Friday, January 22, 2010
The "Tiger Effect" and Economic Impact
According to an economic impact study published by the tournament, the 2007 and 2008 Buick Opens, each won by Tiger Woods, both attracted roughly 45-55,000 out-of-town visitors and generated economic impacts of around $30 million for the city. Out-of-towners represented 26% of the crowd in 2007 and 37% of spectators in 2008.
"Tigerless" tournaments generally attract 10-25% fewer spectators than those with the sport's premier player. Taking the economic impact numbers at face value, an admittedly unusual move here at The Sports Economist to be sure, if the reduction in attendance is evenly distributed between locals and non-locals, Tiger Woods' absence means a reduction in economic impact for the city of 10-25% or roughly $3 to $7 million.
But there is ample reason to believe his absence is not uniformly distributed. Even without Tiger, the Buick Open is a fun event for locals to attend right in their own backyard. However, the tournament may no longer be worth a long trip for the serious golf fan. Indeed, tournament officials have hinted that out-of-town visitors may comprise fewer than 10% of spectators this year. Since out-of-towers represent the only real source of potential economic impact, this represents a possible reduction in economic impact of 60-75% or a fall of $18-22 million from the previous $30 million figure.
Looks like Tiger might owe an explanation to all of the poor economic analysts in San Diego.
Labels: economic impact, golf, Tiger Woods
Monday, December 28, 2009
Event study pegs cost of Woods scandal at $12 billion
Two to four per cent of your company is a lot to have tied up in a wayward athlete. I don't doubt the measurement that Knittel and Stango have done, but the magnitude of such studies sometimes has a whiff of excess response to information. Here's a link to the study itself (pdf), which seems worth a read when you get the chance.To assess shareholder losses, the economists compared returns for Woods’ sponsors during this period to those of both the total stock market and of each sponsor’s closest competitor.
Knittel and Stango also reviewed returns for four years before the car accident to determine how each sponsor’s market performance normally correlates with that of the total market and of competitor firms.
The study focused on nine sponsors for which stock prices are available: Accenture; American Express; AT&T; Tiger Woods PGA Tour Golf (Electronic Arts); Gillette (Proctor and Gamble); Nike; Gatorade (PepsiCo); TLC Laser Eye Centers; and Golf Digest (News Corp.).
Overall, Knittel and Stango concluded that the scandal reduced shareholder value in the sponsor companies by 2.3 percent, or about $12 billion.
“(This) pattern of losses is unlikely to stem from ordinary day-to-day variation in their stock prices,” the researchers wrote.
Investors in the three sports-related companies (Tiger Woods PGA Tour Golf, Gatorade, and Nike) fared the worst, the study found. They experienced a 4.3-percent scandal-generated drop in stock value, equivalent to about $6 billion.
Labels: marketing, Tiger Woods
Monday, December 14, 2009
Surowiecki on Woods
Darren Rovell has some good analysis on the costs and benefits to different companies of dropping or staying with Tiger. Nike is not in the same position, for example, as Accenture, the first major deal to implode. Interestingly, Rovell also noted the betting odds offered by Irish Bookmaker Paddy Power, which had Accenture as 9-4 favorite to be the first to drop Tiger. The Wisdom of Crowds
strikes again!Labels: endorsements, Tiger Woods
Friday, December 11, 2009
Tiger Financial Fallout
Forbes.com provides a breakdown of his biggest deals. Of that $92 million, a third comes from Nike. Given the length of that relationship, Nike's past profitability from it from clubs and beyond, and Tiger's likely long term performance, one has to think his money from that source is safe. Other endorsements, however, from organizations not so player-committed and not in the sports business, are more in doubt. Gatorade (Pepsico) dropped its $8 million deal with Tiger, but with its venture with him lagging, it's hard to separate cause and effect. Nonetheless, in a pre-, post-event analysis, this counts as a net loss of nearly 10% until he picks someone else up.
Most sports-savvy econ and marketing people in my hallways don't expect any new deals for Tiger over the next couple of years, minimum. I did a back of the envelope present value calculations of his lost endorsement income based on these three scenarios (all discounted at 5% per year):
Scenario 1 (No-"Event"): endorsement income grows at 7% per year for 10 years;
Scenario 2 (Post-Event Big Impact): endorsement income falls by 25% of 2009 value in 2010, by 50% in 2011, and then starts growing by 10% per year thereafter;
Scenario 3 (Post-Event Moderate Impact): endorsement income falls by 25% in 2009, remains stable for 2 years, and then starts growing by 10% thereafter.
Under Scenario 1, Tiger earns $1.02 billion over 10 years. In Scenarios 2 and 3, this drops to $521 and $692 million or losses af about $500 million and $300 million. Big losses in absolute income, but from an enormous starting value.
The likely beneficiaries are the sporting celebrities down the list and non-sporting celebrity endorsers. Here's speculation by Forbes.com Michael Ozanian who thinks someone like Jimmie Johnson (whose endorsement figures have been surprisingly low) stands to benefit. However, one wonders the extent of overlap in NASCAR and Tiger-related endorsement audiences. Gatorade might be one item with substantial overlap.
