Pre-Empting the Competition: How Do Shareholders View Sponsorships in the Sport Apparel Industry?

Gaining exclusive sponsorship rights to international football club apparel has become increasingly competitive, resulting in larger deal values. The first objective of this study was to analyze the effect of kit sponsorship announcements on the underlying value of sponsoring firms. Utilizing event study analysis, we found that firms announcing kit sponsorships experience negative abnormal returns. This finding may not be surprising given the fierce competition for obtaining valuable, scarce marketing space and the well-known winner’s curse. The second objective was to shed further light on the value of kit sponsorship deals by conducting a novel test in which we analyzed a subset of sample observations where the kit sponsorship changed to a new sponsor. We found that firms may be willing to overpay for sponsorships to pre-empt their direct competitors from obtaining valuable, scarce marketing space. Firms losing a pre-existing sponsorship to a direct competitor experience large negative abnormal returns.