Economic Value of Celebrity Endorsements: Tiger Woods' Impact on Sales of Nike Golf Balls

In this paper, we quantify the economic worth of celebrity endorsements by studying the sales of endorsed products. We do so with the use of two unique data sets consisting of monthly golf ball sales and professional golfer (celebrity) quality levels. In particular, we specifically look at the impact Tiger Woods has had on sales of Nike golf balls. Our identification of the causal effect of celebrities in general is grounded on truly exogenous variation of celebrity quality, thus eliminating a severe endogeneity problem. Using two different methodologies, reduced form and structural, we find that there are substantial celebrity endorsement effects. Our reduce form results predict an increase of approximately an additional 1,416,000 Nike golf balls sold each month when Tiger Woods was under a Nike endorsement contract. Furthermore, with the use of our structural model, we determine from 2000-2010, the Nike golf ball division reaped an additional profit of $103 million through an acquisition of 9.9 million sales (approximately 996,000 golf balls per month) from Tiger Woods’ endorsement effect. This result was not only from existing customers switching to Nike but also through a primary demand effect. Moreover, we determine that having Tiger Woods endorse a brand leads to a price premium of roughly 2.5%. As a result, approximately 57% of Nike’s investment of $181 million endorsement contract was recovered just in US golf ball sales alone. We also find that the recent scandal surrounding Tiger Woods regarding his marital infidelities had a negative effect which resulted in a loss of approximately $1.4 million in profit and 136,000 dozens of golf ball sales. ∗Doctoral Candidate, Tepper School of Business, Carnegie Mellon University. [email protected] †Assistant Professor of Marketing & Strategy, Tepper School of Business, Carnegie Mellon University. [email protected] ‡Rohet Tolani Distinguished Professor in International Business; H.J. Heinz II Professor of Management, Marketing and Information Systems, Tepper School of Business, Carnegie Mellon University. [email protected]