Profitability Analysis - Road Atlanta

The facts

Road Atlanta is a beautiful 2.52-mile automobile road racing facility located on Georgia Highway 53, about 5 miles West of I-85 and roughly 50 miles Northeast of Atlanta. In addition to its highly publicized professional race events, Road Atlanta sees a variety of other uses. One of these uses is SCCA amateur racing. Although a typical year sees 4 to 6 such events, most of them have always been closed to the public. To get in, you had to be a participant or "know somebody".

Road Atlanta instituted a new policy some years ago. In an effort to build a fan base and perhaps turn a profit on these amateur events as well, management opened these events to spectators at a very reasonable price. A full weekend ticket for a typical event cost only $25, and included admission to infield, grandstands, and paddock.

Our Scenario

The above is true. From this point forward, we engage in a bit of fiction in creating an approximation to the decision-making scenario that Road Atlanta management might have faced. Assume that they have not yet made the decision to open to spectators. Opening up these events to spectators generates not only new revenues, but also new costs. The presence of spectators changes the liability situation, requiring additional insurance. Spectators sometimes act like slobs, meaning that after the event the Road Atlanta staff will need to do some additional cleanup. Since there is some risk of other misbehavior, they will need more security people. But spectators often make purchases from the concession stand and from the Souvenir Shop. Let's speculate on these costs and revenues.

  • There is an advertising cost of $75,000 to bring in the spectators.
  • Selling tickets at all requires a ticket seller. We will presume a cost of $350 for the weekend for this person.
  • The additional insurance cost is the last 4 digits of your Social Security Number (SSN), in dollars.
  • An additional security guard costs the first 3 digits of your SSN (if the first digit of any of the 3 segments of your SSN is 0 or A, substitute the digit 1) per day for the 2 days. We'll guess that they need 1 security guard for every 2000 spectators.
  • Let's suppose that staff salaries and wages for a race weekend and the following week amount to $10,000. These staff members are employed and paid with or without a race, and with or without spectators. If there are 2000 or fewer spectators, they can handle the cleanup.
  • Each additional spectator above 2000 requires the 2 middle digits of your SSN, in cents, worth of overtime or temporary help for cleanup.
  • Road Atlanta gets 30% of concession sales and the average spectator spends $4.00 on food and drink.
  • Assume that the Souvenir Shop costs $300 to open for the weekend, that the average dollar of sales brings 40 cents of margin, and that only 25% of spectators buy anything. If a spectator buys something, he or she will spend the middle 2 digits of your SSN in dollars.

Note: You do not have to use your actual SSN, due to privacy concerns. Make up a number that looks like an SSN, and use it for the project. The only goal here is that each person has different numerical values to work with.

Your Job

We will assume that Road Atlanta management has not yet decided to open these events to spectators. Road Atlanta's owners have several questions for you about a typical SCCA amateur race (the race weekend happens with or without spectators):

  1. How much do we lose if no spectator shows up?
  2. How many spectators must we attract to break even?
  3. How much better or worse off are we (than a closed event) if we attract 2000 spectators? 5000? 10,000?
  4. How will the situation change if the ticket price is varied?

Design a model that would aid them in making the decision. I suggest that you begin with an influence diagram, and then specify the required inputs, computations, and outputs.

Now you should construct a spreadsheet that will let you answer these and other questions on a "what if?" basis. Assume that the boss will want to try it out. Since you don't want to get fired, that means it had better be well organized, attractive, easy to use, hard to mess up, and economically correct. Enhancements such as graphs would be wonderful.

Since we are basing some numbers on your SSN make up a number in the SSN format, but when labeling the numbers, label them appropriately as “insurance cost”…etc., rather than as SSN.

What I want to see

  1. Your one or two page report to the General Manager informing her/him of the potential consequences of opening these events to spectators. Remember that the memo should summarize your analysis and provide a recommendation. Any assumptions made for the analysis must be clearly stated. It must be word processed neatly.
  2. An Influence diagram for the problem. This can be done in Word or Excel using the Drawing tools.
  3. Your spreadsheet model. Make sure that besides being accurate, it looks neat. If the printout does not fit on a page, break it down logically into more than one page on the printout, instead of letting the software determine the breaks for you.
  4. Post your project to your website.

Grading:

Your project report will be graded based on the following criteria.

  • Analysis - did you consider all aspects of the problem? Did you discuss all the important points in your memo?
  • Presentation - How easy is your memo to read? Is your spreadsheet layout easy to comprehend? Are spreadsheet inputs/outputs labeled?
  • Accuracy - Is your spreadsheet computation accurate? Is the influence diagram accurate?