Coke’s Ronaldo Problem?

Steen Videbeck
Insights Newsletter
20 August, 2021

The Euro 2020 football tournament will be remembered for the trophy not coming home.

But before England fell agonisingly at the last hurdle, the headlines were focused on the actions of Portuguese football superstar, Cristiano Ronaldo.

The seemingly innocuous event happened far from the pitch. As Ronaldo sat down at a post-match press conference, he grabbed the two glass bottles of Coca-Cola on his right and carefully placed them out of shot. He then picked up a bottle of water and said “drink water” in Portuguese. The video of the ‘stunt’ quickly went viral.

Adding even more intrigue, reports started to emerge that $5.6 billion NZD had been wiped off Coke’s share price. News outlets saw a clear link between the two events. Headlines declaring ‘Cristiano Ronaldo snub wipes billions off Coca-Cola’s market value’ echoed around the world.

It was a dream story. The power of a pure idol versus a villainous sugar-water manufacturer. The media will have us believe savvy investors heard the words of the footballing god and quickly sold off Coke stocks fearing millions of fans bypassing the ice-cold beverage in the fridge for the lukewarm tap water in the hope of six pack abs and eternal youth. Yes, the 36-year-old world-famous sports star did what no sugar-tax could. But did he really?

On the face of it the story appears plausible - Ronaldo has a combined 500 million social media followers. But the answer is probably no. Unfortunately, it looks like the Guardian, Washington Post, and Stuff had all fallen for the old ‘correlation versus causation’ trap. The truth is we don’t know what would have happened to the share price if Ronaldo hadn’t removed the bottles. Finance researchers try to do this, with a technique called an event study, but they are notoriously difficult as share prices incorporate a lot of information.

The Guardian has since removed the syndicated article and issued a correction, admitting that “In fact, there had already been a fall accounting for a majority of the share price reduction before the press conference, and other factors may also have contributed to the drop.” However, their tweet with all its retweets is still up. A perfect example of incorrect headlines spreading like wildfire, while corrections dissipate in the wake of the fast-moving news cycle.

It would be fun if Ronaldo tried again. But this time he could take a fraction of his $500m USD fortune and short sell Coca-Cola - betting on the share price going down. Or perhaps he could branch out. Maybe throw a Hershey chocolate bar at a reporter and pick up an apple - short-selling Hershey stock before he did. I think he will find beating the market is a little bit more difficult than winning a game of football. Even for Ronaldo.


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