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The Potential Effects of Celebrity Endorsements

It's a chilling nightmare. You've just put in a transaction to double your investment in a for-profit education company in which you see real promise. You sit down to watch some television and a

It’s a chilling nightmare. You’ve just put in a transaction to double your investment in a for-profit education company in which you see real promise. You sit down to watch some television and a commercial comes on for your favorite little online university on which your financial future is now entirely dependent.

And there is its newest celebrity endorser: Jessica Simpson. She states how much she likes “books and stuff.” You gag on your turkey sandwich and rush back to the computer, but it’s too late…

While this might have been a tad dramatic, it’s true that the right celebrity spokesperson or endorser, even if they’ve done it tacitly, can ultimately have a big effect on sales and, indirectly, on a company’s share price. While it’s hardly a reasonable strategy to pick stocks based on the celebrities endorsing their projects (Is it? Maybe someone should run the numbers on that…), here’s a quick look anyway at a few of the more public endorsements of late and how share prices have reacted.

JC Penney (JCP) Wonders “Why All the Y’Ellen?”

Typically when a company seeks out a celebrity endorser, it’s looking for someone completely free of controversy. Like Tiger Woods…was. The last thing the a company wants for its brand is to be associated with a controversial or divisive issue, regardless of one’s position. It was probably what the conservative group One Million Moms had in mind when it put public pressure on JC Penney to drop its new celebrity endorser comedienne and talk-show host Ellen DeGeneres. The decision to go with DeGeneres, who is openly gay, was viewed by One Million Moms as not being “neutral in the culture wars” and led to a threat of a boycott.

“Funny that JC Penney thinks hiring an open homosexual spokesperson will help their business when most of their customers are traditional families. More sales will be lost than gained unless they replace their spokesperson quickly,” One Million Moms posted on their website.

JC Penney, though, stood behind Ellen and refused to bow to the pressure, prompting an outpouring of support on Facebook. The entire episode proved that, while it’s generally good policy to avoid controversy, a bold step in the public eye can create a lot of goodwill with consumers.

Ellen’s endorsement, announced in late January, came immediately before JC Penney’s shares took off. They’re up 22 percent since January 25th when Ellen’s hiring was announced along with a new plan for revamping the company from CEO and the man behind the Apple (AAPL) Store Ron Johnson.

The Round Mound of Weight Loss

Weight Watchers (WTW) has had a series of celebrity spokespeople, from Kirstie Alley to Jennifer Hudson, who got to show off their slimmed down figures while gushing about the effectiveness of Weight Watchers. Well, the most recent endorser was entirely unexpected. Charles Barkley, basketball hall-of-famer and analyst for games on TNT (TWX), has long been known for his brash demeanor and unfiltered personality. And boy did Weight Watchers get its money’s worth. Barkley was announced as a spokesperson for the company on December 13th; his first ads aired on Christmas. Since announcing Barkley as its endorser, Weight Watchers shares have gained over 30 percent.

Of course, this wasn’t without Barkley creating some of his trademark controversy. Barkley stated on the evening of January 5th that his job with Weight Watchers was “a bigger scam” than the work he does with TNT. Barkley, in context, was referring to the fact that he thought it was a dream job to get paid to lose weight and get healthy, but the comment still ignited a public controversy that prompted statements clarifying Barkley’s comments from both Weight Watchers and Barkley.

Lin-ing Up Returns

Sometimes a celebrity endorsement can come in forms other than the simple transactional variety that bagged the support of Ellen or Charles Barkley. Jeremy Lin of the New York Knicks has created a nationwide sensation with his exciting play and unlikely underdog story while leading the Knicks on a six-game win streak. And, while he’s still only getting paid for playing point guard, Lin’s success might be having unintended consequences in the markets.

The Madison Square Garden Company (MSG), the company which owns the legendary venue where the Knicks and Rangers play, has seen a boost in its stock of late. Since the start of Lin’s spectacular six-game run, shares of Madison Square Garden are up almost 10 percent.

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