How Much Of Pepsi’s Cash Is On The Line From Its Super Bowl Bet?

by Trefis Team
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To promote its newly designed Pepsi Zero Sugar, PepsiCo (NASDAQ: PEP) has promised to reimburse up to $2.50 to buyers of Pepsi Zero Sugar if either team in Super Bowl LIV finishes the game with a score that ends in zero. This is applicable to purchases made between 02/02/2020 and 02/04/2020. Of the 53 previous Super Bowl games, 25% finished with at least one team having a score that ended in zero. Trefis analysis shows that if PepsiCo loses this bet (there is a 25% chance it will), even under very strict and likely too conservative assumptions (i.e. half the country drinks Pepsi Zero that weekend and asks for a refund), the company would stand to lose a little over $400 million in revenues and cash in 2020. This would translate into only a loss of $0.03 in earnings per share for the year. However, there is a 75% probability that PepsiCo might go on to win the bet and have a successful promotional campaign for its Zero Sugar offering.

View the Trefis interactive dashboard – How Much Cash Could PepsiCo Lose Due To Its Super Bowl Bet? – to understand the impact on PepsiCo’s revenues, if the company loses the bet. You can also alter the key assumptions to arrive at your own estimate of revenue loss for the company.

Below Are The Detailed Steps Of How We Arrived At The Potential Loss Of Revenue Due To The Super Bowl Bet

(1) Pepsi Could Have About 165 Million Consumers In The US

  • According to published data, around 50% of the US population drank Pepsi in the last 4 weeks of 2018.
  • With PepsiCo coming up with a new design for its Pepsi Zero Sugar offering and demand for sugarless drinks on the rise, we assume that close to 50% Americans will consumer Pepsi Zero Sugar.
  • Accordingly, based on the current US population of about 329 million (as of Jan. 2020), we forecast around 165 million US people buying the drink during the Super Bowl weekend.

(2) Potential Refund Amount Comes To $412 Million

  • According to PepsiCo’s Super Bowl bet, every fan in the U.S. will be eligible to be reimbursed the cost of a free Pepsi Zero Sugar (up to $2.50 for purchases between 2/2 and 2/4) if either team in Super Bowl LIV finishes the game with a score that ends in zero.
  • Thus, a $2.50 refund to the projected 165 million US buyers could potentially cost PepsiCo $412 million in refunds.

(3) PepsiCo Faces A Weighted Average Risk Of A Little Over $100 Million Due To The Bet

  • Of the 53 previous Super Bowl games, 25% finished with at least one team having a score end in zero.
  • However, while a record six straight years of games ended in zero between 1986 and 1991, the last two occurrences happened only in 2007 and most recently, 2016.
  • Thus, the chance of either team ending with a score of zero is less than average (25%).
  • However, even if we consider average probability of 25%, Pepsi faces a weighted average risk of approximately $100 million.

Revenue Loss

  • PepsiCo stares at a potential revenue loss of over $400 million in the event it loses the bet.
  • Though the chance of this happening is only 25%, but if it does, then the company will have to refund about $412 million in full. The segment that could be hit the most is the North American Beverages, one of the primary divisions for PepsiCo’s revenue growth.
  • See our interactive dashboard- PepsiCo Revenues: How Does PepsiCo Make Money? to understand how each operating division is performing and outlook for 2020.

 

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