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Did Tiger Woods Trash $12 Billion of Brand-Value; or Hand Over a $17 Billion Gift?

Companies / Stock Market Valuations Apr 09, 2010 - 06:03 AM GMT

By: Andrew_Butter


Best Financial Markets Analysis ArticleSo far Nike has spent $60 million on Tiger Woods.

If you invest in companies that spend that sort of money on hype, the skill of management in distilling out bang for buck is an important consideration. That of course is the problem with advertising, only half of it works (if you’re lucky) and you never know which half, and more to the point, working out the value of the brand is just as hard.

There were three reactions by the sponsors to the “difficulties that Tiger and his family are facing”. One was to run away from the spotlight (Accenture and AT&T ran a mile), one was to wait and see (Gillette and Tag Heuer).

Nike ran straight towards the fire. On the day-before Woods teed up at the Masters, they put out a controversial “Tiger” Advertisement that some people called “creepy” and others called “disgusting”.

But they all watched it.

So was that a “Setback…or a Test”?

In January Professors Victor Stango and Christopher Knittel of UCDavis made an estimate of what Tiger Woods’ little play-in-the-hay cost his sponsors:

“We estimate in the (13) days following the Tiger Wood’s car accident shareholders of the companies Mr. Woods endorses lost $5 to $12 billion in wealth”.

That’s a nice round number… average $8.725 billion plus or minus 40%.

The logic is that over those 13 days there was an aggregate 2.3% drop in “weighted” market cap over that period, multiplied by $360 billion gets you to $8.725 billion plus or minus presumably 40%.

The analysis has a few…”gray areas”, for example; they say they compared against comparable benchmarks but they don’t say what those were (except the S&P 500).

More important, they don’t explain how a 13 day change in stock-prices constitutes a loss of wealth. The value of a sponsorship deal is not measured in days and a snapshot of a 13 day window is at best a measurement of noise.

That may be what passes for cutting-edge “economics” these days… but it’s not a valuation any more than valuation is about (a) “inflation targeting” (with movable the targets), (b) not noticing a credit crunch looming until it runs you over, or (c) working out for Hank Paulson in July 2008 that “The US Banking System Is a Safe And Sound One”.

Valuation is something else completely.

But could this be the biggest Class Action in History?

Of course, what matters in situations such as this is how much the lawyers can pump up the “value”.

How about this for an argument? “My client is a day-trader and he “bought” all those $360 billion of shares on 27th November then he sold out 13 days later and lost $12 billion, so Tiger Woods should pay him $12 billion; plus of course, triple-damages to compensate for the emotional trauma”.

I wonder whether the UCDavis Professors were angling for a spot as Expert Witnesses?

Perhaps…if they were, well here’s a second opinion:

Valuation principles:

Without wanting to get too technical, there are a number of different approaches to doing valuation, some are “commonly accepted best-practice”  which is typically not written down.

Some are standards, which are written down in a book which says how you do the valuation, so that two independent people who follow the some standard, are likely to come up with more or less the same answer for a valuation of the same thing.

That’s markedly different from the dismal “science” where if two economists come up with the same answer, it’s probably collusion.

Here are some examples of some common definition of “value”:

1: Goldman Sachs Valuation Standards

What you can sell something for to someone dumber than you, today.

2: FASB and IFRS Valuation Standards

What you might have sold something for to someone dumber than you yesterday (i.e. mark to market)….or if you can’t find anyone dumber than you to say they might have paid that yesterday, whatever a recognized “Expert” says it is.

3: “Expert” Valuation Standards

Valuation is an “ART”, and it’s much too complicated for you to understand, in any case that’s “proprietary information”.   

4: Nobel Prize-winning Economist Valuation Standards

Value (λ) = ψ●ל +√ (χ + γ) – Σ (ε ♥η/θ)

Note: The hieroglyphics represent measurements of economic variables that no two economists have ever agreed how to measure.

5: Voodoo Valuation Standards

Any combination of the above sprinkled with the blood of seven chickens in the shape of the magical “Triple A” logo.

6: Tort Valuation Standards (IVS) 

What-ever the jury decides. This is generally a function of whatever they think the “BAD Person” can pay (which is why Americans pay four times more for healthcare than anyone else).

