What (If Anything) Has Tiger Woods Actually Cost Shareholders?

 |  Includes: ACN, EA, NKE, PEP
by: Rortybomb

Oh why not, one more before I really take a break from blogging. From Will Ambrosini, Christopher Knittel and Victor Stango from UC Davis have found the following interesting conclusion: “We estimate that in the days beginning with Tiger Woods’ recent car accident and ending with his announced ‘indefinite leave’ from golf, shareholders of companies that Mr. Woods endorses lost $5-12 billion in wealth.” They give us this chart:

Felix Salmon already points out obvious problems. Here’s what I notice. From the paper:

“We weight the returns proportionally by the market value of each parent company (see Table 1). So, TLC Vision has only a small effect on the losses felt by shareholders because it is very small, while PepsiCo (Gatorade) has a very large effect because it is worth $90 billion.”

So for the “Big Three”, the dotted green line above that is also included in the other two lines, we have Nike (NYSE:NKE), EA (ERTS) and PepsiCo. PepsiCo is $95 billions market cap, EA $6 billion, and Nike $32 billion. So because of the weighting, these results are driven in large part by movements in PepsiCo stock price.

And sure enough, PepsiCo took a hit in its EPS estimates for 2010 in order to focus more on investments in China, and this happened to fall right around the time the chart above takes a nosedive. From Yahoo Finance:

(December 9th) Shares of PepsiCo Inc. declined on Wednesday after the world’s second-largest drink company trimmed its fiscal 2009 outlook because it is spending more to invest in developing markets such as China….The stock declined $2.39, or 3.8 percent, to $61.09 in midday trading….

PepsiCo…said Tuesday that 2009 sales will rise 5 percent and earnings per share will climb between 5 percent and 6 percent. Previously, PepsiCo expected both profit and sales to rise by a percentage in the mid-to-high single digits. The new outlook puts 2009 adjusted earnings per share between $3.86 and $3.90. Analysts surveyed by Thomson Reuters predict earnings of $3.72 per share.

And a quick peek at a current chart of all three stocks shows that PepsiCo has kept this lower value while the other two have bounced back (it’s worth noting that PepsiCo has half the vol of ERTS). So we really need to see this with this earnings announcement taken out (or corrected for?). It’s telling, as Felix noted, that Accenture (NYSE:ACN) hasn’t taken a hit even though they had the most invested.

So my guess is that this is driven by an earnings announcement by Pepsi. Isn’t it great that sometimes fundamentals actually drive stock prices, instead of mathematical algorithms programmed to bet against each other and whatever headline is on tmz in a given day?