Michael Phelps, the Beijing 2008 Olympics, and Visa
American Michael Phelps has clearly dominated the 2008 Olympics, winning 8 Gold Medals in the swimming division. Never since Mark Spitz in the 1970’s has an Olympic athlete conquered a sport with such crushing supremacy.
Phelps has brought great pride to his country as well as fame and riches to himself and family. It’s been estimated, by the Davie-Brown Talent Group, that he will earn $100 million over his lifetime. He will earn this substantial sum via sponsorships, endorsements, speaking/writing engagements, among other promotional endeavors.
Where does this money, and the money used to put on the 2008 Beijing Olympics itself come from?
It primarily comes from sponsors, in other words, companies looking to attach themselves to the event and individual athletes for advertising/marketing purposes. The sponsors hope that some of the good will and charisma generated by the athlete will rub off on the products or services, advancing them in the public’s mind. In effect, ride the wave of superstardom that will befall some of the athletes and the publicity of the games themselves.
The 2008 Olympics has 12 major, or what they call “global”, sponsors. These sponsors include Coca Cola
(
KO |
Quote |
Chart |
News |
PowerRating), Johnson & Johnson
(
JNJ |
Quote |
Chart |
News |
PowerRating), Kodak
(
EK |
Quote |
Chart |
News |
PowerRating), General Electric
(
GE |
Quote |
Chart |
News |
PowerRating), Mc Donald’s
(
MCD |
Quote |
Chart |
News |
PowerRating) and Visa
(
V |
Quote |
Chart |
News |
PowerRating). However, the largest sponsor is the Chinese personal computer maker, Lenovo, who has paid over $100 million for the sponsor rights.
Visa has shown the foresight to back Michael Phelps since 2002 and is already ramping up the marketing machine in an attempt to capture some of the magic of the new superstar. The question is, will Phelps new found superstardom pay off for Visa, and how can we as traders/investors take advantage of this potential?
During the 2004 Summer Games all the sponsors experienced an increase in their share price. Seventy-five percent of the 2008 Olympic Games sponsors were up in the month leading up to the Games. However, Visa was down 5.7% in July, but up 30.3% year to date. The company has been in an uptrend starting on August 8th, when the games began, however the trend appears to been stymied by the 50-day Simple Moving Average over the last 3 days. The 50-day SMA is 76.37 and the current price is 74.22. It does appear that the Olympics have had a slight positive effect on Visa. Time will tell if the close association with Phelps will pay off for the brand, outweighing the highly negative credit climate in the United States.
Every trader/investor will likely have a different opinion on the benefits/pitfalls of the sponsorship. Here are several option strategies on Visa that you can use to express your bias. Remember, these strategies are assuming a 6 month time horizon in order to capture the near term sponsor benefits/negativity, and a $2000.00 investment that you are will to lose in total should your chosen strategy flop.
BULLISH – If you are a total fan of Michael Phelps, believe that his star power combined with the marketing acumen of Visa will result in major gains for the company; yet don’t want to go all in with an outright put sale or call purchase, here is a strategy to consider:
Bullish Call Spread
Buy 2 March 67.5 Calls VCU at $13.50
Sell 2 March 90 Calls VCR at $4.30
The total risk is $1840.00 and the maximum gain is $2660.00
NEUTRAL – You believe that the public will really be indifferent to the Michael Phelps’ endorsements and the hype has already started to wear thin. Your neutral in regard to the stock price and think not much is going to happen over the next 6 months. Here is your strategy to consider:
Short Butterfly
Sell 5 March 72.5 Calls VCV at $10.70 and Sell 5 March 80 Calls VCP at $7.30
Buy 10 March 75 Calls VCO at $9.60
The total risk is $1850.00, your investment is $600.00 and maximum profit is $650.00
BEARISH – If you believe that Phelps will quickly fade from public view and Olympic sponsorship is basically a waste of money for the sponsors. In the more extreme, you believe there may be a potential backfire wherein a scandal erupts around Michael Phelps causing irrefutable harm to the Visa Brand. Here is a strategy to consider:
Bullish Put Spread
Buy 2 March 85 Puts VOQ at $15.90
Sell 2 March 67.5 Puts VOU at $6.00
The total risk is $1980.00, your investment is $1980 and maximum profit is $1520.00
Option trading is inherently risky due to time decay and other factors. Be sure to only use money that you are willing to lose regardless of how certain you are of the strategy.
Best Wishes!
David Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.