The Michael Jordan effect Crawford, Anthony J; Niendorf, .docx

The Michael Jordan effect
Crawford, Anthony J; Niendorf, Bruce . American Business
Review ; West Haven Vol. 17, Iss. 2, (Jun
1999): 5-10.
ProQuest document link
ABSTRACT
In the period immediately following the rumors of Michael
Jordan's return to basketball, the five companies that
Jordan had major endorsement deals with experienced a nearly
$3 billion increase in the market value of their
equity. Jordan was labeled the $2 billion man in the press,
referring to the value he created for the shareholders of
the companies he endorses. However, most of these reports
failed to cite the simultaneous bull market that lead
the S&P 500 to record highs. The Michael Jordan effect is
examined, and it is found that shareholders experienced
negative abnormal returns after the announcement of his
retirement and positive excess returns when rumors of a

comeback surfaced. However, it is also shown that the positive
excess returns following the rumors of Jordan's
comeback were only temporary and disappeared within weeks of
the original rumors. While some evidence is
found in support of a Michael Jordan effect, it appears that the
rumors of Jordan's impact have been greatly
exaggerated.
FULL TEXT
On October 6, 1993 Michael Jordan unexpectedly retired from
basketball after leading the Chicago Bull's to three
straight NBA championships. The following spring he showed
up for spring training with the Chicago White Sox.
Despite his early retirement Jordan maintained his five major
endorsement deals from which he is rumored to
receive a total of approximately $30 million annually. These
endorsements are highlighted in exhibit 1.
On March 2nd, 1995 Jordan ended his attempt at professional
baseball and left the Chicago White Sox spring
training facilities. Shortly after his retirement from baseball,
rumors of Jordan's return to basketball surfaced.
These rumors touched off a media frenzy as the popular press
tied increases in the stock prices of the companies

Jordan endorses to speculation over his return. The Los Angeles
Times reported that five days after the first
reports of his comeback, advertisers experienced a collective
$2.3 billion gain in equity value. Time Magazine,
Newsweek, Sports Illustrated and nearly every major newspaper
ran similar reports at about the same time. Jordan
was labeled the $2 billion man. The implication was that
Jordan's rumored return to basketball increased his value
as an endorser resulting in an over $2 billion dollar gain to
shareholders.
Table I illustrates the increase in the market value of the five
companies which Jordan endorses. The collective
increase in market value over a nine business day period, from
the date of the first rumors until the first trading day
after his comeback announcement, was more than $2.9 billion.
The average return over those nine days was
4.59%. The return on the S&P 500 over the same nine day
period was just 2.91%.
We examine two questions. First, were the market value gains
experienced by these five companies caused by
Jordan's comeback, or were these gains a result of a
contemporaneous market upswing?' Second, if Jordan's
return to basketball impacted the companies he endorses, what
effect did his original retirement have? We

examine the market adjusted returns for the companies endorsed
by Jordan in an attempt to address these
questions.
More specifically, we examine the abnormal returns experienced
by shareholders around Jordan's original
retirement and again at his subsequent return to basketball.
Jordan announced his retirement from basketball
https://search.proquest.com/docview/216297517?accountid=828
9
9
October 6, 1993 (t=0). We examine the abnormal returns on the
stock of his five largest endorsement deals for a
two day interval beginning the day of the announcement and
ending one day after the announcement (t=0,+1).
For Jordan's return to basketball, rumors preceeded the actual
announcement as anticipation of a comeback
began almost two weeks prior to confirmation. Table II outlines
the events surrounding his return. We examine the
daily abnormal returns for a period running from March 8, 1995,
(the date of the first rumors), to March 20,1995,
(the first trading day after announcing his comeback). In
addition, we examine the cumulative abnormal returns
over the entire nine day event period.

