. Cumulative average abnormal return for team sponsors amount to −0.3% ten trading days after events and more than −1.0% after the strengthening of the NFL personal conduct policy in 2014. The mean (median) impact of a misconduct incident on team sponsor market capitalization was −$157 million (−$44.7 million).

Implications: Organizations considering sports sponsorship deals should understand that they assume a risk of negative effects of player off-field misconduct even if they sponsor teams and not individual athletes. Investors in firms that sponsor professional sports teams should realize that the price of their shares could decline if an athlete on a sponsored team violates laws or gets arrested. Sports leagues should recognize that changing personal conduct policies may have unintended consequences in terms of how the public, especially investors in firms sponsoring teams, react to violations of these policies.

KEYWORDS:

• Off-field athlete misconduct
• athlete endorsement
• stock returns
• event study

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Source: ‘Papa John's says anthem protests are hurting deal with NFL’, by Darren Rovell, ESPN.com, November 1, 2017, accessed [February 8, 2018], http://www.espn.com/nfl/story/_/id/21250448/nfl-sponsor-papa-john-not-happy-anthem-protests (Rovell, 2017).

2 Source: ‘NFL owners endorse new personal conduct policy’, by The National Football League, NFL.com, December 10, 2014, accessed [February 28, 2018], http://www.nfl.com/news/story/0ap3000000441758/article/nfl-owners-endorse-new-personal-conduct-policy (National Football League, 2014).

3 We perform an additional robustness check by excluding these overlapping sponsors in the event studies for team, stadium and league sponsors. The exclusion does not affect our main results.

4 Source: ‘NFL Sponsorship Soars To $1.25 Billion, Up 4.3% Year-Over-Year’ by Darren Heitner, Forbes.com, March 8, 2017, accessed [July 11, 2018], https://www.forbes.com/sites/darrenheitner/2017/03/08/nfl-sponsorship-soars-to-1-25-billion-up-4-3-year-over-year/.