Athlete Endorsement Contracts: The Impact of Conventional Stars

By Fizel, John; McNeil, Chris R. et al. | International Advances in Economic Research, May 2008 | Go to article overview
Save to active project

Athlete Endorsement Contracts: The Impact of Conventional Stars

Fizel, John, McNeil, Chris R., Smaby, Timothy, International Advances in Economic Research

Abstract Despite a continuing increase in the dollar value of athlete endorsement contracts and the prominence of athlete endorsements as a marketing tool, the value of endorsement contracts has gone largely unexamined. Employing event study analysis, this paper assesses the effects of endorsement contract announcements on changes in the share price of firms. In contrast to previous studies which focus on a single megastar athlete or sporting event and find significant positive returns to the firm, this study evaluates 148 endorsement announcements for conventional athletic stars in various sports and finds that the average endorsement contract has an insignificant impact on the market value of the firm. Also, there is no support of the product-endorser match-up hypotheses but endorsements by golfers do exhibit significant abnormal returns.

Keywords Athlete endorsement * Event study analysis * Athlete contracts

JEL Classification M00 * M21


In June of 2003, LeBron James became the National Basketball Association's (NBA) number one draft pick and, prior to playing one regular season game, had signed a $90 million pact with Nike, plus millions of dollars in other corporate contracts with companies such as Upper Deck and Coca-Cola to endorse their products. James' agreement with Nike is second only to the $100 million deal struck with Tiger Woods, but substantially more than the $20+ million paid to Michael Jordan upon his return to the NBA in 2001 (Fisher 2003, p. 1 and Kurtz 2001, p. 1). Nike stock rose by 0.75% on the day the James' signing was reported, indicating that market investors thought Nike had developed a profitable strategy with the signing of James (Hiestand 2003, p. 11c). Not surprisingly, perhaps, athlete endorsements are the cornerstone of Nike's marketing activities.

Despite the apparent success of the Nike-James agreement, and the years of banking on big name athletes to build sales, some companies are beginning to believe that athlete endorsement contracts are not adding to their bottom lines. For example, Howard Burch (Sandomir 1998, p. C1), Vice President of Marketing for Fila America, suggests that "there has been an excessive saturation of athletes associated with signature products. It's too much of a good thing." Brett Shevack (1998, p. 26), CEO of a New York advertising agency, continues the argument stating that "...with few exceptions, nobody really knows which athlete is endorsing which company. Athlete endorsements have ceased to pay off. Ask any kid what brand of shoes Grant Hill wears. He probably won't say Fila."

These conflicting perceptions prompt the question: What is the economic value of an athlete endorsement contract? A number of studies have assessed how product endorsements by athletes may influence perceptions of a company and/or its product (e.g., Burnett et al. 1993; Thwaites 1995) but as Agrawal and Kamakura (1995, p. 56) state "a direct assessment of the effectiveness of a celebrity endorsement on a firm's profitability may be impossible" due to "the difficulty associated with isolating and measuring profit associated with a given endorsement campaign...." It is possible, however to examine how athlete endorsement contracts are perceived by the marketplace as a whole. If the investment market sees these contracts as being worthwhile, the adoption of such a strategy will add to the perceived value of the firm and should be reflected in the market price of the firm's stock (as in the Nike-James example above). Such changes in market value can be analyzed using event study methodology, which estimates the stock market's response to the public announcement of specific events like the signing of endorsement contracts.

Only a few studies have used event analysis to assess whether the benefits accruing to athlete endorsement contracts justify the costs of those contracts. Mathur et al. (1997) find that the announcement of Michael Jordan's retirement from professional baseball and return to the NBA in 1995 prompted a 2% increase in the market value of his client firms.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Athlete Endorsement Contracts: The Impact of Conventional Stars


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?