Do-It-Yourself Investing in Sport-Related Firms

Given the growth of the sports industry, many investors find sports-related stock issues to be attractive. The purpose of this manuscript is to examine the growing number of do-it-yourself investing options for shareholders and customers. In particular, do-it-yourself investing in direct stock purchase programs (DSPs), dividend reinvestment programs (DRIPs), and American depository receipts (ADRs) are presented. First, do-it-yourself investing in such programs is discussed. Second, familiar sports-related firms offering such programs are highlighted. Third, the benefits of such investment programs from a corporate viewpoint are advanced. Finally, the implications for sports marketers are discussed.

Do-It-Yourself Investing in Sport-Related Firms

The American culture is a sports-oriented culture. Sports metaphors are used to represent personal and professional lives. For example, “Take one for the team” or “Go for it” are common everyday phrases with origins in athletic competition. And, statistics are used to track favorite teams and players. Consider the following selected statistics regarding the sports industry:

1. Americans spent $213.5 billion on sports in 1999, a whopping $763 per capita (Street and Smith’s, 1999).

2. Americans spent approximately $22 billion on athletic equipment, $14 billion on athletic footwear, and $12 billion on athletic clothing in 2001 (National Sporting Goods, 2002).

3. Among youths aged 12-17 years, 61% participate in some organized sports program (National Sporting Goods, 2002).

4. In 2000, 86% of all U.S. residents age 7 or older participated in at least one athletic endeavor (National Sporting Goods, 2002).

5. Growth rates in the sports industry are attractive, with sales of equipment, footwear, clothing, and recreational transport expanding from $56.4 billion in 1994 to approximately $74.5 billion in 2001(National Sporting Goods, 2002).

Many sports-related firms–Nike (footwear, apparel, equipment), Disney (broadcasting), Calloway (equipment), Russell (apparel), Foot Locker (retailing)–maintain, like other firms, stock purchase and/or stock dividend reinvestment programs to serve the needs of small investors. These direct investment programs are particularly valuable to providers of consumer brands (such as sports equipment, footwear, and apparel), since every shareholder is a potential customer and every customer is a potential shareholder (McConville, 1996). In addition to raising capital, these investment programs may be viewed as an extension of a firm’s integrated marketing communications (IMC) effort appealing to consumers and investors alike.

Given the growth of the sports industry, many investors find sports-related stock issues to be attractive. The purpose of this manuscript is to examine the growing number of do-it-yourself investing options for shareholders and customers. In particular, do-it-yourself investing in direct stock purchase programs (DSPs), dividend reinvestment programs (DRIPs), and American depository receipts (ADRs) are presented. First, do-it-yourself investing in such programs is discussed. Second, familiar sports-related firms offering such programs are highlighted. Third, the benefits of such investment programs from a corporate viewpoint are advanced. Finally, the implications for sports marketers are discussed.

Individual investors now enjoy access to information formerly available only to larger investors and brokerage firms. Spurred by confidence, knowledge, and an explosion of readily available information, many investors are turning to do-it-yourself investing to take greater control of their personal financial matters (Carlson, 1998). Do-it-yourself investors are attracted to this style of investing, or investing philosophy, for a variety of reasons, including ease of market entry, lower transaction costs, pay-as-you-go potential, discounts or premiums offered, and personal empowerment (Drip Investor, 1999). For those interested in investing specifically in the sports industry, the three most likely options are the DSP, DRIP, and ADR. Due to the pace of change in financial markets, details of the three types of programs (e.g., minimum investments, fees) are beyond the scope of the following discussion.

Direct Stock Purchase Programs

DSPs allow investors to buy shares of stock in a company directly from the firm, bypassing the need for an intermediary (such as a brokerage firm). While some DSPs may require a minimum initial investment (e.g., $50-$250), others do not. Investors may make optional periodic (for example, monthly) cash investments, purchasing additional shares of company stock.

