Is that why They’re Called Stock Cars? The Efficacy of NASCAR Winston Cup Sponsorship: Evidence From the Capital Market

Timothy S. Sullivan & Christopher K. Dussold

Department of Economics & FinanceSouthern Illinois University

Edwardsville

What is NASCAR? The National Association of Stock

Car Racing (NASCAR) is not a “league,” but a sanctioning body.

It has several divisions: Winston Cup: premier division Busch Series: top “minor league” Local Series: other “minor leagues”

NASCAR’s rising popularity Average television ratings second

only to the NFL. Average race has higher ratings

(5.8) than NCAA tournament (5.0), NBA playoffs (4.8) or Stanley Cup playoffs (2.9).

In 2002, 17 of the 20 highest-attended sporting events in US were NASCAR.

Role of sponsorship NASCAR fans, drivers and

broadcasters show a great deal of patience (and even affection) for sponsors.

Levels of sponsorship Series sponsorship: $40M per year Primary sponsorship: $8-$15M Secondary sponsorship: $.25-

$1.5M

Bad idea? Extremely expensive ($15M per year)

Much more expensive than stadium naming rights (SBC pays $2.05M per year).

USPS’s sponsorship of Lance Armstrong’s bicycle team is about one-fourth this amount.

“Give us $14 million and we’ll launch your corporate logo down a hot patch of asphalt in Alabama.”

Good idea? Sponsorship vs. advertising 75% of NASCAR fans say they

patronize sponsors (more than double other sports).

Success stories (US Army, Miller, Pennzoil, Elizabeth Dole).

More Fortune 500 companies advertise during NASCAR than any other sport.

Measuring the effect Sponsorship may affect:

sales, market power through product

differentiation, worker productivity, … .

We would expect the net effect, at some point, to show itself in the sponsor’s stock price.

Event study methodology Estimate market model:

Calculate expected return:

Abnormal Return =

it i i tˆˆ ˆR M

it i i t itR M

it itˆR R

Event study methodology Regress abnormal return on event:

Eit can be: indicator variable (yes/no), quantitative variable (level of event), vector of events.

it it it itˆR R E

Estimation issues Estimate market model during

different time period or concurrently? Endogeneity? Structural change?

If estimated concurrently, can estimate reduced-form version:

Rit = i + iMt + Eit + it.

Data 2001 calendar year (247 trading days) 36 Winston Cup races

first: Daytona 500 on February 18, 2001 last: NH 300 on November 23, 2001

39 publicly-traded sponsors (out of 72) Stock data: Yahoo! Finance NASCAR Data: The Official NASCAR

2002 Preview and Press Guide

NASCAR events RACEDAYit: (indicator) the corporation

sponsored a car that appeared in a race since the previous trading day.

WINit: (indicator) the corporation sponsored a car that won a race since the previous trading day.

ACCIDENTit: (quantitative) the number of accidents the corporation’s sponsored car was involved in since the previous trading day.

NASCAR events LAPSLEDit: (quantitative) the number of

laps the corporation’s sponsored car led since the previous trading day.

POINTSit: (quantitative) the number of Winston Cup points the corporation’s sponsored car accumulated since the previous trading day.

PRIZEit: (quantitative) the prize winnings of the corporation’s sponsored car since the previous trading day ($1,000s).

Descriptive statistics

OLS results

GLS results

Summary of results Winston Cup sponsors realize an

abnormal return on trading days following race days in which their car appeared (0.2% - 0.5%).

The size of the abnormal return increases as prize winnings increase (proxies for finishing position and TV ratings).

Summary of results Involvement in accidents causes a

negative abnormal return (tends to offset positive effect of appearing in race).

Controlling for other factors, more Winston Cup points (better finishing position) associated with (unexpected) negative return.

Where to go from here? Use Joyce Julius data to measure

effects of in-focus time and sponsor mentions.

Is efficacy of sponsorship affected by hood design (brand versus corporation)?

Who elects to sponsor Winston Cup cars?