Is that why They’re Called Stock Cars? The Efficacy of NASCAR Winston Cup Sponsorship: Evidence From the Capital Market Timothy S. Sullivan & Christopher K. Dussold Department of Economics & Finance Southern Illinois University Edwardsville

What is NASCAR? The National Association of Stock Car Racing (NASCAR) is not a “league,” but a sanctioning body. It has several divisions: Winston Cup: premier division Busch Series: top “minor league” Local Series: other “minor leagues”

NASCAR’s rising popularity Average television ratings second only to the NFL. Average race has higher ratings (5.8) than NCAA tournament (5.0), NBA playoffs (4.8) or Stanley Cup playoffs (2.9). In 2002, 17 of the 20 highest-attended sporting events in US were NASCAR.

Role of sponsorship NASCAR fans, drivers and broadcasters show a great deal of patience (and even affection) for sponsors.

Levels of sponsorship Series sponsorship: $40M per year Primary sponsorship: $8-$15M Secondary sponsorship: $.25-$1.5M

Bad idea? Extremely expensive ($15M per year) Much more expensive than stadium naming rights (SBC pays $2.05M per year). USPS’s sponsorship of Lance Armstrong’s bicycle team is about one-fourth this amount. “Give us $14 million and we’ll launch your corporate logo down a hot patch of asphalt in Alabama.”

Good idea? Sponsorship vs. advertising 75% of NASCAR fans say they patronize sponsors (more than double other sports). Success stories (US Army, Miller, Pennzoil, Elizabeth Dole). More Fortune 500 companies advertise during NASCAR than any other sport.

Measuring the effect Sponsorship may affect: sales, market power through product differentiation, worker productivity, …. We would expect the net effect, at some point, to show itself in the sponsor’s stock price.

Event study methodology Estimate market model: Calculate expected return: Abnormal Return =

Event study methodology Regress abnormal return on event: E it can be: indicator variable (yes/no), quantitative variable (level of event), vector of events.

Estimation issues Estimate market model during different time period or concurrently? Endogeneity? Structural change? If estimated concurrently, can estimate reduced-form version: R it =  i +  i M t +  E it +  it.

Data 2001 calendar year (247 trading days) 36 Winston Cup races first: Daytona 500 on February 18, 2001 last: NH 300 on November 23, publicly-traded sponsors (out of 72) Stock data: Yahoo! Finance NASCAR Data: The Official NASCAR 2002 Preview and Press Guide

NASCAR events RACEDAY it : (indicator) the corporation sponsored a car that appeared in a race since the previous trading day. WIN it : (indicator) the corporation sponsored a car that won a race since the previous trading day. ACCIDENT it : (quantitative) the number of accidents the corporation’s sponsored car was involved in since the previous trading day.

NASCAR events LAPSLED it : (quantitative) the number of laps the corporation’s sponsored car led since the previous trading day. POINTS it : (quantitative) the number of Winston Cup points the corporation’s sponsored car accumulated since the previous trading day. PRIZE it : (quantitative) the prize winnings of the corporation’s sponsored car since the previous trading day ($1,000s).

Descriptive statistics

OLS results

GLS results

Summary of results Winston Cup sponsors realize an abnormal return on trading days following race days in which their car appeared (0.2% - 0.5%). The size of the abnormal return increases as prize winnings increase (proxies for finishing position and TV ratings).

Summary of results Involvement in accidents causes a negative abnormal return (tends to offset positive effect of appearing in race). Controlling for other factors, more Winston Cup points (better finishing position) associated with (unexpected) negative return.

Where to go from here? Use Joyce Julius data to measure effects of in-focus time and sponsor mentions. Is efficacy of sponsorship affected by hood design (brand versus corporation)? Who elects to sponsor Winston Cup cars?