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The ESG value of Colin Kaepernick

September 5, 2018

Nike's recent ad featuring Colin Kaepernick was a risk for the shoe company even though they are known for edgy campaigns to begin with.  But backlash has been rapid and rabid on this case.

 

CNNMoney reported that Nike stock price dropped 3% on the first trading day after the ad aired.

 

Yet Bloomberg reported: “In less than 24 hours since Kaepernick first revealed the spot on Twitter, Nike received more than $43 million worth of media exposure, the vast majority of it neutral to positive, according to Apex Marketing Group.”

 

So did the risk Nike took on a social issue payoff or was it a loser?

 

In its most simplistic form and from Nike's internal perspective, they received $43 million of advertising value in a single day.  Since the cost to produce and launch the campaign isn’t known, we can’t determine the return on investment this represents. For discussion purposes, we are left to use this gross number.

 

From the outside (shareholder) perspective, the value of any Nike investment held at closing on Friday dropped 3% (from $82.18 to $79.60).  But a stock price drop isn’t negative for everyone – those who shorted the stock during this time period gained from the decline. Although the actual overall shareholder impact is likely less than 3%, we will use 3% as the gross number.

 

Looking at the bigger picture, the 52-week high is $83.68, with a low of $50.35.  Even taking into account the 3% drop, Nike stock is up 30% for the year.  And the price crossed above $80 in intraday trading today Wednesday September 5, the second trading day after the ad.  In our view, comments or concerns about Nike's share price crashing or "getting absolutely killed" are overblown at the very least.

 

So then let’s look at the economics another way.  

 

A 3% drop in Nike’s total market capitalization on Friday equals approximately $38.5 million spread across all shareholders.  For instance, Vanguard, the largest single institutional shareholder (7.8% as of December 2017), took a paper loss of around $3 million.

 

Yet Nike gained $43 million of value during the same period in advertising alone, all of which accrued to a single entity – Nike.  At a minimum, the ad created $4.5 million of value in Nike’s favor for a single 24 hour period (the difference between the $43 million in advertising gained versus the $38.5 million in one-day market cap drop).  In reality, it isn’t quite this simple because the true aggregated dollar impact of the stock price change is likely smaller due to short seller gains, and the value to Nike may be larger due to possible sales increases during the same time. 

 

There are certainly more factors involved that make a full analysis more complicated, but this is interesting to consider.

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