INTRODUCTION
Enlarge this image.
Product endorsements by celebrities are a common form of
advertising in the United States. Celebrities from
sports, television, movies and even politics can be seen pitching
everything from potato chips to underwear. Multi-
million dollar deals have become common place. What is the
impact of celebrity endorsement on consumer
choice? Research by Petty et al. (1983) found that celebrity
endorsement aides in brand recognition. Kamins et al.
(1989) found that endorsements make advertisements believable
and creates a positive attitude toward brands.
While McCracken (1989) found that celebrities create a distinct
personality for the endorsed brand. Ultimately the
value of celebrity endorsements should be found in the creation
of brand equity by means of the "secondary
association" of a celebrity with a brand (see Keller (1993)). Did
Michael Jordan's retirement and subsequent return
to basketball impact the "secondary association" and brand
equity created by his endorsement?
We employ event study methodology to examine the impact of
Michael Jordan's retirement and return to

basketball on the firm's he endorsed. Event studies have been
used widely to examine the impact of strategic
business decisions on the value of a firm's common stock. The
use of event studies comes from the efficient
market hypothesis, EMH, (Fama (1970)). According to the EMH
in a competitive market the price of a firm's stock
should change immediately to reflect the market's perceived
value of new information resulting from unexpected
events. Therefore the change in a stock price around meaningful
events could be used to measure the markets
estimate of the value of that event (see Brown and Warner
(1985)). Until recently the use of event study
methodology was concentrated in finance and accounting
literature. However, recently marketing researchers
have used event study methodology to examine the impact of
marketing-related events on firm performance. In
particular Agrawal and Kamakura (1995) find that, on average,
the impact of celebrity endorsements on stock
returns is positive and suggest that celebrity endorsement
contracts are generally viewed as worthwhile
investments in advertising.
Using event study methodology we examine the impact of
Michael Jordan's retirement and subsequent return to

basketball on the stock returns of the companies he endorses. It
has been argued that celebrity endorsements
https://search.proquest.comhttps://search.proquest.com/textgrap
hic/216297517/fulltextwithgraphics/D3574933377F4206PQ/1/8?
accountid=8289
create brand equity through "secondary associations" between
the endorser and the product. This ultimately leads
to higher sales and profits for the firm endorsed. Clearly
Michael Jordan is more visible and successful as a
basketball player than as a minor league baseball player. We
hypothesize that Jordan's retirement from basketball
reduced brand equity through a diminished "secondary
association" between Jordan and the products he
endorsed. This decreased brand equity should result in a lower
stock price to reflect the loss of endorsement
value. Conversely Jordan's return to basketball should have the
opposite impact increasing brand equity and
improving stock price.2 We label this the Michael Jordan effect.
Enlarge this image.
Enlarge this image.

DATA AND METHODOLOGY
We collect daily returns for the five endorsed firms in our
sample, (the Jordan Portfolio), and for the S&P500 from
the files of the Center for Research in Security Prices at the
University of Chicago (CRSP)34. Data for 1995 was
collected from The Wall Street Journal.
We use a standard event study methodology to measure the
excess returns and cumulative excess returns around
hic/216297517/fulltextwithgraphics/D3574933377F4206PQ/1/1
6?accountid=8289
7?accountid=8289
Jordan's original retirement and subsequent comeback.5 The
excess returns are calculated using an OLS market
model.6
For the original retirement announcement we define day '0' as
October 6, 1993, the date of Jordan's retirement
announcement. The event period for this test is t=0 to +1
relative to the event. The market model estimation period
includes 51 trading days starting 65 days prior to the retirement
announcement and ending 15 days prior to the
first event date.

For Jordan's return we define day '0' as March 8, 1995, the date
the rumors began. The event period runs from day
'0' to day +8, the first trading day after announcing a return to
basketball. This event period is longer than typical
for event studies. Unlike Jordan's retirement Jordan's return
does not provide a "clean" event day. Instead rumors
persisted for almost two weeks before Jordan announced his
comeback. The efficient market hypothesis posits
that stockmarkets react immediately to unexpected new
information. In the case of Jordan's comeback new
information was arriving to the market almost daily until Jordan
confirmed his comeback.7 Again the estimation
period is defined as the 51 days starting 65 days prior to the
event date and ending 15 days prior to the event date.
RESULTS
Table III contains estimates for the abnormal returns and
cumulative abnormal returns around Jordan's original
retirement from basketball. If Jordan's return to basketball
generated positive excess returns to shareholders, we
anticipate that his retirement would have had the opposite
effect. The results show that the shareholders of the
five firm's in the Jordan portfolio experienced a negative
abnormal return of -0.45% which was significant at the

