'The Alltel Pavilion Case: Strategy and Cvp Analysis\r'

'ISSUES IN ACCOUNTING EDUCATION Vol. 19, no(prenominal) 4 November 2004 pp. 555â€561 The ALLTEL marquee compositors case: St rangegy and CVP digest Edward Blocher and Kung H. subgenus subgenus Chen ABSTRACT: The ALLTEL pavilion case is think for the undergraduate carry awayment accounting or equal accounting course and the M. B. A. management accounting course. It provides an keen context in which to examine strategic issues in using damage volume profit (CVP) in a function business.Based on an actual entertainment pavilion, the case develops m all factors unique to a service business and illust grade how pavilion management kitty drug abuse CVP summary to determine which artists to attract and what kinds of entreats to have with these doers. The marquee has two types of customers ( stipendiary tag holders and free tatter holders) and views gelt from three types of revenues ( book revenues, concession revenues, and pose slants).The case requires you to appoint the best strategy for different types of artists, conduct cost-volume-profit analyses, call back the strategic issues related to run leverage and how this affects the pick of performer and have, and assess pricing strategies. O ne day in early November, Pam crisphead lettuce, Manager of the ALLTEL marquee, was reviewing the operating results for the year just completed in dressing for the executive board meeting the following Friday. succession the year ended in the black, she was disappointed that the ALLTEL marquee failed to earn the figureed profit goal.This was the second year since Ms. Berg assumed the manager’s position at the ALLTEL marquise. After the somewhat disappointing first year, she was goaded to exceed the budgeted profit in the coming year. era not all events developed exactly as expected at the condemnation of preparing the budget for the year, in that respect were no major surprises during the year. Yet, the operating results ar on a lower f loor the budgeted goal. In addition, Pam was frustrated by the lack of mow off guidelines for contract negotiations with artists, for setting fine values, and in dealing with unexpected low ticket sales for plastered contrives.THE ALLTEL PAVILION FOR LIVE ENTERTAINMENT The ALLTEL marquee in capital of North Carolina, compass north Carolina (http://www. alltelpavilion. com/) is an alfresco amphitheater that provides brave designs to the public from April by means of October to each one year, hosting as many as half a million patrons a year. The seven-month season usually hosts an second-rate of 40 concerts, and 12 year-around round plan and manage each season. SFX cheer Inc. (http://sfxyes. liveonline. nett/) operates the pavilion. SFX is one of the largest diversified promoters, producers, and venue operators for live entertainment events in the United States.It has 71 venues any railly owned or operated under make or exclusive troth arrangements in 29 of the top 50 U. S. markets, including 14 amphitheaters or pavilions in 9 of the top 10 markets. Edward Blocher is a professor at The University of North Carolina at Chapel Hill, and Kung H. Chen is a Professor at the University of Nebraskaâ€Lincoln. 555 556 Blocher and Chen ALLTEL pavilion wants to be the nightlife for the Triangle (Raleigh-Durham-Chapel Hill, NC) and eastern North Carolina, and one of the about beautiful, technologically advanced, and successful amphitheaters in the world.It features the most modern state-of-the-art acoustics and video of any facility of its kind. In the last few years, ALLTEL marquise staged visual aspects by the Dave Matthews Band, Alan Jackson, Brooks & Dunn, Toby Keith, Santana, Tim McGraw, Aerosmith, jam Taylor, Jimmy Buffett, and many other national, vicinityal, and local anesthetic artists. The pavilion claims, â€Å"There isn’t a bad empennage in the house. Whether you choose to spread a concealment on our gently sloping festival lawn or select a speechless seat in our pavilion seating bea, you argon guaranteed a striking view of the action on the stage” (ALLTEL pavilion website).Exhibit 1 assigns the stage and seating of the amphitheater. History/ developing The urban center of Raleigh and stones throw sport caller-out of Houston, Texas jointly built the ALLTEL pavilion in 1991. tempo entertainment and Cellar Door Inc. of Raleigh, NC had the initial contract to manage the marquise. Hardee’s Food Systems, Inc. of Rocky Mount, NC, the trustworthy sponsor of the amphitheater, paid an annual fee to stake its name and logo on all signs and ads regarding the amphitheater. On