Market reactions to sport sponsorship announcements: Comparison between sponsors and their rivals

Sport sponsorship is a popular marketing tool and has been growing for over 30 years. Compared to advertising, sponsorship tends to deliver less direct and explicit messages that are more difficult to control. The main benefit of sponsorships is that more consumers become aware of a firm’s products or services and are attracted to them, resulting in increased purchases and increased firm value. However, rival firms experience decreased value as they lose customers to sponsors. At least some of the value a firm gains through sponsorship is at the competitors’ expense.

Whether sport sponsorship is beneficial or detrimental for sponsors and their rivals is not so obvious. When the impact of sponsorship is negative for sponsors, effects on rivals are difficult to ascertain. The effect of sport sponsorship may be negative due to sponsorship fees, which have soared in recent times. Prior studies demonstrate negative effects when firms sponsor a specific team or player, because such sponsorships may alienate fans of a rival team or player.

The effect of sport sponsorship on sponsors and their rivals is left as an empirical question. We investigate market reactions to sport sponsorships announced by Japanese-listed firms between 1990 and 2014 by using the event study methodology. Event study methodology is the way to estimate market reactions to specific events. The number of our sample events is 188. Our study is unique because no prior study has undertaken statistical analyses of the effect of sport sponsorship on rival firms using financial data. Our contributions to the relevant literature can be summarized as follows. First, our study is the first to focus on market reactions to sport sponsorship announcements in Japan. Second, we test the hypotheses that prior studies generated mixed results. Third, our study uses the Fama–French three-factor model in the event study analysis.

We find positive average market reactions to sport sponsorship announcements. Positive market reactions are intensified when events are held in Japan or are related to the main business of sponsors. Our results show market reactions tend to decrease after the mid-1990s, perhaps reflecting soaring costs of sponsorships. The stock prices of rival firms also react negatively to sport sponsorship announcements, revealing a sharp contrast between sponsors and rivals. This suggests sport sponsorships may be effective in enhancing company brands. These findings are statistically significant at a value of p < .05.