Unlike larger investors who typically purchase in round lots of 100 shares, direct investors may invest as little as $10 per month to buy fractional shares of stock. While some DSPs charge a fee for the optional investments (e.g., a $3 surcharge), others do not. Currently, there are approximately 600 DSPs available to individual investors (see netstockdirect.com). Table 1 provides a list of familiar sports-related firms that offer DSP programs for shareholders.

Table 1
Sports-Related Firms Offering Direct Stock Purchase (DSP) Programs

Note. This original table was compiled from Carlson (1997, 1998), Drip Investor (1998), and Netstockdirect.com.

Dividend Reinvestment Programs

DRIPs differ from DSPs in that the individual investor must typically own one or more shares of stock to enroll in the DRIP program. A certified financial planner, an electronic brokerage service, the National Association of Investors Corp. (see the Web site better-investing.org), Firstshare (see firstshare.com), Sharebuilder (see sharebuilder.com), or the publication The Moneypaper

(see moneypaper.com) can provide such an initial service, among others. Then, the individual investor may make optional periodic cash investments in the firm. Additionally, the investor may elect to have some or all dividends used to purchase additional shares of the company’s stock. Currently, there are over 1,100 DRIP programs available to individual investors (see Moneypaper.com). Table 2 provides a list of familiar sports-related firms that provide DRIP programs for shareholders.

Table 2

Dividend Reinvestment Programs of Sports-Related Firms

Note. This original table was compiled from Dripcentral.com, Dripinvestor.com, Drip Investor (1998), Fool.com, Moneypaper.com, and Netstockdirect.com.

American Depository Receipts

The creation of ADRs has made it dramatically easier for U.S. investors to invest in foreign firms. An ADR is a negotiable U.S. certificate representing ownership of shares in a non-U.S. corporation. Financial institutions such as the Bank of New York, Citibank, and J. P. Morgan are active depositories for ADRs in the United States (Sherwood, 1998). ADRs are quoted and traded in U.S. dollars in the U.S. securities market (Canadian Shareholder, 1998). Do-it-yourself investors can buy and sell these shares like ordinary shares, eliminating the need for currency exchange. Also, the dividends are paid to investors in U.S. dollars (Gangahar, 2000).

The popularity of ADRs among investors increased dramatically during the 1990s (Investor Business Relations, 1999). Most ADR programs act as dividend reinvestment programs for their investors by applying dividends to additional share purchases. Further, the buyer’s transaction costs tend to be much lower than the costs of purchasing the same shares in foreign markets (DRIP Investor, 1999). Finally, many investors have greater confidence in a firm that makes the commitment to offer ADRs, because the firm then comes under the scrutiny of the U.S. Securities and Exchange Commission (Gangahar, 2000). Currently, there are over 1,800 ADRs available in the United States (Sherwood, 1998). Table 3 provides a list of familiar sports-related firms that provide ADR programs for shareholders.

Table 3

American Depository Receipts Programs of Sports-Related Firms

Note. This original table was compiled from Carlson (1998), Drip Investor (1999), Netstockdirect.com, and Wallstreeter.com.

Benefits of Do-It-Yourself Investing Programs to Firms

Direct investing programs are particularly valuable to producers or providers of consumer brands (e.g., sports equipment, apparel, and footwear), since every shareholder is a potential customer and every customer is a potential shareholder. In addition to raising capital, these investment programs may be viewed as an extension of a firm’s integrated marketing communications (IMC) effort. When viewed this way, such programs provide a number of benefits to the corporation, including strengthening brand loyalty, attracting long-term investors, adding stability to the shareholder base, and retaining dividends.

Direct investors tend to become loyal customers. They seek to identify high-performing investments. Then, they seek to protect their investment by buying the brand (Carlson, 1998). For instance, the shareholder owning stock in Nike is more likely to select Nike product than a competing product. Further, these shareholders may influence the brand selections of family and friends by communicating their ownership and possibly by transferring stock in the form of a gift.