February 3, 1999 ALLTEL Corp (http://tel. com) became the title sponsor for the amphitheater.The demand for the outdoor facility came most because the rapidly growing city of Raleigh lacked a major entertainment complex. In the late 1980s Pace Entertainment and the city of Raleigh came to an agreement t o build the facility. The city of Raleigh would own the land term Pace Entertainment would own the facility and assume sole occupation operations of the facility; Cellar Door would do the booking for all the concerts. Pace Entertainment would present income taxes on earnings from the use of the facility. In 1998, SFX Entertainment Inc. acquired Pace Entertainment Inc.The amphitheater facility and its employees became part of SFX Entertainment Inc. Also, in 1999 SFX Entertainment Inc. acquired Cellar Door Inc. and integrate with Clear Channel Communications Inc. , one of the largest owners of radio stations in the country. This move brought together both worlds of the entertainment business. While the company has diverse holdings, the school of thought of SFX is â€Å"One Company, One Mission. ” Many companies that atomic number 18 instanter owned by SFX were at one time bitter rivals in the concertpromoting business. These companies now maintain thoroughly working r elationships within SFX.A key goal for SFX is for the net operating income of each of its holdings, including the ALLTEL pavilion, to grow 5 percentageage each year. The Pavilion competes with the RBC Center (http://www. rbccenter. com) at North Carolina State University in Raleigh (NCSU), the dean Smith Activities Center (http://tarheelblue. ocsn. com/genrel/ 092301aad. html) at The University of North Carolina in Chapel Hill, NC (UNC), and the Verizon Wireless Amphitheater in Charlotte, NC (http://www. verizonwirelessamphitheater. com/charlotte/), among others.In secern to the facilities at NCSU and UNC that offer only indoor events, the Pavilion offers outdoor as well as furnish seating for its events. selling, Operations, and field When the marketing division plans a promotion for an upcoming event, it coordinates with the sales department to take up if there is a conflict in sponsorship. Marketing also coordinates with the operations department to effectively manage the activities on usher days. Finally, the budget of each department (sales, marketing, and operations) is reviewed by the accounting department, which provides everyplaceall financial anagement of the project. take Concerts to Reality A concert becomes reality in many steps. First, a group or performer with an interest in playing at ALLTEL impart discuss with Cellar Door, Inc. and the Pavilion the possibility of performing at Issues in history Education, November 2004 The ALLTEL Pavilion Case: Strategy and CVP Analysis 557 the Pavilion, and look at the frank dates. Upon reaching an agreement, Cellar Door, on behalf of the Pavilion, signs a contract with the booking agent for the performer.A time is specified for render openings, and once the gate is opened the show is underway. The theorize of the supply during a concert is to make original every customer of the ALLTEL Pavilion has a kind experience and that the mission of the company is clearly seen by everyone that â €Å"a concert … it’s better live. ” clean house Sweep Inc. of Raleigh handles the cleanup after a show. Key Business Issues Marketing has an great fiber in the success of the ALLTEL Pavilion, but marketing expenditures ar cargonfully watched. For every show, the marketing budget is bound to $20,000.For many shows it is difficult to stay within the budget, since the Pavilion serves a five-market region consisting of Raleigh-Durham, Fayetteville, Wilmington, Greensboro, and the Carolina Coast. Most of the marketing budget is spent on advertize with radio, TV, and print media in the designated regions. Prior to developing advertising plans, the marketing staff analyzes ticket sales geographically over the five-market region. It is important to know the demographics of the five regions and compare them with the profile for each performer. The more than ALLTEL Pavilion cigarette know about the fans, the more they know where to spend the $20,000.SFX develops m easures of performance and positiveness for each advertising media, by region. This type of analysis is important to the ALLTEL Pavilion because increase ticket sales, through effective advertising, not only affect ticket revenues, but also revenues from parking, merchandise, and concessions. It is also important because of the change magnitude cost of advertising. The advertising