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Virtual Business. Lesson 1 – Franchise Location. Franchise Location. A very important decision for any sports team Demographics – total population of the city, the number of people enthusiastic about their sport, and their ability to afford tickets. Infrastructure –
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Franchise Location A very important decision for any sports team Demographics – total population of the city, the number of people enthusiastic about their sport, and their ability to afford tickets. Infrastructure – the available venue (stadium), parking capacity, and possible financial incentives offered by the local government
No city is perfect on all factors, but some are superior to others • Franchises can move if the choice of location proves wrong, but it’s a difficult task that will require rebuilding awareness and loyalty in the new location. • (NFL expansions can cost up to $700 million ~Houston 2002)
Franchise A franchise is the permission contracted to a group or single entity to sell a company’s goods or services within a certain region. In Virtual Business - Sports, a franchise is the right of association within a professional football league.
Fan Loyalty Loyalty is devotion to an entity. Sports fan loyalty largely determines how much fans are willing to pay for sporting event tickets and how many games they are likely to attend. A losing record is likely to decrease sporting event attendance, but there is usually a segment of extremely loyal fans that will continue to attend games.
Seating Capacity Seating capacity is the total number of seats that are available at a specific stadium. Shea Stadium
Infrastructure Infrastructure is the physical resources required for the operation of an event or activity. A good city for a football franchise will have an infrastructure that matches the team’s needs. This includes the right size stadium, enough offsite parking, and available transportation.
Let’s Take a Look at Virtual Business… • First, we must change screen resolution • Second, VB tutorial on Franchise Location • Third, worksheet on franchise location (6 questions) • Keep in folder so we can do ticket pricing tomorrow
Ticket Pricing – Lesson 2 Price • Price is the amount of money you charge customers for one unit. Ticket prices should reflect what customers are willing and able to pay. Revenue • Revenue is the money you collect for things you sell. Revenue is equal to Unit Sales x Price of each unit. • A sports franchise has a number of revenue sources, including: ticket sales, concessions, licensing and sponsorships.
Demand • Demand is the amount of goods or services that customers want to buy. • Ticket price for a sporting event should be determined by the amount of demand that exists for that event. Yield Management Pricing • Yield management pricing involves setting different prices for goods or services in an effort to maximize revenue when limited capacity is a factor.
Promotions Target Audience • Target audience describes a particular market segment selected as being the most appropriate for a certain advertising campaign or schedule. Promotional Items • Sometimes a business will use special items in combination with its promotional campaign to help attract customers. These items are considered promotional items.
Forecasting • Forecasting involves the prediction of upcoming results based on the evaluation of accessible, relevant data.
Media Planning • Refers to the different avenues through which a business can reach its potential customers • TV, radio, Internet, newspaper • Media planners seek to reach the largest possible percentage of their target audience while keeping advertising spending within a set budget. • Define 1 or more target segments their are likely to purchase their product • (defined by demographics)
Cost Per Reach – Cost of an ad campaign divided by the # of people reached • Media – describes avenues for communicating a message. • Awareness -- % of potential customers in a specific target audience who are aware of a product’s existence. • Demographics – basic characteristics of a population segments such as gender, age, and income.
Definitions • Groundskeeper – someone who maintains property grounds of substantial size. • Important b/c it could lead to player injury and league fines • Security – security and well-being of the fans, stadium property and workers. • Crowds could become unruly • Crowd control is critical to ensure the safety of fans as well as players, coaches, and officials • Usher – make sure fans sit and stay in their assigned seats. • Fans move to better seats if no one stops them • Insure integrity of the franchise’s product: seats. Not allowing them to purchase cheap and move
Stadium Parking • Traffic flow, parking, and getting fans through the gates and into the stadium is always a challenge at a large event. • Event organizers must ensure there is adequate parking. • Large parking lots at the venue • Parking lots away from the site (satellite parking) • Arrange for buses • Parking lots should be staffed with personnel to get cars in, attendants to direct traffic, and security to help resolve accidents or other incidents. • Ticket sellers – for ticket purchase on day of game • Ticket takers – collect tickets from fans that bought ahead of time.
Ingress – flow of fans to or into the stadium • Egress – flow of fans out of or away from the stadium • Bottlenecks – lessening of traffic throughout. • Overloaded parking lots • Not getting fans to seat quick enough • Satellite Parking – offsite parking
Definitions • Sponsor – organizations, firms, or individuals that give teams money in exchange for advertising rights on stadium signage and naming rights. • Signage – signs, symbols or design. • Naming rights – exclusive right of a sponsor to have its name and logo on a stadium • Negotiation – act of discussing an issue between two or more parties with competing interest in order to reach and agreement.
