Here’s a story you may have heard about that speaks to Ronaldo’s influence beyond the soccer pitch. This headline from the Washington Post, on June 16, 2021, said it all: “Cristiano Ronaldo snubbed Coca-Cola NYSE:KO. The company’s market value fell $4 billion.”
The article referred to an incident at a press conference on June 14, 2021, during the 2020 European Championship (postponed until 2021 due to the Covid-19 pandemic). At the start of the press conference in Budapest, before Portugal played Hungary, Ronaldo proceeded to remove two bottles of Coke that were prominently displayed on the table in front of him. This was shocking because Coca-Cola was one of the tournament’s official sponsors. He replaced them with a bottle of water, saying, “Agua. No Coca-Cola.” It was immediately big news. A YouTube video of the incident has been viewed over 22 million times.
The Washington Post article was very conclusive: “The simple gesture [of moving the Coke bottles] had a swift and dramatic impact: The soft drinks giant’s market value fell $4 billion, highlighting the power and impact that celebrities and influencers can have on the market.”
That implies a clear cause-and-effect. The cause was the action by Ronaldo, a celebrity and influencer, snubbing Coca-Cola by removing Coke bottles. The effect of Ronaldo’s action was a substantial drop in the market value of Coca-Cola. Case closed! Or was it? Let’s take a closer look.
Another example of cause and effect: ex-dividend days explained
But first, an important digression and explainer of another example of cause and effect. This one doesn’t involve influencers. Established companies like Coca-Cola pay regular cash dividends, usually on a predictable quarterly cycle. The timing of upcoming dividend payments isn’t a surprise to the market because companies announce their plans ahead of time. There is a cut-off point, known as the ex-dividend date, and that’s announced in advance as well. After that date, anyone who becomes a new owner of shares doesn’t receive the imminent dividend.
Here’s a simple hypothetical example. On May 1 a stock is selling for $10 per share. There’s an upcoming dividend of $1 per share to be paid on May 15. The ex-dividend date is May 2. The stock is priced at $10 in anticipation of the upcoming $1 dividend. If you own the stock on May 1, you’ll be getting the upcoming dividend. Then on May 2 the stock trades ex-dividend, which means anyone buying shares on that day or later won’t be receiving the upcoming May 15 dividend. So, unless there’s new information relevant to the stock’s value, we would expect the stock to drop by $1 on May 2, the ex-dividend date.
Here’s a real example. June 14, 2021, was an ex-dividend date for Coca-Cola. That meant that anyone who first bought the stock on that date wasn’t eligible for the $0.42 per share dividend that was going to be paid on July 1. With 4.3 billion shares outstanding, that’s a total cash payment of about $1.8 billion. So, absent any other relevant information, we would expect Coca-Cola’s market value (stock price times the number of shares) to drop by that amount on the ex-dividend date.
For anyone who owned the Coca-Cola shares prior to June 14, 2021, the anticipated share price drop wouldn’t affect their overall wealth since they were entitled to the upcoming cash dividend. June 14 just happened to coincide with the day of Ronaldo’s press conference.
What really happened on June 14, 2021
Now let’s see what was really happening with Coca-Cola’s stock around the time of the infamous snub. On Friday, June 11, Coca-Cola’s stock price closed at $56.16 a share. The company’s shares had an overall market value of $242.6 billion.
On Monday, June 14, when the market in New York opened for trading at 9:30 a.m., the stock was at $55.69. That price was down $0.47 a share since Friday’s close, or a market value decline of $2.0 billion. In the absence of any major news over the weekend, we would have expected the stock to drop by $0.42 a share, the amount of the upcoming dividend, or overall by the total cash payment of $1.8 billion.
That’s fairly close to what actually happened. The S&P 500 index, a broad measure of the overall U.S. stock market, hadn’t moved much between its Friday close and Monday opening. It was up just 0.02 percent, and so that didn’t seem to impact on Coca-Cola’s opening price.
Coca-Cola’s stock price continued to drop during the next several minutes, from $55.69 at the 9:30 a.m. open to $55.27 at 9:43 a.m. By that time, the overall Coca-Cola stock value had declined by $3.9 billion since the Friday closing value. That sounds like a lot of money. But to put that in perspective, it’s just 1.5 percent of the Friday value. Furthermore, half of that amount (0.75 percent or $0.42 per share) was because of the ex-dividend date effect.
Subsequent to the June 14 market opening, the S&P 500 index declined only slightly, so we can conclude that there was some other reason that caused the unexplained drop of about 0.75 percent. Perhaps it was related to the outlook for Coca-Cola or the beverage industry. But that’s not surprising. New information and changes in investor expectations cause stock prices to move all of the time.
Price drop prior to Christiano Ronaldo’s press conference
What’s important is that Coca-Cola’s stock price drop occurred prior to the start of Ronaldo’s press conference. Ronaldo removed the Coke bottles at 9:43 a.m. (New York time). From 9:43 a.m. through the remainder of the trading day, Coca-Cola’s stock price actually rose, both in absolute terms as well as relative to the overall market. It went from $55.27 to $55.55.
So how about this for a revised story headline: “Cristiano Ronaldo snubbed Coca-Cola. The company’s market value then rose by $1.2 billion.” If that was the new headline, would we then try to infer cause-and-effect and conclude that Ronaldo was a past-his-prime-has-been and no longer an influencer?
Let’s go back to the Washington Post headline: “Cristiano Ronaldo snubbed Coca-Cola. The company’s market value fell $4 billion.” Taken literally and separately, each sentence is a true statement. There’s no question that Ronaldo’s removal of the Coke bottles and his statement “No Coca-Cola” was a deliberate snub. And based on the change in Coca-Cola’s closing stock prices between Friday, June 11, and Monday, June 14, Coca-Cola’s market value dropped by more than $4 billion. But placed together, the implication is that one thing caused the other. That’s clearly not what happened.
This is an edited extract from Trailblazers, Heroes, and Crooks: Stories to Make You a Smarter Investor by Stephen R. Foerster (published by Wiley, September 2024)
Stephen R. Foerster is an author and finance professor at the Ivey Business School at Western University in London, Ontario, Canada. He has a PhD from the Wharton School, University of Pennsylvania and a Chartered Financial Analyst designation. His previous books include Financial Management: A Primer; Financial Management: Concepts and Applications; and In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers who Shaped the Way We Invest (with Andrew W. Lo), which won the Axiom Personal Finance category silver medal. His next project: writing the authorized biography of William Sharpe, 1990 recipient of the Nobel Prize in Economics.