rates in the Raleigh-Durham region are comparable to the rates in Washington, D. C. The rates are up 200 percent over the last five years, while the budgets per show are only up 15 percent over this time.The cost of the performing artist has also increased dramatically. The average fee for an artist is approximately $160,000. more or less artists are paid on a fixed-fee basis, while others are paid on a per capita basis. Generally, the most popular artists seek a per capita contract because they are confident of a high level of attendance. In contrast, the artist paid a fixed-fee is guaranteed the same fee whether 100 or 20,000 people attend (the potentiality of the Pavilion is approximately 20,000 attendance). On average, the total turning of paid tickets per fixed-fee concert is 7,000.The determination of marketing and advertising is especially important for fixed-fee shows. One method the Pavilion uses in addition to advertising is to distribute â€Å"comp” tickets (comp tickets are free tickets distributed throughout the community) to build interest in the Pavilion that will later be cognise in opening customers. Comp customers also bring in revenue for parking, concessions, and merchandise sales. In a fixed-fee concert, the bend of comp tickets is approximately 25 percent of the subroutine of paying tickets, while a per capita show has no more than 2. 5 percent.Because of the increasing cost of the performing artists, ALLTEL Pavilion tries to debase nonartist be. Nonartist costs at ALLTEL Pavilion embroil expenses for sales, marketing, parking, security, conc essions, and merchandise. Since presume the manager position, Pam has developed several avenues to reduce nonartist costs and/or increase revenues and profits, including reducing expenses, having the parking service pass out flyers for upcoming events, trading â€Å"comp” tickets for online spots in the radio industry, and giving local businesses tickets in exchange for advertising on their premises.Revenues, Costs, and cheap Report for the KFBS Allstars Concert Exhibit 2 is a mock flash report for an illustrative fixed-fee show, the KFBS Allstars. A flash report is a projection of costs and revenues for a scheduled concert. The guarantee/talent cost ($160,635) is the amount the KFBS Allstars are guaranteed for the show. intercommunicate sales is the number of intercommunicate paying ticket holders, while the â€Å"drop count” is total attendance, including both Issues in accounting system Education, November 2004 558 Blocher and Chen paid and comp tickets.Setting ticket price is very much done together with the performer, taking into consideration SFX’s national and regional pricing policies, prices of comparable venues, and the Pavilion’s desired profit for the concert. Pam uses the flash report to plan potential concerts and to evaluate the success of concerts already presented. The report shows the variety of revenues and costs for a concert, and the projected profit for the concert. The flash report projects total revenues including ticket sales, parking, food, and merchandise establish on per capita (drop count) rates.Ticket sales are in four ticket categories: A seating and B seats are regular price tickets for the reserved and lawn seating sections respectively; C and D seats are promotional (discount) price tickets for reserved and lawn seating, respectively. otherwise revenues include per capita facility charges paid by the sponsoring corporation for naming rights (based on paid ticket holders) and a per capita ser vice charge paid by the performer for food, transportation, and other services. Not included are the annual lease payments for VIP seats at $10,000 per year.Patrons to the VIP seats also have to pay the ticket price of A-level seats. Reserved and lawn seating areas are shown in Exhibit 1. The parking, food concession, and merchandise operations are outsourced to other service providers, so the direct costs for parking, merchandise and concessions are determined based on contracts with the service providers that include both a percentage (10 percent) of applicable revenues and a fixed fee. operating(a) expenses include an allocation of the total of fixed turnout and operations costs for the season, the advertising expenses for the KFBS Allstars event, and other uncertain expenses.These are then added to the direct costs for concessions, merchandise, parking, and amends to determine total operating expenses. REQUIRED How would you severalise the competitive strategy of the ALLTEL Pavilion? Given the dissolute’s strategy, what are the critical success factors for the Pavilion to achieve its goal of continuous annual addition in operating income? 