7: International Valuation Standards (IVS)         

What you can reasonably expect to sell something for to someone smarter than you, at a specified (or unspecified) time in the future.

Depending on what valuation standards you use, you can get wildly different answers.

International Valuation Standards:

For the purpose of this analysis I propose to go “non-mainstream” and use IVS which is a 274 page book that explains how to do a valuation, it’s not complicated…it’s a bit like painting by numbers.

It’s also quite proscriptive about what you are supposed to do (and not do), for example you are supposed to be sufficiently conscious (or sober) to be able to notice if a reference market that you are benchmarking against is in disequilibrium or not (like for example the housing market in USA in 2007).

Plus you are not supposed to accept large sums of money for stamping AAA on anything that moves (a rating is in essence a valuation), particularly when you know that is manifestly not in the interests of people who are likely to rely on your valuation opinion.

On top of all those niggling restrictions on creative accounting, you are also supposed to explain how you did the valuation in language that even a Judge can understand (or a ten-year old…same difference).

IVS is by-the-way not recognized by US Courts, the SEC, FASB, IFRS, or the Bank of International Settlements.

Which is why they had the credit crunch…what happened there was the “Safe and Sound Banks” realized that their “assets”, were not worth anything like what they had been valued at previously, when the time came around to try and sell them (on account of using Voodoo Valuation Standards).

Anyway…on to the valuation:

1: Purpose

It’s important to get this part straight before you start (and that’s stipulated under IVS).  In this case the purpose I am proposing is to figure out if long-term owners of shares in the affected companies lost-out because Woods Transgressed, and if so by how much?

Note: The purpose (here) is not to find out how much a day-trader betting long or short on a 1:40 gearing might have lost over those 13 days. Whether that’s something worth investigating or whether the dysfunctional US Tort system would be prepared to hear a claim like that is neither here nor there, that’s not the purpose of this valuation.

2: Type of Valuation

What we are trying to work out is how wealthy the shareholders of the affected companies might have been if Tiger had not “Transgressed”?

That’s not what IVS calls “Market Value” (what you could buy or sell something for in a liquid market that is not in disequilibrium), it’s what they call, “Other than Market Value”.

That is what the shareholders might be able to sell their shares for at some unspecified time in the future discounted back to today, compared to what they might have been able to sell them for if Woods had not been BAD (and got caught).

To get the Net Present Value of those two (i.e. the loss suffered in today’s money), by definition you need to make a prediction about the future – there is no getting away from that (the alternative is to wait for five years).

3: How I did the valuation

Valuation is not an “Art” any more than Engineering.

Just like Engineering it’s an applied science, you build a model, you predict (the bridge will not fall down), you document what you did in such a way that (a) someone else can check it (b) if you (and the guy who checked) made a serious mistake, and a bridge fell down and someone got killed, someone else can pull the calculations, and point the finger at you.

And the test is typically, could you sell the “something” for what was predicted, that distinguishes it from other approaches…who for example can prove what you might, or might not have been able to sell something for, yesterday, when you didn’t.

IVS requires that you obtain “sufficient” and relevant market-derived data and analyse it sufficiently; it’s up to you to decide what and how to do the analysis.

Here is how I did it:

It’s quite probable that not enough time has passed (five months is a heart-beat in valuation), also given that financials are not reported minute by minute, plus the competitive strategies of a company are never fully reported; it may be impossible to get to an accurate number.

But I never said valuation was an “exact” science; nor is engineering, you specify a tolerance, it could be the thickness of a human hair, or a bargepole.

One way you can get a better answer when you know that there is uncertainty is to look from a number of different angles, that works for engineering and it’s the same for valuation, just like when you do a soil investigation before you design the piles for a $500 million building,  you do more than one borehole.

Approach  #1:

Let’s compare Nike’s stock price with (a) the S&P 500 (b) a comparable clothing and sports-goods brand it competes with (Adidas) and (c) a “golf” equipment brand (Callaway).

Nope that’s not an impression of aboriginal “ART”.

See from 2008 to 27th November 2009 (Line A), there was a reasonably good correlation between the price of the S&P 500 (right-hand-scale) and Nike’s share price.

