Concert Tour Profitability: The Fuschalicious - Assignment Example

FUSCH!A’S ALICIOUS WORLD TOUR By: Code+ course name: Professor’s name: University name: City, State: Date: Table of Contents Table of Contents 2 Executive Summary 3 Introduction 4 1. Concert Tour profitability: how much will Fusch!a make from touring? 4 2. Guaranteeing Bonus Income from Back-End Splits 5 3. Attracting Sponsorship for the Fusch!alicious World Tour 7 Conclusion and Recommendations 7 Reference list 8 Appendix 1: Concert Tour profitability: how much will Fusch!a make from touring? 9 Appendix 1 (a) and (b) 9 Appendix 1(c) 9 Appendix 2: Guaranteeing Bonus Income from Back-End Splits 10 Appendix 3: Attracting Sponsorship for the Fusch!alicious World Tour 11 Appendix 3 (a) & 3(b) 11 Appendix 3 (c) & 3 (d) 11 Executive Summary Fusch!a’s management team at So What Records is planning for a 42-city tour concerts for her. However, to ensure that the tour is eventually successful, the analysis of the estimated income and profits from the tour is essential. The analysis of the projected income indicates that the estimated income for the entire tour would be $209,745,000 for totally sold out concerts, out of which Fusch!a is expected to make an average income of $1,235,997 per concert. However, using the 60% promoter’s rule and conservative scenario, the expected total income from the tour would change. Subsequently, the share of income that is due to Fusch!a would change accordingly. Therefore, applying the 60% promoter’s rule, the total income expected from the entire tour is $140,007,000, out of which Fusch!a is expected to make an average income of $825,041 per concert. In addition to the income of sales of tickets, Fusch!a is expected to also generate income from royalties of music sales and music streaming. The total royalties income due to Fusch!a is $2,371,456 for the best case scenario. This is expected to be generated from iTunes album, iTunes single, CD albums, Last F.M and Spotify. However, under the conservative scenario, Fusch!a would make an estimate income of $1,897,164.56 from royalties. Subsequently, the total estimated back-end split profit from the entire tour is $105,513,012. Fusch!a’s share of the total back-end split profit is estimated to be $84,410,409.45 from the entire tour. Therefore, the entire tour is expected to be profitable with Coca-Pop also expected to partially sponsor the concerts based on a reasonably high profitability index of the tour. Introduction The management team of Fusch!a at So What Records have already identified the venues of the Fusch!a concerts which they are organizing. These venues include the Arena, Hyper Dome and Stadium, in which several concerts out of the total of 42 concerts would be held respectively. In addition, the management team has also established the categories of tickets that would be used during the entire tour which include; the Tired feet, Blocked view and the Royal VIP tickets. The prices for these respective tickets have also been set by the Fusch!a’s management team at So What Records. Therefore, to evaluate the profitability of the tour it would be essential to undertake appropriate quantitative analysis to estimate costs, income and subsequently the profitability of the entire tour. The evaluation of the funding required and the pursue of the potential sponsors to fund the tour would also be necessary. 1. Concert Tour profitability: how much will Fusch!a make from touring? The estimated total income from the entire tour is $209,745,000. Therefore, the average income per concert is $4,993,929 for a totally sold out concert. Fusch!a’s share of the income generated is 75% of the 33% due to performers. Thus, Fusch!a is expected to earn a total of $51,911,888 over the entire tour and an average of $1,235,997 per concert for a totally sold out concert. However using the 60% promoter’s rule, the estimated total income from the entire tour would be $140,007,000. Thus, Fusch!a is expected to earn a total of $34,651,733 over the entire tour and an average of $825,041 per concert using the promoter’s rule. The 60% promoter’s rule, estimates that ticket sales will amount to 60% capacity for the seated tickets in all the venues of the concerts. Furthermore, Fusch!a is expected to generate additional royalties income from music sales and music streaming. The total royalties income due to Fusch!a is $2,371,456 for the best case scenario. This is expected to be generated from iTunes album, iTunes single, CD albums, Last F.M and Spotify. However, under the conservative scenario, Fusch!a would make an estimated income of $1,897,164.56 from royalties. The conservative scenario takes into account the 60% promoter’s rule plus additional 20% of the total attendance expected to be reached out through advertisement. Thus, the conservative scenario assumes 80% attendance while the best case scenario assumes 100% attendance. 