Monday, February 09, 2009

High Finance: Michael Phelps vs. Kellogg's

Kellogg's recently dropped its sponsorship of Michael Phelps after a photo of the Olympic swimmer smoking marijuana was printed in a British tabloid. In a recent "Saturday Night Live" sketch, Seth Meyers pointed out that it doesn't necessarily make sense for Kellogg's to have done this:

Discussion Questions

1. What is the economic term for the relationship between marijuana and Kellogg's products that Mr. Meyers is suggesting?

2. Which of the economic theories you've discussed in class best explains why Kellogg's would spend millions of dollars to be associated with Michael Phelps in the first place? Would that same theory be consistent with why it would drop the sponsorship when Phelps's marijuana use came to light? According to that theory, under what circumstances would Kellogg's benefit from dropping Phelps? Under what circumstances might the decision backfire?

3. Analyze Michael Phelps's decision to smoke marijuana from an economic perspective. Clearly, the costs of being caught smoking marijuana are extremely high for him. Can economic theory explain why Michael Phelps chose to make such a bad decision? If not, what could help?