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Article / 31 May 2012 at 4:46 GMT

Do Olympic sponsorships benefit companies’ share prices?

Partner - Senior Portfolio Manager / PP Capital Asset Management
Denmark

Olympic sponsorship companies shares

Got a spare USD 50 million hanging around your company? Then you, too, could be considered as a potential global “partner” – the new word for “sponsor” – of the Olympic Games. But would the results of such a major marketing investment show up in your stock price?

It might in the short term. We looked at the stock prices of 3 of the long-term sponsors of the Olympics, Coca-Cola (KO), McDonald’s (MCD) and Panasonic (PC), during the actual event. Graphing the stock price movements during summer Olympics from Beijing 2008 to Seoul 1988, MCD and KO have seen positive returns in 4 out of 6 summer Olympics while Panasonic is  positive in 2 out of 6.

MCD Stock price during Olympics KO stock price during Olympics PS stock price during Olympics

The longer-term isn’t as impressive. If we analyze average performance during the Olympic year vs. non-Olympic years, we can find a pattern albeit one that is not explained by any economic theory or reason.

We see that in non-Olympic years, sponsors tend to do much better than in Olympic years. Although this is most likely purely out of statistical chance, since we see the same results for the general indices such as the S&P500 and the MSCI world index, it is still an interesting trend.

Olympic Sponsors

The two longest-standing sponsors, Coca-Cola and McDonald’s, are the ones most interesting to look at. These companies are the ones who leverage the most on the Olympic branding, and spend increased amounts in marketing during these events. My theory is that during the Olympic year itself, the companies’ realize these costs in their books, but benefit the year after where advertising expenses decrease again. As the advertising expenses decrease, sales might benefit from successful ad-campaigns, profits grow and the stock price benefits.

Why sponsor the Olympics?

You might look at the Olympic partnership from a strategic angle. Not only are these sponsors spreading their message to current and prospective clients, they are also paying the 50m USD to keep their competitors from gaining this significant exposure. To put it simply, who do you think would sign up for the global sponsorship package if Coca-Cola didn’t? I am pretty sure Pepsi would! The same with Visa (V) - MasterCard (MA) would swoop in and sign the contract in a heartbeat! These companies of course have other venues where they spend their marketing effort, but I am sure they would also be happy to sponsor the largest sports event in the world.

Continuing with the strategic angle, companies might also benefit more or less from the partnership based on the Olympics hosting country. Johnson & Johnson (JNJ), for example, only signed up for the global sponsorship program during Beijing in 2008, after which the company pulled the plug and didn’t sign up for another term. This left space for one of its competitors, Procter & Gamble (PG), to sneak in and get the exposure for the 2012 London Olympics. It was simply strategic decision for JNJ to participate in the 2008 sponsorship in order to gain exposure to the Asian markets. The 2012 Olympics in London is a mature market where the partnership might not turn out to be as lucrative as in less developed ones. Lenovo is a similar case: it has been replaced by Acer this year.

Table 1 summarizes the brands that will be in the frontline once the Olympics kick off on 23rd of July this summer.2012 London Olympics - Global sponsors

So, if you are not a big fan of watching the athletes during the Olympics, you might put these stocks on your watch list for two weeks to see who turns out to be the winner.

 

 

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Other articles in this series:

Will the FTSE perform after the London Olympics?  History says yes!

Olympic numbers: 50000 Big Macs, 150000 condoms, 10000 port-a-loos

The economic effects of the Olympics are often disappointing

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