2. Complete two selected cost-volume-profit analyses for the show illustrated in Exhibit 2, the KFBS Allstars: a) How many tickets moldiness the ALLTEL Pavilion sell to break even? ) How many tickets must ALLTEL sell to earn $30,000 operating income after taxes, assuming a 40 percent tax rate? 3. What should be the average ticket price for the KFBS concert if the fixed-pay fee is $200,000 and the Pavilion expects to sell 7,000 tickets and wants to earn $30,000 after 40 percent in taxes? 4. Negotiating the fee for the KFBS Allstars: fixed-pay or per capita contracts? a) What is the utmost fixed fee that the Pavilion can pay the KFBS Allstars if the Pavilion wants to earn $45,000 after 40 percent tax and expects the show to have an average ticket price of $22. 12?Assume the show is expected to draw 6,000 payin g ticket holders. b) What is the supreme fixed fee that the Pavilion can pay the KFBS Allstars if the Pavilion wants to earn $45,000 after 40 percent tax and expects the show to have an average ticket price of $22. 12? Assume, including 25 percent comp tickets, the show is expected to be a sell-out. c) Independent of (a) and (b), what is the maximum per capita fee that the Pavilion can pay the KFBS Allstars, whose concert is expected to be a sellout, if the Pavilion wants to earn $180,000 after 40 percent tax from an average ticket price of $22. 2 per ticket? 5. What role does CVP analysis and operating leverage play in contract negotiations with different types of performers (fixed-fee or per capita)? 1. Issues in Accounting Education, November 2004 The ALLTEL Pavilion Case: Strategy and CVP Analysis 559 pose 1 ALLTEL Pavilion Stage and Seating The Pavilion can accommodate 20,000 fans with 7,000 reserved seats instantaneously in search of the stage (covered seating in sections 1 through 9 and VIP seating) and other 13,000 on the spacious lawn. It has 78 theater-style VIP boxes that can accommodate 4, 6, or 8 people.In addition to view for prime viewing, patrons in VIP boxes also wonder amenities such as wait staff service at their seats, psychealized parking, and exclusive social status to the VIP Bar & Grill. Directly in front of sections 4, 5, 8, and 9 is seating with an elevated floor that provides beautiful views of the stage for patrons with disabilities and additional seating for the hearing or visually impaired. Lawn Seating Reserved, Covered Seating Issues in Accounting Education, November 2004 560 Blocher and Chen EXHIBIT 2 bald-faced Report for the KFBS Allstars ConcertARTIST NAME ACTIVITY/EVENT chassis EVENT MONTH EVENT DATE Projected Sales (Number of pose) A Seats B Seats C Seats D Seats conglomeration Number of Seats Projected Ticket outlay A Seats B Seats C Seats D Seats PROJECTED nett AFTER impose ADMISSIONS AVG TIX PRICE NET OF TAX PER PAYING PATRON natural endowment % GUARANTEE/TALENT COSTS NUMBER OF PERFORMANCES DROP COUNT (includes comp tickets) opposite Ticket-Related Revenue FACILITY burden Per capita SERVICE CHARGE Per capita taxation FROM TICKETING Per capita ANCILLARY REVENUES PARKING Per capita FOOD surrender Per capita MERCHANDISE Per capita RENTALS REVENUE FROM ANCILLARIES Per capita pith REVENUE Per capita The KFBS Allstars 10310001 7 7/31/04 2,778 2,845 1,747 881 8,251 $36. 29 $22. 22 $11. 31 $ 4. 92 $182,479 $22. 12 88. 03% $160,635 1 10,349 $24,010 $2. 91 $16,172 $1. 96 $222,673 $26. 99 $19,767 $1. 91 $79,273 $7. 66 $36,428 $3. 52 $0. 00 $135,468 $13. 09 $358,141 $34. 61 (continued on next page) Issues in Accounting Education, November 2004 The ALLTEL Pavilion Case: Strategy and CVP Analysis 561EXHIBIT 2 (continued) Other Direct Costs PARKING CONTRACT surrender CONTRACT MERCHANDISE CONTRACT TOTAL discipline COSTS Per capita PERCENT OF gross revenue TOTAL REVENUE (from above) T OTAL DIRECT COSTS (from above) GROSS winnings Operating spendings TOTAL PRODUCTION outgo TOTAL OPERATIONS EXPENSE TOTAL OTHER VAR. EXPENSE TOTAL ADVERTISING EXPENSE TOTAL operational EXP Per capita PERCENT OF SALES OPERATING INCOME Per capita PERCENT OF SALES Detail: Other Concert Variable Expense Insurance Expense per mortal COGSâ€Concession per individual COGSâ€Merchandise Inventory per person COGSâ€Parking per person Other Variable Concert Expense per person TOTAL OTHER VARIABLE EXPENSE $0. 17 $0. 35 $1. 12 $0. 08 $0. 02 $14,323 $4,448 $43,356 $17,826 $226,265 $21. 86 63. 2% $358,141 $226,265 $131,876 $15,506 $14,991 $14,323 $20,030 $64,850 $6. 27 18. 1% $67,026 $6. 48 18. 7% Issues in Accounting Education, November 2004\r\n'