Matthew Knight Arena - Tuning the Quack
Rob Mullens, Athletic Director at the University of Oregon has just completed another very successful Fall and Winter at the University of Oregon in competition. The football team finished second in the nation, the basketball team outperformed all expectations winning a game in the NCAA tournament, and we enter the spring with Oregon's bread and butter sport of Track and Field, not to mention a highly ranked women's softball team. One might imagine it's a time to relax, reflect and recharge for the upcoming year. But AD Mullens is concerned. In spite of unparalleled success on the field and on the court, the year ahead brings financial concerns. In particular, Mullens is especially concerned about ticket pricing and making sure that the debt payments on the Matthew Knight Arena do not disable the juggernaut. He is testing out a number of promotions (see Appendix A) and has just set a new pricing schedule for men's basketball tickets (see appendix B).
Mullens decides to hire your consulting firm to identify ways to evaluate the impact of these changes and ask for recommendations on how to further improve revenue streams at MKA. In spite of the teams' successes in the last year revenues continue to lag the projections that were used to justify the beautiful state of the art MKA. Now just finishing its fourth full year of operations the Arena has fallen considerably short of revenue targets each year. Luckily a $100 million gift from Phil and Penny Knight has provided a financial cushion for the operating losses, yet at the current rate of losses Mullens is concerned. Concerned enough to hire you to conduct an in depth assessment of what is going right, wrong and the financial implications of proposed changes to marketing tickets to events in MKA.
AD Mullens has provided to you a spreadsheet (pro forma) model with actuals filled in relative to projections made at the time the arena was being planned. He has also provided a model that runs forward from today that's available on the goducks website with actuals filled in through 2013. As mentioned above, in appendix A, Mullens has also provide a list of the promotions used in the 2015 season for various teams as well as a new pricing schedules for men's basketball in the 2015-2016 season.
Mullen's sits back in his chair, looks you in the eye and asks: "Was lowering prices the right things to do? And by the way, what else can we do to improve our financial position going forward?"
After giving Mullen's a hug, you and your boss depart and start discussing your assignment. You come to the conclusion that the central part of your assignment is to estimate how these proposed pricing changes will change the cash flow forecasts for the arena in the coming year and to evaluate the impact and potential for marketing promotions that could drive sales to the Arena events
In providing me with your analysis,
1. Provide a two page executive summary and a spreadsheet that forecasts cash flows from 2016 to 2026.
a. A crucial part of these estiamtes will be an analysis of the impact of pricing changes on revenues for next year.
b. The impact of new promotions and how they might help revuenues can also be provided here.
2. Your write-up should compare current realizations of cash flows with the forecasts from the past and then use your judgment and research to come up with your best cash flow forecasts.
3. You can simplify the revenue streams and cost streams if you wish to make assumptions. Just be clear in your assumptions and that they are reasonable ones.
4. Please provide projections of debt service coverage ratios.
5. Provide projections of the legacy fund.