And then after the “Transgression” became public, on average over the next five months, the Nike share price moved up compared much faster than the S&P 500 did (which is why the line is flatter and lower on the right).

Today the S&P 500 fifty-day moving average is 1,125 so look that up on the blue line (A) that get’s you to a “theoretical” price for Nike of 62.38, that’s what the price “ought to be” of the price was 100% dictated by the S&P 500 according to the “best-fit” formula, prior to 27th November.

Do that on the “post 27th November line (B) and you get 67.11 (i.e. about 7.5% more).

So that says, if that is a valid comparison (and you know it’s not 100% valid), that means that post 27th November Nike is “worth” 7.5% more than it was “worth” before.

Do that for the comparison between Adidas and Nike and you get a result of a 0.8% DROP in “worth” since 27th November, do it compared to Callaway and you get an “answer” that the “event” caused a 28% increase in the “worth” of Nike.

On November 27th looking at a 50 day MA the market cap of Nike was about $33 billion, so the event either destroyed $260 Million (comparing to Adidas) or added $2.5 billion (comparing to the S&P 500), or added $9.24 billion (comparing to Callaway).

Like I said, valuation is not an exact science, that’s why when you are doing a valuation like this; it’s a good idea to look at the issue from a number of different angles.

Option #2: Looking at that another way:

Interbrand works out the value of brands every year and you can look it up on the net, they explain their methodology (as you should if you do a valuation using IVS).

The only criticism I have is that they don’t specify what valuation standard they are using (although the valuation appears to be done strictly in accordance with IVS), and (small point), they don’t specify that the value they report is “Other Than Market Value” not “Market Value” , (I’m splitting hairs). Otherwise I’d say (in my humble opinion), their valuations are very serious, more important; the industry has been using those valuations for ten years; so let’s take those at face-value.

Interbrands’s “valuation opinion” for the “worth” of the Nike brand in 2009 was $7.7 billion, that suggests the previous comparison with Callaway looks spurious because that would say Woods’ “transgression” more than doubled the brand value.

But golf clubs and golf balls are a small part of Nike’s business, a better comparison would be to apply the previous numbers pro-rata, but I don’t have access to the contribution of “golf products” compared to “non-golf” for Nike.

The Answer: Valuation Opinion (Nike)

When you do a valuation, at the end you have to write down ONE number, you look at it this way, and that way, and you explain your reasoning, then you put down one number, just like when you design a pile under a building, you end up with one number.

Likewise when you submit your opinion to judge…he’s not interested in all that complicated stuff…that’s for the lawyers to debate, he just wants to know what the answer is.

My opinion – take the average of the S&P 500 and Adidas (3.37%) multiplied by $33 billion = $1.1 billion.

Valuation Opinion: “Tiger Woods’s “transgression” added $1.1 billion to shareholder value of Nike.

What about the others?

Well there isn’t enough information to say anything sensible, Accenture has no clear publicly traded benchmark, Gillette and Gatorade are part of much bigger companies and public data to separate out how those brands performed is not available.

But just as an order of magnitude, if we take the UC-Davis Professor’s number of a total market cap of companies endorsed by Woods of $360 billion, multiplied by 3.37% that gets you to $12.1 billion added –shareholder value thanks to “The Transgression”.

That’s the number I would write down if for example I was an independent Court Appointed “expert” (based on the information I have now), it’s plus or minus say 40% so that might be $17 billion tops, which is the number I would aim for if I was acting on behalf of Woods.

Of course, the brands that dumped Woods, will most likely not benefit from the “”free gift”, which goes to show that there is something to be said in life for “Standing-By Your Man”.

Even if you have to trash his car with a Five-Iron from time to time, just to make sure he understands who the boss is.

Why is that?

This time, all the usual hypocrites came out of the woodwork and pointed their finger at Woods, they claimed that he had a “responsibility” and that he had “let them down”, and that he was supposed to represent “American Family Values”, and that now they felt cheated.

Well Bo-Ho!!!

Interesting how practically all of the people who came out to point fingers were men (a lot of women said “give the guy (and in particular his family) a break”).

White men by-the-way…remember that up to 1958 the PGA Tour had a strictly enforced “White Caucasian” policy.

Actually the only person who has a right to complain about Woods’ behaviour was and is Mrs. Woods, and she behaved impeccably; notice she did not smash HIM up with the Five Iron, which proves that she has commendable self-restraint.

