When a celebrity endorser is disgraced: A twenty-five-year event study
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When a celebrity endorser is disgraced: A twenty-five-year event study Sherry Bartz & Alexander Molchanov & Philip A. Stork
Published online: 5 February 2013 # Springer Science+Business Media New York 2013
Abstract This paper investigates how the announcement of negative information about a celebrity endorser impacts firm value, as measured by abnormal stock returns. The unique data sample consists of 93 celebrity disgraces that occurred between 1986 and 2011, affecting firms listed on US stock exchanges. Some evidence is documented of negative and statistically significant abnormal returns around these events. Returns are lower when the disgrace attracts much media attention, or when the celebrity itself is prominent. No significant returns are observed when a firm decides to terminate its endorsement contract with the disgraced celebrity. Endorsement contracts for “edgy” products, for which consumers may actually be attracted by negative publicity, are less likely to be terminated. Keywords Celebrity endorsement . Event study . Stock returns
1 Introduction and prior work Around 2:30 AM on November 27, 2009, Tiger Woods had a car accident outside his Orlando-area home. In the ensuing chain of events, some of the largest endorsement contracts in history were terminated. Accenture, AT&T, Gatorade (i.e., Pepsico), and Gilette (i.e., Procter and Gamble) all decided that the disgraced golfer should not S. Bartz Department of Economics, University of Miami, 5250 University Drive, Coral Gables, FL 33146, USA e-mail: [email protected] A. Molchanov (*) School of Economics and Finance, Massey University, Gate 1, State Highway 17, Auckland, New Zealand e-mail: [email protected] P. A. Stork School of Finance and Risk Management, VU University Amsterdam, De Boelelaan 1105, kr. 3A 16, 1081 HV Amsterdam, The Netherlands
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continue to be their spokesperson. Interestingly, sponsors like Nike, Electronic Arts, and NetJets maintained their relationship and decided not to scrap their endorsement contracts. The Tiger Woods scandal is in no way unique. A snapshot of Michael Phelps smoking marijuana cost the Olympic gold medalist an endorsement deal with Kellogg. Tabloid photos of supermodel Kate Moss snorting cocaine cost her deals with Burberry and Chanel. Madonna, O.J. Simpson, and Michael Vick are but a few examples of celebrities whose endorsement contracts were terminated because of disgraceful behavior. Use of celebrity endorsers has been a popular strategy for decades, with as many as 25 % of US firms employing celebrities in advertising campaigns (Shimp 2000). In 2003, Nike spent $1.44 billion on endorsement contracts (CNN Money 2003). In the 12 months prior to June 2008, Oprah Winfrey netted $275 million from endorsement contracts (Miller 2008). Michael Jordan has earned around $10 billion from endorsements over the course of his career (Erdogan, Baker, and Tagg 2001). Despite the wide use of celebrity endorsers, evidence of the impact of this strategy on endorsed corporations’ mark
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