Fuschia's Concert Tour Profitability - Assignment Example

FUSCH!A CONCERT 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 6 Conclusion and Recommendations 7 Works cited 9 List of Appendices 10 Appendix 1 10 Appendix 1 (a) and (b) 10 Appendix 1(c) 10 Appendix 2 11 Appendix 3 12 Appendix 3 (a) and 3(b) 12 Appendix 3 (c) and 3 (d) 13 Executive Summary The estimation of the cost, income and subsequently the profitability of the Fusch!a’s concert tour being organized by Fusch!a management team show that the planned tour would be profitable. The analysis of the total back-end split profit indicates that the expected total back-end split profit would be $105,513,012. Fusch!a management had already set the prices for the Tired, Blocked view and Royal VIP tickets available for the concerts, however, break even analysis indicate that the prices for Tired feet ticket types would have to be adjusted so as to avoid the incurrence of loss in the sections occupied by people with this ticket type. Fusch!a is guaranteed a total income of $51,911,888 for a total sold out concert for the entire tour. However, using the promoter’s 60% rule, her estimated total income from all the concerts in the entire tour would be $34,651,733. Additional royalty income is also expected to be made from music sales and streaming. Fusch!a royalty income is estimated to be $2,371,456 under the best scenario and $1,897,165 in the conservative scenario. One of the corporate sponsors expected to fund the concert is Coca-Pop. The net present value analysis and the evaluation of the profitability index for the tour as required by Coca-Pop established that the tour would by indeed profitable. So What Records is also expected to provide partial funding for the tour. Introduction The tour concerts by Fusch!a are expected to held in three venues namely; Arena, Hyper Dome and Stadium. Three types of tickets; Tired feet, Blocked view and Royal VIP are to be sold to those attending the concerts. The ticket prices of all the three types of tickets are already set by Fusch!a’ management team. However, analysis of the profitability of the tour would indicate whether the set prices would eventually result in a profit or loss for the entire 42 city tour. In addition, potential sponsors for the tour would also need to evaluate the benefits and profits they would get for funding Fusch!a’s tour. 1. Concert Tour profitability: how much will Fusch!a make from touring? The total income expected to be generated from total sold out concerts is $209,745,000. This implies that every total sold out concert would generate $4,993,929. Therefore, Fusch!a would be guaranteed an income of $1,235,997 per concert. Thus, for the entire tour Fusch!a would be guaranteed a total income of $51,911,888 for total sold out concerts. The 60% promoter’s rule, estimates a 60% capacity for the seated tickets. Therefore, the total income for the entire tour expected to be generated using the 60% promoter’s rule is $140,007,000. Hence, Fusch!a would be guaranteed an income of $825,041 per concert and a total income of $34,651,733 for the entire tour using the 60% promoter’s rule. Fusch!a’s royalties income from music sales and streaming vary based on the best case and conservative scenarios. Under the best case scenario, Fusch!a’s royalties is estimated to be $2,371,455.70, while under the conservative scenario Fusch!a’s royalties is estimated to be $1,897,164.56. The best scenario assumes 100% capacity of the attendance would purchase the music albums, listen or stream the music online. However, the conservative scenario which estimates 80% capacity of the total attendance, takes into account the 60% promoter’s estimate plus 20% derived from advertisement during the tour. 2. Guaranteeing Bonus Income from Back-End Splits The ticket prices for the three types of ticket had already been set by Fusch!a management team. However, the break even analysis indicated that the price of the Tired feet tickets as set by management was actually lower than the Tired ticket prices needed to break even in all the venues of the concerts. On the other hand, the actual prices for the Blocked view and Royal VIP tickets were all higher than the prices needed to break even for the two types of tickets in all the venues of the concerts. Therefore, based on the differences between the actual and prices needed to break even for the three types of tickets, the sections with the Tired feet capacity would incur a loss, while the sections of the venues with the Blocked view and Royal VIP capacities would generate a profit. Table 1 illustrates the actual ticket prices and the ticket prices needed to break-even for the Tired feet, Blocked view and Royal VIP tickets. Table 1 Venue Ticket type Ticket prices needed to break-even ($) 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 estimated total back end split for the tour is expected to be $105,513,011.81. Since, Fusch!a would agree to a 20% commission to the promoter, her share of the back end split profit would be $84,410,409.45. The promoter of the tour is expected to have a share of $21,102,602.36 of the back end split. Therefore, based on the tour’s total back end split profits, the minimum profit of $21,000,000 would be guaranteed. Nevertheless, the Fusch!a management team at So What Records would have to adjust the prices for the Tired feet tickets above the prices needed to break even to ensure that no loss is incurred in any section of the venues of the concerts. 3. Attracting Sponsorship for the Fusch!alicious World Tour There are two investment options that So What Records may use so as to fund up to $1,000,000 per concert. The first investment option offers an interest of 6.25% per annum compounded semiannually. Hence, So What Records would have to deposit $13,500,000 every 6 months yielding a total of $41,778,808.59 at the end of the 18 months. However, the second investment option offers an interest of 6.15% per annum compounded quarterly. Therefore, So What Records would have to deposit $6,750,000 every 3 months yielding a total of $42,089,001.75 at the end of the 18 months. So What Records are considering making a funding commitment of only $20,000,000. They plan to raise the funds by depositing $495,000, fortnightly. To achieve their target a 0.6487% fortnightly interest rate would have to be charged. This interest rate is equivalent to an Annual Percentage Rate of 16.87%. However, this 16.87% APR is significantly high and may be hard to negotiate in any investment organization whose APR is significantly lower than 16.87%. Coca-Pop are expected to fund the remaining $22,000,000. The Net Present Value of Coca-Pop for sponsoring the tour amounts to $16,436,152. This Net present value is quite high indicating that the corporate sponsorship would be profitable to Coca-Pop. In addition, the profitability index for the sponsorship 1.75 which is greater than the 1.5 profitability index base which Coca-Pop uses to gauge the profitability of a project or event when making decision on whether or not to sponsor an event. Therefore, since Coca-Pop is expected to partially fund the tour, So What Records would not have to sponsor up to $1,000,000 per concert for the entire 42-concert tour. However, they would be required to only provide funding of up to $20,000,000. Conclusion and Recommendations Cost analysis, income estimation and the subsequent evaluation of the profitability of Fusch!a’s concert tour indicate that the tour would indeed be profitable. As established the expected total back-end split profit from the entire 42-concert tour is estimated to be $105,513,012. However, to maximize profits from the concerts, Fusch!a management team at So What Records would have to adjust the prices for the Tired feet tickets upwards above the prices needed to break even to ensure that no loss is made in any section of the venues of the concerts. The Net Present Value of Coca-Pop for sponsoring the tour is quite high. In addition, the profitability index for Coca-Pop sponsorship is 1.75 which indicates that the tour would be profitable. Therefore, it is expected that Coca-Pop would partially fund the tour, hence, So What Records would not have to sponsor up to $1,000,000 per concert for the entire 42-concert tour. Works cited Hairault, J-O & Kempf, H. Market Imperfections and Macroeconomic Dynamics, Springer, 2002. Maringer, D. Statistical and Computational Methods for Data Analysis, University of Basel, HS. 2008. Mogull, Robert G. Second-Semester Applied Statistics, Kendall/Hunt Publishing Company, 2004. List of Appendices Appendix 1 Appendix 1 (a) and (b) Appendix 1(c) Appendix 2 Appendix 3 Appendix 3 (a) and 3(b) Appendix 3 (c) and 3 (d) Read More