Insofar as “family values” are concerned, Tiger Woods never ever promoted the idea of “American Family Values” and that’s certainly not why people wanted him to endorse their products. Any of them who tried to force that down his throat, and to intrude into his family life…“come on Tiger…here’s $5 million to get a shot of you with your loving family”…made a big mistake, because that’s not what Tiger Woods (the brand) is about.

Not that he may or may not be a good father; or even a good husband (one day perhaps), but in any case that’s between him and Mrs. Woods, and that’s not why Nike paid him $60 Million, and kept him on.


You sign up someone for sponsorship to build long-term brand equity. Ask almost anyone the question…“who sponsored Tiger Woods” and they will tell you “Accenture, NIKE, Gatorade, Gillette”.

That’s “top of mind”, that will stay “top of mind” for a long time. Try asking someone the same question in ten years time, very likely a good proportion of people will remember.

Will that change just because you found out horror of horrors that the brilliant Ice-Man-Golfer, who has temper-tantrums, uses “profanities”, and throws golf-clubs around from time to time, is actually HUMAN?

Well you might rationalise that it does, but sorry to say, that’s not the way the brain is wired.

In fact in ten years time many people will probably remember Accenture, NIKE, and Gatorade in the context of Tiger Woods, and they will remember that MORE, because of the scandal.

And that’s all you need, the worm into the mind; the psyche does the rest.

There are two things in sponsorship:

1: Get Attention:

People see a picture of Tiger Woods, or read the name, and that gets their attention, if there is something else in the picture (a bottle of Gatorade, an Accenture logo with a very-smart tag-line, a Gillette Razor blade or the NIKE logo)….often you don’t even look at it, (except perhaps you read those very clever pitches by Accenture)…but your subconscious takes it in.

Once it’s in, it stays there, and your rationalisation of approval of whether you “like” Tiger Woods, or you “respect his All-American-family-values”, or you “respect him as a sportsman”, has got absolutely nothing to do with it.

The whole thing goes on along with the hormones that your body secretes in response to smell, pleasure, danger, that you know absolutely nothing about and you have absolutely no control over.

That’s unless you spent the past thirty years as some sort of Yogi, in which case you are probably not in the Gatorade demographic, and you definitely don’t shave.

What it’s all about is recognition; you go in a store, you are thirsty, you see something you recognise, you buy it, and once you bought it; that just reinforces the action.

End of story, except the FIRST thing that went into your mind normally wins, then it’s the second (the brain has two sides), after that, if you can’t get your product top of mind or second top – you had it.

2: Getting to Top of Mind.

That’s why there is only Coke and Pepsi….how many people drink Dr. Pepper these days?  And however much Pepsi spends on promotion; they will never, ever, push Coke off the #1 spot, because Coke was there first (as explained perfectly by Reis & Trout in The 22 Immutable Laws of Marketing).

QUESTION…now they have lost “Tiger”, who is the best person Gillette could find to sponsor?

Well here is a suggestion (for free); it’s a toss-up actually…Charles Manson, or Osama bin Laden.

That would get your attention!!

OK you work the copy so that you don’t create offense, like “These two guys could do with a lot more than a shave”, and you don’t “tell” anyone that you paid them $20 million….but that would work. Sure it would be a bit of a risk though (in case someone found out), which is probably why no one ever did that, but life is about risk.

“Go on Gillette…JUST DO IT”!!

The reality is that Tiger Woods gets more attention now than he did before, and that attention creates Top of Mind; the rest is just hormones.

Don’t believe me?

How about Kate Moss the sweet little “family values” girl who was the L’Oreal “face” (or something), and then (allegedly) got snapped doing about three lines of cocaine, which is not something that goes with “family values”.

Granted she maintained, and still maintains, that she was sniffing Johnson’s Baby Powder up her nose as part of her special “be beautiful” regime, but no one believed her.

Yet in the latest Forbes listing (May 2009) Kate got the number three spot (only $8.5 million a year but then she doesn’t throw tantrums like Tiger does).

Whatever happened to “Family Values”?

Well perhaps that should be kept in the family? Branding (and brand value), is something else completely.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2010 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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