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What Is Sandbagging
In business, sandbagging is a term used to refer to a company’s strategy to lower stakeholder expectations in such a way that they deliver a greater than expected result.
In other words, sandbaggers try to appear to over-deliver by deliberately lowering the bar and expectations.
For example, a company may set a certain expectation with its shareholders as to its earnings knowing that it could likely deliver higher results.
Then, when the actual results are out, the shareholders will be happily surprised by the achievement of the results.
The objective of sandbaggers is to make uneventful results more positive or manipulate the market sentiment to view a company’s performance more positively than it actually is.
If companies are known to be sandbagging investors and shareholders, the market will no longer be impressed or show positive signs when the company’s performance results are disclosed.
Sandbagging Meaning Origin
The term sandbagging refers to a person or company concealing the truth or manipulating certain facts to somehow fool another.
For example, in the game of poker, a sandbagger will pretend that he or she does not have a good hand so that the other players will raise their bets.
In sports, a sandbagger may pretend that he or she does not have the skills to beat his or her opponent in an attempt to trick the opponent at the right time.
The term sandbagging comes from the word “sandbag” which was used as early as the 1580s.
Back then, a sandbag literally referred to a bang filled with sand that was used as a weapon.
Over time, in the 1880s, the term sandbagging started being used as someone who ambushed its victims by hiding behind sandbags.
Then, in the 1940s, the term sandbagging was used to refer to those who did not make a first move hoping that the other party makes a greater bet or takes the first step.
Ultimately, in the modem times, the term sandbagging has been used to refer to a person or company concealing reality in an attempt to fool others.
Sandbagging Impact In Business
Companies that are known to be sandbagging investors, shareholders, and the market risk losing credibility when making important announcements.
Consider sandbagging as the company bluffing investors and shareholders.
Public companies are more concerned about how the market will react to their quarterly or annual results.
As such, they may engage in sandbagging campaigns to influence the market sentiment and hope to drive a more positive impact on the share price when their financial statements are released.
However, when companies employ sandbagging strategies too often, the market will realize that they are being manipulated and so they will no longer react to the company’s greater-than-expected results.
As such, the company can truly deliver greater-than-expected earnings and financial performance but the market will not factor that anymore into its stock price.
In other instances, sandbaggers can also experience a drop in stock prices even with better earnings results because the market expected a much better performance.
Sandbagging is the practice of setting low expectations in the mind of others or the market and then attempting to deliver greater results.
Sandbagging can be effective in certain situations to the extent that companies do not use this strategy excessively.
For instance, in the context of a sales strategy, a company may deliberately not mention a few amazing features about their product and then blow away the prospect in a demo.
This strategy can be effective in making the prospect feel impressed or amazed by the product’s capabilities.
However, although sandbagging can work in some instances, the general sentiment is that the sandbagger’s intention is to manipulate sentiment or act dishonestly.
In general, when someone considers a company or person as a sandbagger, they consider that the sandbagger is not transparent or honest in presenting what’s real.
For example, companies that manipulate market sentiment on their earnings results will end up paying the price as the market may lose confidence in the management’s declarations and statements.
Let’s look at an example of a company sandbagging to better illustrate the concept.
Let’s assume Company ABC is expected to release its quarterly statements next month.
The company management team knows that they can deliver $5 earning per share results.
However, they will deliberately engage in setting the expectations that they expect something around $3 to $3.50.
When their quarterly results of $5 earnings per share is actually released, the market will be highly impressed of the greater-than-expected results.
As a result, the share price will go up in price.
Now let’s assume that Company ABC is known to be a sandbagger.
If the company announces that it will potentially deliver earnings per share of $3, the market will expect to see $5.
As a result, when the company releases a $5 earnings per share, the stock price will no longer be impacted as the market expected this outcome.
However, imagine that the company’s earnings come out to $4, even though it’s higher than what the company had announced, the share price will go down as it’s below what the market expected.
As you can see, sandbagging can potentially deliver a positive outcome when it’s done once but getting a reputation of being a sandbagger can have long-term negative results.
Sandbagging In Law
In law, the notion of sandbagging is used in mergers and acquisitions in some cases.
In M&A transactions, a company may use sandbagging strategies to claim that the other contracting party has breached contract by violating its contractual warranties and representations although being aware that this was not the case.
In other words, the sandbagger will make an untruthful claim about the other party breaching the contract when it is aware that it was false.
This type of conduct can lead to the sandbagger being held liable for damages and will expose the company to significant reputational damage.
Generally, the notion of sandbagging in business is negative and companies should attempt to stay away from such strategies that are considered to be dishonest and wrong.
So there you have it folks!
What is the meaning of sandbagging in business?
In a nutshell, the term sandbagging in business refers to a company or individual hiding or concealing the truth in an attempt to look better, impress, or fool another party.
We hear of “sandbagging” particularly with publicly traded companies who set a market expectation for their earnings results and beat that expectation when they release their financial statements.
In business, having a reputation as a sandbagger is something to avoid as it is quite negative.
Since the sandbagger’s strategy is to deliberately manipulate another’s expectations, they are perceived as being dishonest.
The consequences of being considered dishonest can be quite important in business and should be avoided.
Now that you know what sandbagging means and how it works, good luck with your research!
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