The cost and consequences of Tiger Woods follies

by Carl Bialik

Tiger Woods’s career totals include 14 Grand Slam tournament victories, plus a number of “transgressions” and as much as $12 billion in wealth destruction because of them.


That last figure arises from a study released last week that made headlines world-wide. Researchers examined the stock prices of companies that had invested heavily in Mr. Woods’s image by sponsoring him and featuring him in advertising. And the fortnight of unfortunate news leaking out about Mr. Woods’s personal life — from a baffling car crash to reports of infidelity, to his announcement that he would step away from golf indefinitely — apparently clubbed those companies out of several billion dollars of their collective market capitalizations.

“The game of golf with Tiger Woods is radically different than without him,” says Victor Stango, co-author of the study and an economist in the Graduate School of Management at the University of California, Davis. And so, too, are the business prospects of his sponsors, Prof. Stango’s study suggests.

Everything from carbon-price gyrations to corporate acquisitions to the assassination of President John F. Kennedy have been studied in the same manner as the unfolding Tiger Woods scandal. Such research seeks clues in the stock market that would suggest how investors think news events will affect companies’ bottom line. But it’s unclear how effectively such effects can be teased out from broader trends, and whether investors’ knee-jerk reaction is particularly useful, anyway.

The Woods study appeared online, accompanied by a university press release, barely two weeks after Mr. Woods stepped away from the links. It isn’t unusual for universities to trumpet studies before they undergo peer review, but this one made some rushed shots into the rough, researchers said.

Prof. Stango acknowledges, in an interview and in the paper, that several challenges may have undermined his findings. Some of Mr. Woods’s sponsors are part of large conglomerates, and news of his infidelity trickled out slowly — both factors that made it tougher to interpret investors’ decisions to buy or sell. “It’s just a very difficult thing to disentangle,” Prof. Stango says.

The effects of some events are easier to isolate than others. For all the tragedy of Mr. Kennedy’s death, it was still seen as a boon to companies with ties to Vice President Lyndon B. Johnson, according to a 1996 study conducted by William O. Brown Jr., an economist at the University of North Carolina, Greensboro. Prof. Brown says that the 1963 assassination was particularly well-suited to such an analysis because its implications — a change in presidency — were immediately clear. Still, he notes that it is impossible to say whether Mr. Johnson really did aid these companies or whether any success they had was attributable to other factors.

But for other studies, just figuring out when the market got wind of the event is a lot harder than it looks. For instance, several studies of investors’ reaction to the Sarbanes-Oxley Act, which tightened accounting rules, arrived at contradictory results. Whether researchers found that investors cheered or booed the act depended on when during its protracted passage people believed the act was inevitable. Similar uncertainty abounds around the current health-care legislation, confounding efforts to read reaction to the overhaul.

Using the market as a gauge “relies on the assumption that the market is processing information quickly enough and making the right assessment as to what effect this has,” says Jim Bushnell, an economist at Iowa State University who studied the impact of carbon-price market movements in Europe on companies that may be affected.

But investors often overreact to news — a point overlooked when examining share-price changes, says Derek Oler, associate professor of accounting at Texas Tech University. In fact, many people pay experts to actively manage their money by exploiting inefficiencies such as market overreactions. “If the market was completely efficient, then active management is a fantastic fraud,” Dr. Oler wrote in an email.

Playing among these analytical sand traps, the Woods study added a few of its own little bogeys in the initial rounds. In its first version, the study said it included stock movements through Dec. 17, though it instead ended the day before. It also included American Express as a sponsor, though the company dropped its Woods relationship in 2007.

And Gatorade, which has sponsored Mr. Woods, is owned by PepsiCo, which suffered a big drop in share price. But that decline coincided with the company’s downward revision of its forecast for revenue and profit.

Typically, researchers like to reduce the chances that any numerical changes — in this case, in share price — are due to chance. In general, the threshold is 5%; anything greater is too chancy. But in the Woods study, there was more than a 5% probability that the stock prices moved as they did by chance, and not because of a golfer’s peccadilloes, meaning the initial finding wasn’t statistically significant.

Several Woods sponsors questioned the notion that one spokesman’s scandal could affect their share price. “Tiger Woods played no role in our company’s stock price,” a spokesman for TLC Vision Corp. wrote in an email. “Our stock had been under pressure for many months.” The company filed for Chapter 11 bankruptcy protection two weeks ago.

Gillette is one of many Proctor & Gamble brands and Mr. Woods is one of many Gillette spokesmen, says Damon Jones, spokesman for P&G. “Isolating the impact of any single event on any company is extremely difficult, as the authors of the study readily acknowledge.” Representatives for Mr. Woods and other sponsors of his declined to comment or didn’t respond to a request for comment.

Prof. Stango and his co-author, UC, Davis, colleague Christopher R. Knittel, addressed many of the problems in an updated version of the paper (i.e. a mulligan) published online Monday. They showed that some other sponsors declined on the same day as PepsiCo’s revised guidance, suggesting Mr. Woods was at fault. They ran more sensitive statistical tests, some of which did clear the 5% significance threshold. And they fixed the error in the date range of share prices they were examining.

But they didn’t address a deeper problem with the study: The study is based only on Mr. Woods’s sponsors; that is a relatively small number of companies, a paucity that weakens the study’s statistical power. Prof. Stango says he and Prof. Knittel may address that by broadening their scope to include the sponsors of other athletes engulfed in scandal, such as Kobe Bryant, who in 2003 was accused — in a case later dropped — of sexual assault.

Some economists say the Woods researchers should have taken more time at the tee. David Tabak, a senior vice president at NERA Economic Consulting, calls the results “shaky” and says the Pepsi guidance revision “raises a lot of red flags.”

Claudia Morain, director of the UC, Davis, News Service, defends issuing a press release about the study, which, she wrote in an email, “has generated significant interest and debate.” She noted that many newspapers report on releases about studies that haven’t undergone peer review — including The Wall Street Journal, which reported on the Woods study in a blog post.

Prof. Stango acknowledges the concerns about the study, and says, “as we submit this to the academic peer-review process, we’ll have to address those concerns.” He adds, “This helped us get constructive comments that will help us improve our analysis.”

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