Celebrity Endorsements, Firm Value and Reputation Risk: Evidence from the Tiger Woods Scandal

In this study, Professors Victor Stango and Christopher R. Knittel estimate the stock market effects of the Tiger Woods scandal on his sponsors and sponsors’ competitors. In the 10-15 trading days after the onset of the scandal, the full portfolio of sponsors lost more than two percent of market value, with losses concentrated among the core three sponsors EA, Nike and PepsiCo (Gatorade).

Sponsors’ day-by-day losses correlate strongly with Google search intensity regarding the endorsement-related impact of the scandal, as well as with qualitative indicators of “endorsement-related news.” At least some sponsors’ losses were competitors’ gains, suggesting that endorsement deals are partially a business-stealing strategy. However, competitors who were themselves celebrity endorsement-intensive fared relatively worse than those who were not endorsement-intensive, and that difference also correlates day-by-day with news/search intensity regarding the scandal. It appears that the scandal sent a negative market-wide signal about the reputation risk associated with celebrity endorsements.