The Impact of Sponsorship on Share Price
The financial pages of newspapers are filled with stories about share price changes. If sponsorship is genuinely a tool for improving business performance then surely it should impact in these areas. But does it?
Sponsorship and its impact on share price
According to Prof. Jensen of Columbia College, a long term commitment to sponsorship will help a business surpass its competitors over the long term.
Jensen’s report surveyed 50 major US corporations’ KPIs over a five-year period (stock price appreciation, total revenue, net income and earnings per share) and found that sponsors clearly outperformed other S&P companies across net income growth, growth in earnings per share and stock price appreciation.
There have been many cases where sponsorship has helped increased interest in a business’ stock. How has sponsorship done this?
In much the same way it has with consumers. By building awareness and interest in a company. The following situation isn’t uncommon…
A trader reads about an upcoming IPO by a global company. They see the company’s brand on a football team’s shirt or on the side of an F1 car on a Sunday afternoon. They recall the bit of press or report that came across their desk on the IPO. On Monday morning, they begin researching the company in more detail and ultimately purchase stock.
Why they purchase the stock we’ll get onto in a moment. The point here is that this scenario has been seen time and time again. One such example is a Brazilian energy corporation that saw large spikes in trading on Monday and Tuesdays following a Grand Prix.
SingTel, sponsor of the Singapore GP are another. SingTel experienced share price rises on both occasions that they announced renewals to their Formula One sponsorship. Their second renewal announcement resulted in a price rise of S$3.
Now for the, why traders purchased share in the Brazilian company bit…
Brand investment is a sign that the company are willing to invest and make positive decisions in order to grow the business. In fact, subsequent to SingTel’s renewal announcement, analysts commented that the deal signaled a commitment to the brand and to the company’s growth, which drove the share price up.
Building a differentiated position in a crowded and competitive market is essential. Sponsorship can position a business as an in-touch, exciting, innovative and relevant to consumers – the Singapore GP touches nearly all of Singapore’s residents over the Grand Prix weekend.
When a company knows its market and is actively engaging with them through exciting mediums, the result is positivity towards the company. Positive news and new investment generally mean greater future earnings – the most important factor that affects the value of a company is its earnings.
Ultimately, sponsorship can be seen as a positive sign of a company’s health, and as a commitment to continue growing the business.