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January 18, 2016

UConn study claims stocks affected by NFL outcomes

PHOTO | Contributed Bank of America sponsors the North Carolina home stadium of the Carolina Panthers (shown in blue uniforms), which earned home field advantage throughout this year's NFC playoffs.

As football fans in Connecticut and around the country gear up for next weekend's NFL conference championships, few fans will be thinking about their stock portfolios as they indulge in buffalo wings and a frosty beverage.

But maybe they should.

A new study by a UConn School of Business professor says stock returns of NFL stadium sponsors are affected by the outcomes of important games — including playoff matchups — played in sponsor's venues.

The study covered almost 3,400 games over a 16-year period and found that forming an investment fund around stadium sponsor stocks and win-loss patterns within their venues would have resulted in a 28-percent return over the course of a single NFL season.

However, one local financial expert said it may not be sound financial planning to base investment decisions on the research. He describes it as a good source of information as part of a bigger decision-making process.

A review of 3,399 games (including 1,710 home games) between 1997 and 2013 by Assaf Eisdorfer, a UConn finance professor, and then doctoral student Elizabeth Kohl, showed that following home-team wins in Monday Night Football and post-season games, as well as contests categorized as upset victories, the stadium sponsor's stock increased in next-day trading 50 to 80 basis points higher than after home-team losses and that the stock increase held over the next few days.

“Stadium sponsorship is even more extreme for a playoff game, which is worth a lot more money,” said Eisdorfer in an interview. “If you just won a playoff game and the next week you host another playoff game, there will be more exposure for your stadium sponsor.”

His research found the sponsors' post-game stock return patterns provide profit opportunities. Eisdorfer and Kohl, who did all the research using existing university databases, formed a weekly zero-investment portfolio buying stocks of all sponsoring companies whose teams won at home that week and selling the stocks of all sponsoring companies whose teams lost.

They held this portfolio from the second trading day to the fifth trading day after the game and found it generated “abnormal profits,” particularly for home games whose outcomes are hard to predict and by nature attract more attention and provide a higher element of news.

Their portfolio would return approximately 28 percent per NFL season based on 1.5 percent growth per week over the length of the regular season and playoffs. Eisdorfer said investors would show a $15 return weekly on a $1,000 investment.

Robert Laraia, founding partner of Northstar Wealth Partners in West Hartford, said other factors have to be considered that have a more long-term effect. He said higher attendance can also have a positive effect on stock performance as well as climate. “I don't know if I was building a portfolio, I would put [this research] on the top 10 list,” Laraia added.

Laraia also said an entity's sponsorship of a stadium is no long-term guarantee of stock performance — or even business viability — regardless of how well a home team does. He pointed out the tech firm PSINet, which bought the naming rights to the Baltimore Ravens stadium in 1999. The Ravens won the Super Bowl in 2001 and PSINet filed for bankruptcy six months later.

According to the UConn School of Business, this is the first study to examine the effect of professional sports outcomes on the stock returns of the team's sponsors. As of 2013, 62 percent of U.S. teams' stadiums/arenas in the four major league sports — football, baseball, basketball and hockey — were sponsored by publicly traded companies. Previous studies have focused on the relationship between the performances of national sports teams in international competitions and the movements of the national stock exchanges.

As to why UConn studied this issue when there are no professional football stadiums in Connecticut? Eisdorfer said it was because of the school's geographic position between New York and Boston. Plus, he said, there's the innate curiosity of academic research.

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