The Wall Street Journal-20080201-breakingviews-com - Financial Insight- Bet on Advertisers- Instead Super Bowl Sponsors- Stocks- Tend to Outplay S-P 500 In Week Following Big Game

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breakingviews.com / Financial Insight: Bet on Advertisers, Instead Super Bowl Sponsors' Stocks; Tend to Outplay S&P 500 In Week Following Big Game

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Sunday's Super Bowl match-up will be memorable. A victory by the New England Patriots would make an undefeated season by the team. A win by the New York Giants would rank as one of the championship game's greatest upsets. Investors, however, probably should pay more attention to the commercials.

Nowhere else in the sporting world do advertisements garner as much, if not more, attention than the game itself. With a viewing audience of more than 90 million households, it is easy to see why the 30- second spots fetch $2.7 million each. That kind of profile has made Super Bowl commercials a focus for marketing and advertising gurus. But research from the University of Wisconsin suggests financiers ought to pay attention, too. Shares of Super Bowl advertisers tend to outperform the Standard & Poor's 500-stock index in the week after the game. A trading strategy based on buying those companies would have beaten the benchmark in 10 of the past 12 years, by an average margin of 1.3 percentage points, the research shows. Of course, this demonstrates only correlation, not causation. It may be nothing more than a market anomaly. Still, it partly counters popular folk wisdom that running an expensive Super Bowl ad often is the kiss of death for a company.

Yes, there have been some notable disasters. In February 2000, at the height of the dot-com mania, Pets.com's infamous sock puppet appeared in a Super Bowl ad. Nine months later, the company was out of business. Ameriquest, a now-defunct subprime-mortgage lender, was a major Super Bowl advertiser in 2005 and 2006.

These colorful examples aside, portfolios based on Super Bowl ads tend to be dull. Blue-chip purveyors of beer, soft drinks, snack foods and household goods routinely dominate the list. In the current environment, the Super Bowl strategy might actually be a safe bet.

Shell's Reserve Dilemma

Royal Dutch Shell has waltzed into the record books, reporting a mind-blowing $31.3 billion in net profit in 2007, the highest ever for a British or Dutch company. But, the profit party has been interrupted by an old demon: oil reserve replacement. The Anglo-Dutch company will delay the release of data about its reserves -- the raw stuff it owns in the ground -- until March. Shell says it wants to report its reserve levels at the same time as its U.S. rivals. Investors might find the delay worrying nonetheless, because the memory of the company's reserve-accounting scandal four years ago is still fresh.

The problem then was the way Shell accounted for new reserves. It previously had adopted a more-optimistic approach to estimating the quantity of oil and gas. That pushed up its reserve-replacement ratio, the standard measure of the sustainability of an oil company's production. For a few years, Sir Philip Watts, Shell's then chief executive, looked like a hydrocarbon rock star. He appeared to have found a way to replace reserves faster and cheaper than in the past.

That changed in 2004 when Shell reduced its reserves estimate 20%. Sir Philip was forced out, and Shell revamped its management structure.

Times are tough for private oil companies such as Shell. They can't get access to choice new fields and are getting worse deals in existing ones. Shell has been badly hit. Governments have forced it to reduce operations in major projects from Kazakhstan to Nigeria.

The worst blow came last year, when Russia gave local producer Gazprom Shell's place in the Sakhalin II project. That is expected to wipe 1.1 billion barrels of oil equivalent off Shell's reserves. Growing nationalist sentiment in Nigeria has put a further 1.1 billion barrels in jeopardy. These problems will undoubtedly make its reserve- replacement ratio look bad. How bad? The company should do what it can to ease -- or confirm -- their fears sooner than March.

-- John Christy and Cyrus Sanati

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This column is by breakingviews.com, an online financial commentary site.