The Celebrity Spokesperson Drama!
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Jessica Simpson is rumored to be pregnant, Weight Watchers (NYSE: WTW) stock falls... If that makes your head hurt, it shouldn't. Jessica Simpson is a spokesperson for the weight loss specialist. While the drop was in the low single digits, it's worth noting because companies that attach themselves to celebrities can be taking on risks that they may not realize when they sign on the dotted line.
In the case of Jessica Simpson, a child is a gift and it will be a wonderful thing for her, assuming the rumors are true. In the long run, it might also be a good thing for Weight Watchers, since many new mothers struggle to lose the weight they gained during their pregnancy. Having a celebrity hit on that angle could work out all around. Still, I'm sure Weight Watchers didn't expect the market would react so punitively.
A Tiger Bites Back
Weight Watchers spokespersons have an interesting relationship with the company that is kind of unique. Indeed, anyone the company hires to proclaim the benefits of the company's weight loss regime is likely to be a former or current customer. There's a bond there that should result in more respect from customers and, importantly, more respect from the spokesperson. This isn't always the case in such relationships, and sports stars are a constant problem on this front.
The highly publicized events surrounding Tiger Woods' separation from his wife caused massive damage to Mr. Woods' carefully crafted “brand.” While he made plenty of money simply playing golf, it was his endorsements that made him truly wealthy. And putting Tiger Woods' image next to a product clearly brought his corporate partners plenty of attention. However, after the news surrounding Tiger Woods become more and more negative, his image didn't bring the kind of attention companies wanted.
In response, sponsors had to consider what to do with their spokesperson. Some dropped him, including watchmaker Tag Heuer. Others, including Nike (NYSE: NKE), simply pushed the Tiger card a little less fiercely. However, there were other companies that faced a material dilemma because Tiger Woods was so integral to the product they had created, such as Electronic Arts (NASDAQ: EA) and its Tiger Woods PGA Tour video game franchise. The company had little choice but to ride out the negative publicity and hope for the best. Luckily for Electronic Arts and Nike, Tiger Woods has managed to mend his brand, to some degree, despite a prolonged performance slump.
Sir Lancelot Falls From Grace
The same rebound is unlikely to occur for biking legend Lance Armstrong. Nike wasted little time dropping Armstrong from its sponsor roster. In fact, after the doping accusations and the loss of his seven Tour de France titles, the famous bike rider is probably going to lose all of his sponsors. Taking performance enhancing drugs is hardly limited to cycling, however, with notable baseball players like Roger Clemens, Barry Bonds, and Rafael Palmeiro all getting tainted by the steroid image. The events surrounding Michael Vick's stint in jail for being involved in dog fighting is another example of bad boy behavior from a sports star.
Pairing up with a movie star can also have its pitfalls; note the constant issues surrounding Lindsay Lohan (just one of the many possible examples). After being given yet another shot at redemption with a leading role in Liz & Dick, a Lifetime movie about Elizabeth Taylor, she once again found herself under arrest. Of course such ties are inherent in the media space and can be difficult to manage at times. Imagine the concerns that former trouble makers like Robert Downey Jr., most recently of Iron Man fame, must bring about for companies like Disney (NYSE: DIS). Indeed, Downey is clean today, but his past heroin addiction has to make a company whose family values are so vital to its image wince just a little bit.
When Your CEO Is A Celebrity
Celebrity endorsements, however, can transcend the relationships between famous people and companies. Sometimes, the famous person is an employee. Think about how vital Steve Jobs was to the image of Apple (NASDAQ: AAPL). He not only helped to create the products his company sold, but he also stood up in support of them. Anyone who watched an Apple product launch had to admit his sales pitch was always spot on. His untimely death not only stole a visionary from Apple, but also its most important sales tool.
Warren Buffett is similarly important to Berkshire Hathaway Not only is he a valuable leader and investor, but his image helps to close deals. Without Buffett, is Berkshire the same company? His age means that we will likely find out sooner rather than later. A similar relationship appears to exist for Facebook and Mark Zuckerburg. How lasting his image will be, particularly since there are increasing concerns about FaceBook's business model, is a question, but that he and the company he founded are tied as one in the public's eye is without question.
The list of celebrity bosses is long, particularly in the technology space. Consider Larry Summers of Oracle, John Chambers of Cisco and Bill Gates of Microsoft. Although Gates isn't really involved with Microsoft as before, his image is still tied to the tech giant. The death of an erstwhile spokesperson or, worse, his or her accused or real misdeeds, can have a lasting impact on a company. Note the difficulty surrounding Rupert Murdock's News Corp and the phone hacking scandal in The United Kingdom. The issue went, very publicly, right to the top and created business troubles for the company.
There's Good and Bad
Basically, the benefits of a good spokesperson far outweigh the potential pitfalls of the few bad apples. However, it is important to keep an eye on the people your companies are associating with. The issue gets more complex when the spokesperson is also an employee or when entire product lines are created around a celebrity's image. In the end, this is yet another thing to consider when making an investment.
ReubenGBrewer has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Walt Disney, and Nike. Motley Fool newsletter services recommend Apple, Berkshire Hathaway, Walt Disney, Electronic Arts, and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!