10% level. Negative abnormal returns continued into the day
after the announcement but these returns are not
significant at conventional levels. In short, we find evidence
that Jordan's retirement announcement may have had
a relatively small negative impact on shareholders the day he
announced his original retirement from basketball.
Next we examine the impact of Jordan's return to basketball on
the same set of five stocks. Table IV summarizes
the results for the Jordan portfolio. Rumor's of Jordan's return
to basketball began on March 8th, 1995. On that
day the Jordan portfolio had a 1.29% positive abnormal return
which was significant at the 10% level. The positive
abnormal returns continued for two more days with a return of
1.27% on day t=2, (March 10,1995). Interestingly, on
March 15, 1995 the portfolio experienced a -1.20% abnormal
return, which is marginally significant. What is
interesting about this negative return is that it occurred at about
the same time articles began to appear linking
Jordan rumors to a $2 billion stock price appreciation, (see
Berkowitz (1995)). The cumulative abnormal return for
the entire period up to Jordan's confirmed return on March 18th,
1995 was 2.33% but is not significant at
conventional levels. While we find evidence that rumors of
Jordan's return to basketball were followed by a

significant run-up in share price of the five companies he
endorses, it appears that the value of the rumors was
temporary, as most of the excess returns were reversed by the
time of his actual return.
We also examine the excess returns for each individual stock in
the Jordan portfolio to estimate the Jordan effect
individually. The results are contained in Table V. None of the
five firms in the sample experienced excess returns
over the event period that are significant at conventional levels.
However, four of five companies have positive
excess returns over the event period, running from 0.7 percent
to over 6.3 percent for General Mills. Interestingly,
the only firm that did not record positive excess returns over
this event period was Nike, which has the closest
relationship with Jordan, marketing a line of basketball shoes
with his name.
In support of our previous results we plot the excess returns on
the Jordan portfolio beginning March 8th, 1995. In
Table IV we document positive excess returns early in the
rumor period preceding Jordan's announcement. It also
appears that much of this run-up in share value is reversed mid-
way through the rumor period. Figure 1 illustrates
the pattern of these cumulative excess returns. If Jordan's return
to basketball had a significant impact on the

share price of the firms he endorses, the excess returns
experienced during the build-up to his return
announcement should be permanent. It can be seen in Figure 1
that although the Jordan portfolio experienced
positive excess returns as the rumors of his return surfaced,
these excess returns had disappeared by fifteen days
after the rumors began. It does not appear that Jordan's return
had a permanent effect on shareholder wealth.
SUMMARY
In the period immediately following the rumors of Michael
Jordan's return to basketball, the five companies that
Jordan has major endorsement deals with experienced a nearly
$3 billion increase in the market value of their
equity. Jordan was labeled the $2 billion man in the press,
referring to the value he created for the shareholders of
the companies he endorses. However, most of these reports
failed to cite the simultaneous bull market that lead
the S&P500 to record highs.
We examine the Michael Jordan effect and found shareholders
experienced negative abnormal returns after the
announcement of his retirement and positive excess returns
when rumors of a comeback surfaced. However, we

also show that the positive excess returns following the rumors
of Jordan's comeback were only temporary and
disappeared within weeks of the original rumors. In short, while
we find some evidence in support of a Michael
Jordan effect, it appears that the rumors of Jordan's impact have
been greatly exaggerated.
ACKNOWLEDGMENT
Enlarge this image.
8?accountid=8289
Enlarge this image.
6?accountid=8289
Enlarge this image.

Enlarge this image.
The authors wish to thank Professor MaryEllen Campbell for
her valuable assistance on this paper.
Footnote
NOTES
Footnote
1 The S&P 500 was up 1.645% over this same period.
2 This is especially obvious for Nike. One of Nike's biggest and
most profitable products is the Air Jordan
Basketball shoe worn by Jordan.
3 The sample size represents the full population of companies
endorsed by Jordan pre and post retirement. The
small sample size will actually bias our statistical tests against
finding significant results.
Footnote
4 We use the S&P500 as our market benchmark because all five
of the companies endorsed by Jordan are part of
the S&P 500. Using the CRSP value-weighted index does not
materially change the results presented in this paper.
5 Methodology is consistent with Brown and Warner (1985),
and Peterson (1990).

6 The nature of event study methodology is to measure returns
in excess of market trends. We also examine
simple market adjusted excess returns without any significant
change in the results. Both methods address the
bull market problem by removing the markets impact from the
total returns for the stocks.
7 We did expand our examination of excess returns beyond
Jordan's announcement to examine a longer series of
cumulative abnormal returns. The results are presented later in
Figure 1. We do not find significant excess returns
after the announcement date.
References
REFERENCES
7?accountid=8289
8?accountid=8289
References
Agrawal J., and W.A. Kamakura, 1995, The Economic Worth of
Celebrity Endorser: An Event Study Analysis, The
Journal of Marketing, 15, 56-62.

