Problem Definition
Our client is a college that plans to add an inter-collegiate football team to its athletic program.
They have approached us in order to determine if that is a good idea.
Comments
This case is made to be interviewer-led. Therefore the interviewer should guide the interviewee through the interview. The questions should be read out and shared with the candidate.
Short Solution (Expand)
Detailed Solution
Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.
Paragraphs highlighted in blue can be verbally communicated to the interviewee.
The following framework/structure provides an overview of the case:
I. Revenue
Information that should be shared with the interviewee:
- 10,000 students are at the university.
- Currently there are 16 men’s and women’s sports available at the college.
- Short term goal is break-even.
- Long term goal is to finance a new stadium and subsidize other sport programmes.
- Sources of revenue:
- Tickets: 5,000 paying visitors per home game, 6 home games
- Game guarantees: 6 away games
- Student fees
- Concessions
- Other (possible) sources: Apparel/Licensing, TV/Radio broadcasting rights, alumni support
1. What is the revenue per year?
You should share table 1 with an overview of the revenue.
A good answer would include:
- Revenue from student fees:
- Revenue from game guarantees:
- Revenue from ticket sales:
- Revenue from concession:
- Total revenue:
II. Costs
Information that should be shared with the interviewee. Here the focus should be on the operational costs (not capital):
- Costs:
- Coaching costs: Head coach ($500,000 per year), 8 assistants ($125,000 per assistant and year)
- Staff: 25 new employees ($60,000 per employee and year)
- Equipment: $1,000 per player and year (80 players)
- Travel: $70,000 per game
- Stadium costs: rent a stadium for $200,000 per game
- Recruiting: $150,000 per year
- Scholarships: includes tuition ($14,000 per student per year), books ($2,000 per st. per yr.) and other ($12,000 per st. per yr.)
- 40 scholarship players / 80 players in total.
2. What are the resulting costs?
You should share table 2 with an overview of the costs.
A good answer would include:
- Salaries:
- Equipment:
- Travel:
- Stadium rent:
- Scholarships:
- Recruiting
- Total costs:
Preliminary conclusion
The programme is able to break even under the given assumptions.
III. Investment
Information that should be shared with the interviewee:
- The football team is very successful.
- It would be possible to become a member in a powerful league, but joining requires a bigger stadium.
3. Should the college build a stadium in order to gain membership in a powerful athletic conference (league)?
- Potential costs drivers:
- Location
- Local labour availability and costs
- Size of stadium
- Features (playing surface, VIP seats, press box, etc.)
- Overall quality
- Strategies to evaluate costs:
- Investigate what other schools paid
- Contact contractors
- Contact professional teams (if a big stadium is built)
- 25,000 seat stadium will be built.
- No other uses so far.
Share table 3 with an overview of the new revenues and costs.
Revenue:
- Attendance:
- Paid attendance:
- New ticket revenue
- Saving on stadium rental costs
- Incremental revenue:
Costs:
- Incremental operating costs:
- Incremental total costs:
Preliminary conclusion
-
There would be an incremental revenue of $0.4m.
-
Therefore the new stadium needed to enter the better league seems feasible.
IV. Conclusion
4. What is your recommendation to your client about introducing its own football team?
- Our client should introduce its own football team.
- The college should only build a stadium.
- The programme can break even/increase revenue and will also increase the visibility of the university and enhance the college experience of its students.
- Possible risks:
- Attendance may be lower than estimated. This could be overcome by selling the tickets already before starting the team.
- Cost of stadium could be higher than estimated. Other possibilities could be explored (continue to rent/partner with city to build multi-purpose stadium).
Next tasks:
- Verify assumptions
- Start recruiting
- Start increasing student fees
- Start talks with city to rent stadium.
Difficult Questions
What other ways are possible to increase the football program profits?
Possible solutions:
- Use stadium for advertising.
- Work with uniform/apparel companies to get free uniforms.
- Sell television/broadcasting rights.
- Indirect increase of student enrolment
- Negotiate for higher guarantees.
- Introduce coaching compensation based on performance.
- If a stadium is built, it could be rented out for other events.
- Reduce the number of staff/employees.
More questions to be added by you, interviewer!
At the end of the case, you will have the opportunity to suggest challenging questions about this case (to be asked for instance if the next interviewees solve the case very fast).