Companies sponsoring a sports team is a form of advertising. • Good candidates to buy their products • Try to offer a wide range of sponsorship opportunities to meet different budget needs of potential sponsors • Small signage ads may appeal to small or local businesses • Stadium naming rights may appeal to large national or international corporations. • ($300 million in 2002 for Houston’s stadium to be named Reliant Energy)
Negotiate w/ potential sponsors to create the right mix of advertising opportunities at an acceptable price • Offer a wide range of options • Be careful not to wear out the potential sponsor’s patience with repeated, unacceptable offers.
More about Naming Rights… • Alltel Stadium, Jacksonville Jaguars, $620,000 • American Airlines Arena, Miami Heat, $2.1 Million • Heinz Field, Pittsburgh Steelers, $2.9 Million • Philips Arena, Atlanta Hawks and Thrashers, $9.3 Million • Sports Authority Field, Denver Broncos, $120 Million for 10 years • Pinnacle Bank, Lincoln, NE $11.25 Million for 25 years • CenturyLink (formerly Quest) $14 Million
Licensing – authorization that one business gives to another business, individual or organization which grants one or the entities permission to use another’s property (e.g. logo) in exchange for a fee. • Usually 8 – 12% goes to the organization who sold the license • Royalty – per unit payment made for the use of intellectual property created by a business or person, such as a sport team’s name and logo.
Licensee – the group, individual or corporation paying a percentage of the revenue earned through the use of the entity’s intellectual property. • Licensor – the one that owns the rights to the intellectual property and grants permission to a group to use it.
Virtual Business – Project Level 1 • Complete level 1 & 2 • Goal is to profit $3,000,000
Level 1 “Cheats” • Choose Midway City • Ticket Pricing: $47, 42,37, 32, 32, 27 • Stadium Staff: Ushers 5 on each level; Security 12 each level; Groundskeepers 10 • Parking Staff: 14, 12, 16, 16, 12 • Satellite Lots: • Column 1 3rd row, 3 buses • Column 1 6th row, 5 buses • Column 2 5th row, 5 buses • Column 2 7th row, 2 buses
Level 1 Cheats continued… • Media: Don’t start until AUGUST 14TH • Broadcast 93 spots, 92, 93 • Cable: 127, 0, 91 • Radio: 100, 0, 156 • Internet: 92, 91, 113 • Promotion 35,000 each game • Game 1 – hat • Game 2 – football • 3- hat 4-football 5-jacket 6-helmet 7-keychain
Level 1 Cheats continued… • Sponsorships • Stadium Naming = USA BANK $625,000 • Scoreboard = Humongous $340,000 • Ticketbooth = Big Box Hardware $175,000 • Field Sign = • SportsCo $65,000 • LOTSA $35,000 • BrightBulbEnergy $50,000 • FixMeUp $25,000 • Licensing: DVD = Juliette’s; Sporting = Eddie’s; apparel = Josh’s
Save each level as a separate file name in case you “mess up” – then you don’t have to start from the beginning.
Level 2 Profit goal $3,000,000
Level 2 • Sometimes the economic conditions can deteriorate in what was a good location. • It may become impossible for a franchise to make money. • Then you move • New sponsors will need to be found and awareness among the new fan-base will need to be generated. • Changing weather can also greatly complicate the management of outdoor events. • Beautiful weather – sell out • Rain – drives away fans who were planning to purchase tickets on game day • Must adjust staff, etc. to manage these fluctuations
Level 2 “Cheats” • You will need to move your franchise before your time has expired to do so. • You can keep some similar settings to level 1 – but experiment with your own. • You will need to go through all the tabs on the “Actions” menu on the toolbar. • Licensing: Accept the best offer based on the formula: • Revenue = Fixed Payment + royalty x estimated units sold • After you receive the pre-game report before each home game, you should stop the simulation and alter the ticket prices accordingly. At the end of each home game, you should change the ticket prices back to their previous levels.
Level 2 “Cheats” for Ticket Prices • Promotions: • if you are using a high appeal promotion, increase the ticket prices • If you are using a low appeal promotion, increase ticket prices by a smaller number • Weather: • Sunny • Light rain – maybe decrease a little • Heavy rain – decrease a little more • Heavy rain my need to increase the groundskeepers before the next home game to avoid fines. Change back later if you have sunny weather for next home game.
Level 3 Goal is to profit at $9,000,000
The ultimate test of business success is being able to replicate that success. • Profitability goals for this level – need to acquire and turnaround several existing teams • Each of your teams will need to adapt to different situations based on some “randomness” of the simulation • Most likely, if you haven’t in level 2, you should change cities.
Level 4 IF you make it here, you will have control over the hiring and firing of football players on your team. Players will also be subject to injuries.