Berkowitz, Harry, 1995, They Like Mike: Mr. Jordan's Return
Pleases Advertisers, Newsday, The Missoulian, March
15, 1995, Page D1.
Brown S., and J. Warner, 1985, Using Daily Stock Returns: The
Case of Event Studies, The Journal of Financial
Economics 14, 3-31.
Dorfman, John, 1995, The Jordan Effect, The Wall Street
Journal, April 5, 1995, C2.
Fama, Eugene F. (1970), Efficient Capital Markets: A review of
Theory and Empirical Work, Journal of Finance, 25
(2), 383-417.
Heisler M., 1995, Air Jordan's Return Flight Home: "I'm Back,"
The Los Angeles Times, Sunday March 19, 1995., Al.
References
Kamins, Timothy B., M.J. Brand, S.A. Hoeke, and J.C. Moe,
1989, Two-Sided Versus One-Sided Celebrity
Endorsements: The impact of Advertising Effectiveness and
Credibility, Journal of Advertising, 18 (2), 4-10.
Keller, Kevin Lane (1993), Conceptualizing, Measuring and
Managing Customer-Based Brand Equity, Journal of
Marketing, 57 January), 1-22.
Leland, John, 1995, Hoop Dreams, Newsweek, March 20, 1995,
48(7).

McCracken, Grant (1989), "Who is the Celebrity Endorser?
Cultural Foundations of the Endorsement Process,
Journal of Consumer Research, 16 (December), 310-21.
References
Peterson, Pamela, Anatomy of an Event Study, Quarterly
Journal of Business and Economics. Vol. 28 (Summer
1990).
Petty, Richard E., J.T. Cacioppo, and D. Schumann, 1983,
Central and Peripheral Routes to advertising
Effectiveness: The Moderate Role of Involvement, Journal of
Consumer Research, 10 (September), 135-46.
Wulf, Steve, 1995, More Air Goes Out of Baseball, T/me,
March 20, 1995., 82.
AuthorAffiliation
Anthony J. Crawford and Bruce Niendorf
AuthorAffiliation
Dr. Anthony J. Crawford is Assistant Professor of Finance,
College of Business Administration, University of
Montana, Missoula.
Dr. Bruce Niendorf is Associate Professor of Finance, College
of Business Administration, University of Wisconsin,

Oshkosh.
DETAILS
Subject: Professional basketball; Athletes; Economic impact;
Endorsements; Stock prices;
Statistical analysis; Studies
Location: US
Classification: 9190: US; 1110: Economic conditions
&forecasts; 3400: Investment analysis; 8307:
Entertainment industry; 9130: Experimental/theoretical
treatment
Publication title: American Business Review; West Haven
Volume: 17
LINKS
Check for full text in other resources
ed.
Terms and Conditions Contact ProQuest
Issue: 2
Pages: 5-10

Number of pages: 6
Publication year: 1999
Publication date: Jun 1999
Publisher: University of New Haven
Place of publication: West Haven
Country of publication: United States, West Haven
Publication subject: Business And Economics
ISSN: 07432348
Source type: Scholarly Journals
Language of publication: English
Document type: PERIODICAL
Accession number: 01840982
ProQuest document ID: 216297517
Document URL:
9
Copyright: Copyright University of New Haven Jun 1999
Last updated: 2017-11-10
Database: ProQuest Central

9
http://yw6vq3kb9d.search.serialssolutions.com/?genre=article&
sid=ProQ:&atitle=The%20Michael%20Jordan%20effect&title=A
merican%20Business%20Review&issn=07432348&date=1999-
06-
01&volume=17&issue=2&spage=5&author=Crawford,%20Anth
ony%20J;Niendorf,%20Bruce
https://search.proquest.com/info/termsAndConditions
http://www.proquest.com/go/pqissupportcontactThe Michael
Jordan effect

The Michael Jordan effect Crawford, Anthony J; Niendorf, .docx

Recommended

Recommended

More Related Content

More from cdorothy

More from cdorothy (20)

Recently uploaded

Recently uploaded (20)

The Michael Jordan effect Crawford, Anthony J; Niendorf, .docx