Sports Sponsorship Announcements and Marketing Capability

Abstract

Sports sponsorships are almost a $20 billion business in North America alone. Yet, despite the significant academic and corporate interest in such high financial stakes, the literature is equivocal on several key aspects. While some papers report that sports sponsorships enhance shareholder value, others dispute this. Furthermore, the marketing determinants of this value are unclear, particularly the role of firms’ marketing capabilities. To address these, the authors first created a database of sports sponsorship announcements over 19 years by Canadian and U.S. firms, complementing it with the stock market and firm-level financial and marketing data. The authors then conducted an event study and found that investor response to sports sponsorship announcements is, on average, positive. The authors found that investors not only credit firms with higher marketing capabilities, amplifying their positive reaction, but that they also seem to use firms’ marketing capabilities to offset the potential barriers to the value generated from these announcements. Specifically, for investors, the firms’ marketing capabilities can compensate for the dampening effect of financial risk. Our results are robust to considerations of sample selection bias, endogeneity, and outliers.