Assignment – Revenue Sharing

Background

The National Basketball League is a professional sports league in North America. Each team in the league must participate in the revenue sharing system. For the purposes of the revenue sharing plan, there are no limits to the amount each team may contribute to the plan. Each team is subject to a receipt limits based their designated market area (DMA). For teams with a DMA between 1.5-2.149 households, the final receipt limit is set at 75% of the initial receipt; for a DMA of 2.15-3.049 M, the final receipt limit is set at 25% of the initial receipt; for DMAs over 3.05M, the final receipt limit is set at 0%.

If a team rents their arena, items such as fixed signage, temporary signage, and luxury suites are included in the plan at 100%. If the team controls their arena with no cotenants, the team must include these items at 70%. For a team that has another professional team as a cotenant, the respective inclusion percentage is 40%. Post-season revenues and expenses are excluded from the revenue sharing calculation. Player salary and other expenses are taken at the league average, which were $88M and $5.2M respectively for the 2015-16 year.

Each team in the league plays 82 regular season games a year, half of which are home games. The league’s national television deal provides each team with $30M annually in revenue with $500k in associated expenses. Additional league managed items such a licensing provided the teams with $17M in revenue and $3M in expenses. Each team also received a $800k playoff distribution from the league.

If there is no inclusion percentage specified, items are included in the revenue sharing plan at 100%.

Team A

Team A is an arena controller with an NHL cotenant. The team has 3.0M households in their DMA. The team signed a new local cable deal worth $36M annually which took effect for the 2015-16 season. The average gate attendance per game was 16,100 people. The team had one of the highest average ticket prices in the league at $103 and a novelties and concession per cap of $7.15. The team played one regular season home game internationally and received a $1M payment from the League. The team’s associated gate expenses for 2016-17 were $1.75M and concessions expenses totalled $1.25M. The team also leases 20 suites for a total of $6M per year. Fixed signage inventory generated $4M with an 85% margin, while temp signage revenue was $3M with a 90% margin. The team’s main expenses were player salaries ($85M), basketball operations ($17M), G&A ($8M), and other expenses ($2.4M). The team has been in a rebuilding phase and has not qualified for the playoffs the past three seasons.

Team B

Team B is an arena renter. The team has 1.85M households in their DMA. The team signed a new local cable deal worth $20M annually with a 3% escalator. The deal, which took effect for the 2013-14 season, stipulated that the $20M fee was based on the television network broadcasting 50 games. However, the team did not fulfil its obligations as the network only had access to 48 games so they had to account for non-delivery.

The average gate attendance per game was 13,900 people. The team’s average ticket price in the league was $90 and a novelties and concession per cap of $6.25. The team must pay their concessionaire $2.90 per transaction. The team also leases 22 suites for a total of $6.65M per year. Fixed signage inventory generated $3M with a 78% margin, while temp signage revenue was $4M with a 90% margin. The team has been successful the past few seasons, making it to the second round of playoffs in 2016-17, earning net revenues of $8M. The team’s largest expenses were player salaries ($93M), basketball operations ($32M), G&A ($4M), and other expenses ($3.2M). The team also had expenses tied to gate receipts where they had a 90% margin.

Assignment

Based on the information above, first create a P&L for each team for the 2016-17 season. Then apply the revenue sharing plan criteria noted above to determine the P&L amounts subject to revenue sharing.

Submission

An Excel Workbook with both calculations and answers are to be submitted

There is a link in the comment box where an Excel Workbook can be attached or you can just complete directly in the comment box. The Excel format is preferred but not required to answer the question.