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On October 6, 1993 Michael Jordan unexpectedly retired from basketball after leading the Chicago Bull's to three straight NBA championships. The following spring he showed up for spring training with the Chicago White Sox. Despite his early retirement Jordan maintained his five major endorsement deals from which he is rumored to receive a total of approximately $30 million annually. These endorsements are highlighted in exhibit 1.
On March 2nd, 1995 Jordan ended his attempt at professional baseball and left the Chicago White Sox spring training facilities. Shortly after his retirement from baseball, rumors of Jordan's return to basketball surfaced. These rumors touched off a media frenzy as the popular press tied increases in the stock prices of the companies Jordan endorses to speculation over his return. The Los Angeles Times reported that five days after the first reports of his comeback, advertisers experienced a collective $2.3 billion gain in equity value. Time Magazine, Newsweek, Sports Illustrated and nearly every major newspaper ran similar reports at about the same time. Jordan was labeled the $2 billion man. The implication was that Jordan's rumored return to basketball increased his value as an endorser resulting in an over $2 billion dollar gain to shareholders.
Table I illustrates the increase in the market value of the five companies which Jordan endorses. The collective increase in market value over a nine business day period, from the date of the first rumors until the first trading day after his comeback announcement, was more than $2.9 billion. The average return over those nine days was 4.59%. The return on the S&P 500 over the same nine day period was just 2.91%.
We examine two questions. First, were the market value gains experienced by these five companies caused by Jordan's comeback, or were these gains a result of a contemporaneous market upswing?' Second, if Jordan's return to basketball impacted the companies he endorses, what effect did his original retirement have? We examine the market adjusted returns for the companies endorsed by Jordan in an attempt to address these questions.
More specifically, we examine the abnormal returns experienced by shareholders around Jordan's original retirement and again at his subsequent return to basketball. Jordan announced his retirement from basketball October 6, 1993 (t=0). We examine...