Shareholder participants in direct investing programs tend to be longer-term investors. As such, they have a long-term commitment to the brand. Stock price declines are often viewed as opportunities to buy additional shares (Carlson, 1998). Such a mindset provides stability in the ownership group, limits active trading, and may dilute the clout of institutional investors (such as mutual fund managers). In addition, given their long-term investment perspective, shareholder participants in direct investing programs are likely to make periodic investments in their ownership positions. Known as dollar-cost averaging, an investor’s regular, periodic investment of $50-100 (e.g., monthly, quarterly) adds to his or her total shares owned; the average cost of shares is determined over time, eliminating the challenge of “timing” the market effectively. This has proven to be a cost-reducing strategy for long-term investors (Drip Investor, 1999). Furthermore, long-term investors, by virtue of not selling their stock, add stability to the shareholder base (McConville, 1996).

Just as the name implies, DRIPs put distributed dividends back into the company, in the name of the shareholder. This decision by the individual investors allows a firm to retain dividends, putting capital back to work within the firm. Further, dividend reinvestment is a continual validation of the investor’s belief in the long-term performance of an organization.

Implications of Do-It-Yourself Investing Programs for Sports Marketers

As competition for brand and shareholder loyalty intensifies, direct investing programs represent one effort to improve corporate performance in these vitally important areas. Direct investors tend to become brand-loyal customers in keeping with stocks they own. Their relatively expansive investment horizon adds stability in times of market fluctuation. Firms with direct investing programs find their shareholder bases becoming more diversified as voting strength is distributed across a larger number of investors. And, dividends are put back to work within the firm to finance future growth.

For do-it-yourself investors interested in sports-related stock issues, DSPs, DRIPs, and ADRs represent the most common methods of market entry. These programs benefit the individual investor by improving market access, lowering transaction costs, eliminating need to “time” the market, providing discounts or other premiums, and empowering self-motivated investors, among other things.

It must be noted that the relationship between stock ownership and brand loyalty is an intuitive one that, to date, has received limited empirical review. Still, the position that investors select one product over another (Titleist or Top Flite, Nike or Reebok) based on stock ownership is a reasonable inference to make. The direct investing programs outlined here represent a two-way investment dynamic: Investors invest in firms they believe in, while corporations invest in brand and shareholder loyalty. Direct investing programs represent a win-win situation for investors and sports marketers. The availability and popularity of such programs are likely to increase in the future.

References

Carlson, C. B. (1997). No-load stocks: How to buy your first share and every share directly from the company with no broker’s fees (2nd Ed.). New York: McGraw-Hill.

Carlson, C. B. (1998). The individual investor revolution: Seize your new powers of investing and make more money in the market. New York: McGraw-Hill.

Daragahi, B. (1999). Best sites for DRIP investors. Money, 28 (11), 174-176.

Directory of dividend reinvestment plans. (1999). Drip Investor. Hammond, IN: Horizon.

Gangahar, A. (2000, November). Foreign investment with the comforts of home. Global Investor, 54-56.

Inexpensive way to invest internationally. (1998, September/October). Canadian Shareholder, 38.

ADRs continue to provide growing competition to U.S. companies for investor dollars. (1999, October 18). Investor Business Relations, 8-9.

McConville, D. J. (1996). More firms sell their stock through direct purchase programs. Corporate Cash Flow, 17(7), 6-8.

National Sporting Goods Association. Retrieved 2002 from www.nsga.org.

Sherwood, R. J. (1998). 100 ways to invest abroad. Forbes, 162(2), 172-175.

Street and Smith’s Sports Business Journal. (December 20-26, 1999).

Author Note

Mark Mitchell, D.B.A., Associate Professor of Marketing at the Univ. of South Carolina Spartanburg; Robert Montgomery,D.B.A., Associate Professor of Marketing at the University of Evansville; Sheila Mitchell, CPA, MPAcc, Instructor of Accounting at the Univ. of South Carolina Spartanburg