Labels: endorsements, Tiger Woods
Friday, June 13, 2008
Tiger, Jack, & "The Field"
"The problem is it's hard to compare eras," Nicklaus said. "It's a different game today, and a lot of guys from before, like even Hogan and Player, would have had a hard time today because of the distance you need to drive it. That's just a fact of what the game is. "I don't know if we had as many good players, but the great players we had all were multiple major winners, so when I slipped up, there was somebody else on their 'A' game. "There are great players now, but they might not have won a lot of majors, except for Tiger. Phil [Mickelson] could be close. Ernie [Els] approached it, Vijay [Singh] approached it. But that's about it. And that's a fact of life today."Jack seems right on both counts. The idea that fields are deeper with more good players is hard to criticize. Population growth along with rising incomes offer easy explanation. From Jack's entry into playing majors (1960 as an amateur) through his 1986 Masters title, a collection of legends-but-below-Jack won 35 majors between them (Ballestoros -4, Floyd-4, Palmer-5, Player-8, Trevino-6, Watson-8). Moreover, in Jack's 19 second place finishes in Majors, this group of players accounts for 11 "head-to-head" victories over Jack. (It's not just who you beat, but who beats you).
My interest in this is not centered on "who is the best" but why the drop off in legends below the level of Jack and Tiger? (See Tom Watson, Where Are You? ). Where are the Watsons and Trevinos -- guys who aren't as good as Jack or Tiger over the long haul but are good enough to beat them on multiple times even when they are "on their game." If overall field quality provides the answer, why doesn't this influence Tiger as well? I have offered rising income and reduced effort as an explanation. Here is an alternative explanation based on the increasing depth of the field coupled with a learning effect.
- Suppose that winning a major not only signals your ability as a player but enhances your ability to do it again (or maybe it takes a couple of times). You learn to deal with the pressures, courses, ... The increasing depth of the field reduces the likelihood of breaking through to that second or third major victory, thereby reducing the "learning effect" and the likelihood of reaching the 6th or 7th major. Tiger's is good enough relative to "the field" for his performance record not to be affected.
Labels: golf, PGA, Tiger Woods
Tiger in the House
The result, especially for the field as a whole, lines up with Sherwin Rosen's tournament theory work. It is demotivating to be forced into competition with someone out of your league. My main criticism of Brown's paper is that, like many studies on golf, course difficulty is not taken into account as well as it might be. When the variable of interest is score, using finer-tuned estimates of course difficulty matters a lot. Given the existence of slope ratings and course ratings, improving the estimates in this regard would not be all that difficult
Labels: PGA; golf, Tiger Woods
Monday, January 28, 2008
The Superstar Effect
A given tournament player is often thought to put forth more effort when he/she faces better competition. But what if there is a superstar in the tournament (HT to Don Coffin)? Do the non-superstars continue to put forth as much effort?
Managers use internal competition to motivate worker effort, yet I present a simple economic model suggesting that the benefits of competition depend critically on
workers' relative abilities, large differences in skill may reduce competitors' efforts.
This paper uses panel data from professional golfers and finds that the presence of a
superstar in a rank-order tournament is associated with lower competitor performance.
On average, higher-skill PGA golfers' tournament scores are 0.8 strokes higher when
Tiger Woods participates, relative to when Woods is absent. Lower-skill players' scores
appear unaffected by the superstar's presence. The adverse superstar effect increases
during Woods's streaks and disappears during Woods's slumps. There is no evidence
that reduced performance is due to riskier play.
That is from Jennifer Brown's job market paper entitled "Quitters Never Win: The (Adverse)
Incentive Effects of Competing with Superstars." Here is a Slate write up on Brown's paper. Here's the conclusion in the Slate piece (by Joel Waldfogel):
What does this mean for the nongolfing world? It's generally agreed that people work harder when they are paid for performance. Anyone who has ever languished in a Paris cafe, where service compris translates roughly as "the Republic of France mandates a minimum 15 percent tip regardless of service quality" can appreciate the power of incentives. But the effects of incentives appear to be muted when the incentives are based on relative performance and the competition is tough. We're taught that quitters never win, but if the evidence from golf is any indication, it might be more accurate, if less pithy, to say that expected losers are more likely to quit, or at least not perform as well. If you're running a business, and you have the opportunity to hire the Tiger Woods of office work, you're not going to pass up the chance. But Brown's study suggests you might want to consider its effect on your other workers' performance. Steak knives might not cut it as second prize.
Here is a link to Sherwin Rosen's 1983 American Economist article on the economics of superstars. Economists have known for a long time that the amount of effort put forth depends on its benefits and the costs. Brown's paper, according to the abstract, shows us empirical evidence that the lower the probability of succeeding, the less effort non-superstars put forth (all else equal).
I have three quick thoughts: how often are there superstars in tournaments? If superstars rarely come around, then it might make no sense to alter the structure of tournament play.
What if there are two superstars in the tournament? Then the battle among the non-superstars becomes for third place and, all else equal, this should lead to even less effort being put forth.
What about the situation where the superstar is very young and looks to dominate the sport for years to come? It seems reasonable that some with potential talent but who have not invested in that sport may decide to look elsewhere to compete.
Labels: golf, superstar effect, Tiger Woods