2. Guaranteeing Bonus Income from Back-End Splits Fusch!a’s management team had set the prices for the Tired feet, Blocked view and Royal VIP tickets for all the venues of the concerts as indicated in Table 1 below, which shows the respective prices of the three categories of tickets. Table 1 Type of Ticket Price per ticket ($) 1. Tired feet 80 2. Blocked view 110 3. Royal VIP 150 On further evaluation, the break even analysis showed that the prices needed to break even varied for the different types of ticket in all the three venues of the concert. As indicated in Table 2, the prices for the Tired feet tickets as set by the management team of Fusch!a at So What Record are lower than the Tired feet prices needed to break even in all the three venues of the concerts. However, for the other two types of tickets; Blocked view and Royal VIP, the actual ticket prices as set by Fusch!a’ management team at So What Records are higher than their respective ticket prices needed to break even in all the three venues of the concerts. Hence, based on the differences in the prices, a loss will be incurred in the Tired feet section while a profit would be made in the Blocked view and Royal VIP sections of the concert venues. Table 2 Concert Venue Ticket type Ticket prices needed to break-even ($) Actual ticket prices ($) Arena Tired feet 88 80 Blocked view 98 110 Royal VIP 108 150 Hype Dome Tired feet 83 80 Blocked view 93 110 Royal VIP 103 150 Stadium Tired feet 82 80 Blocked view 92 110 Royal VIP 102 150 The total estimated back-end split profit from the entire tour is $105,513,012. Therefore based on the back-end split profits the minimum profits of $21,000,000 would be guaranteed. Fusch!a’s share of the total back-end split profit is estimated to be $84,410,409.45, while the promoter’s share is estimated to be $21,102,602.36. However, to maximize profits, Fusch!a’s management at So What Records would have to increase the Tired feet prices above the prices needed to break even in the respective venues of the concerts. 3. Attracting Sponsorship for the Fusch!alicious World Tour To fund the entire tour, So What Records have two investment options. In one of the investment options, So What Records would have to deposit $13,000,000 every six months at a 6.25% interest rate per annum compounded semiannually, which would amount to $41,778,808.59 in 18 months. In the other investment option, So What Records would have to deposit $6,750,000 every three months at a 6.15% interest rate per annum compounded quarterly; this would eventually amount to $42,089,001.75 in 18 months. For the alternative investment option, So What Records would have to deposit $495,000 every two weeks at a 0.6487% fortnightly interest equivalent to an Annual Percentage Rate of 16.87%; this would eventually amount to the targeted amount of $20,000,000 in 18 months. For the remaining $22,000,000 Coca-Pop are expected to provide the funding for it. The net present value of the Coca-Pop’s expected cash outflows and cash inflows for sponsoring the tour is $16,436,152, while the profitability index is 1.75. Hence, So What Records would not have to sponsor up to $1,000,000 per concert for the entire tour, but just providing the funding of $20,000,000. Conclusion and Recommendations The net present value and profitability index analysis indicate that Fusch!a’s tour would be successful. Therefore, Coca-Pop is expected to provide the corporate sponsorship to partially fund the tour. So What Records are also expected to fund the tour. The estimated total income from the entire tour for totally sold out concerts is $209,745,000 while the total back end split profits is expected to be $105,513,011.81. However, to maximize profits from the entire tour Fusch!a’s management team at So What Records would have to adjust the prices of Tired feet ticket upwards above the prices needed to break even in the respective concert venues. Nevertheless, So What Records need not sponsor up to $1,000,000 per concert, since Coca-Pop is also expected to provide additional funding for the tour. Reference list Kent, A. R., 2001. "Estimation", Data Construction and Data Analysis for Survey Research. List of Appendices Appendix 1: Concert Tour profitability: how much will Fusch!a make from touring? Appendix 1 (a) and (b) Appendix 1(c) Appendix 2: Guaranteeing Bonus Income from Back-End Splits Appendix 3: Attracting Sponsorship for the Fusch!alicious World Tour Appendix 3 (a) & 3(b) Appendix 3 (c) & 3 (d) Read More