CHICAGO (Reuters) - Nike Inc, Adidas AG and other companies may cut their spending on sports sponsorships after the unrelenting media coverage of pro golfer Tiger Woods’ marital infidelity, a Credit Suisse analyst said on Wednesday.
Omar Saad said in a research note that Nike and other companies are being forced to rethink the effectiveness of the vast sums of money they spend on individual and team sponsorships. He entitled the note, “Tiger Woods Fallout: Another Nail in the Coffin of the Expensive Endorsement Era.”
“We expect the Tiger media fallout to serve as a catalyst for them both to realize that they are systematically overpaying for athlete and team sponsorships, especially given the growing risks involved,” Saad said of Nike and Adidas, which he said determine market prices.
Nike, which spends 5 percent to 7 percent of sales on sponsorships, could single-handedly drive down endorsement deal prices, he said. A period of endorsement deflation could translate to $1.00 per share of earnings upside over the next few years for Nike and benefit others in the industry including Under Armor Inc.
Woods, 33, last week admitted to “infidelity” in his marriage to his Swedish wife Elin Nordegren as allegations of multiple extramarital affairs rocked his life and career. The allegations emerged after Woods was involved in a minor car accident at his Florida home on November 27.
As a result, Woods, who before the scandal was earning about $100 million a year from his sponsors, said he will take an indefinite break from pro golf.
Saad said consumers understand endorsements go to the highest bidder and do not necessarily reflect the athlete’s assessment of the product.
“We believe the trend away from high-profile, multimillion-dollar celebrity and athlete endorsements has been growing for some time, and ‘Tiger-gate’ could be an inflection point,” he said. “Athlete sponsorships can be fraught with risk and simply aren’t as valuable as they once were.”
In the past week, Accenture Plc ended its endorsement deal with Woods, while Procter & Gamble Co’s Gillette brand said it would not use Woods in its marketing. Others are reevaluating their deals with the golfer.
Reporting by Ben Klayman; Editing by Steve Orlofsky