Professor: Super Sponsors Outperform S&P
Do companies that invest in sponsorship, as a general rule, outperform those that don’t? That's the assertion of a new study by by Professor Jonathan A. Jensen of Columbia College Chicago, which was recently published in the International Journal of Sports Marketing & Sponsorship.
The survey looked at 50 major US corporations including NIKE, AT&T, Coca-Cola, VISA, McDonald’s and Ford over a five-year period measuring key performance indicators such as stock price appreciation, total revenue, net income and earnings per share. To adjust for company size, annual compound growth rates (CAGR) and percentage changes for stock price were also factored.
During the five year period between 2005-09, the super sponsors outperformed other S&P companies in three of the four key performance indicators.
The super sponsors who had the highest net income growth over the five-year period were General Motors (107.9%), Anheuser-Busch (35.0%), Ford (26.0%), AT&T (19.7%) and Procter & Gamble (13.5%). All but three of the super sponsors (Bank of America, Verizon and FedEx) posted higher net income growth than the average of the Standard & Poor (S&P) 500 index (6.50%).
The top super sponsors in terms of growth in earnings per share were General Motors (111.8%), McDonald’s (16.8%), AT&T (10.9%) and Nike (10.2%). All but two of the companies (Anheuser-Busch and Verizon) posted earnings per share growth rates that exceeded the S&P 500 index average of 6.97%.
In terms of stock price appreciation, the super sponsors declined by an average of 0.64%, compared to a decrease of 7.94% for the S&P 500 index. The super sponsors who saw the highest percentage increase in stock price were McDonald’s (96.2%), Visa (66.7%), Nike (45.7%) and Coca-Cola (37.2%).
Jensen says that the super sponsors outperformed the companies on the list who invested in sponsorship at a below-average level, in revenue growth, net income growth and earnings per share growth. The companies, he says, who invested an average of $33.7 million per year in sponsorship (versus an average of $160 million per year by super sponsors) had an average revenue growth of 6.56%, average net income growth of 0.07% and average EPS growth of 3.03%. As a group, the 35 peer companies realised a mean stock price increase of 3.85%.
“We do not suggest a causal relationship between investment in sponsorship and business performance,” says Professor Jensen. “Rather, it is our theory that these companies have consistently outperformed peer companies who spend less on sponsorship and due to the fact that they already enjoy the benefits of their brands being more established and valuable compared to their peers, which contributes to better company performance over time. Their consistent investment in sponsorship is reflective of their efforts to continue to nurture their brands, which, according to branding experts, are among some of the most valuable in the world.”
We haven't seen the full study, but we'd be interested to see how the data set handles self-selection bias. In good times, companies find it easier to swallow sponsorship expenses and expand marketing budgets so wouldn't it seem that higher sponsorship spending could be a function of pre-existing outperformance and optimistic projections?
Since the best partnerships can take many years to develop at this level in a meaningful way and financials are almost always backward-looking data, we should really be looking at how spending levels at each company fluctuate in advance of each of these financial indicators on a much longer time scale? This might yield some valuable insight into the spending habits of sponsors. Does sponsorship spending go up in advance of a higher stock price or down heading into periods of lighter revenue? Secondarily, how is spending impacted by peer performance and the overall macro-economic environment?
Is increased sponsorship a driver of financial success or is optimism a driver of increased sponsorship? The answer is more than likely both. Many of you would argue the former (and we would agree in part), but the truth is that decisions at this level (think World Cup) are made internally many quarters in advance of the financial data, not concurrent to it, so sponsorship spending may be even more valuable as a data point in measuring a company's confidence prior to the time it publicly signals projections to the marketplace.
It's a fun question to debate in theory, but don't look for MLB to take any credit for Bank of America's mortgage-backed securities mess!
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