Does marketing capability matter in determining the effectiveness of sport sponsorships?

Abstract

Despite the significant academic and corporate interest in sports sponsorships, and despite the significant financial stakes these present (sports sponsorship is almost a $15 billion business in North America alone), the literature is equivocal both on the impact as well as on the determinants of the effectiveness of these activities. While some papers report sports sponsorships enhance shareholder value, others report the opposite or no impact at all. Moreover, while a growing body of the marketing literature has investigated the impact of marketing capability in determining the effectiveness of marketing strategy and firm performance, we know little about how it impacts the effectiveness of sports sponsorships. In a partial attempt to address these gaps we painstakingly create a database of sports sponsorship announcements over fourteen years, complementing it with manually collected stock market data and firm level financial and marketing information. We then conduct an event study to show sports sponsorship announcements positively impact shareholder value. We find the magnitude of impact to be comparable to new product and branding announcements. We also estimate marketing capabilities of the firms in our sample and show that firms are able to generate greater shareholder value from their sports sponsorships efforts in the presence of higher marketing capability. We find that marketing capability can also mitigate the negative effect of financial risk burdens that prevents a firm from realizing the value from sport sponsorships. Our results are robust to considerations of sample selection bias, confounding and unobserved events, and outlier observations. Valuation Insight: Sport sponsorship is an example of a company’s external involvement intended to enhance reputation. The paper shows that such involvement is value enhancing in that announcements of sport sponsorship generate positive abnormal stock returns. Moreover, the amount of value enhancement depends positively on the corporation’s marketing capability – its ability to leverage enhanced reputation into ultimately higher profitability.