Planning by the Groningen Arts Centre

M987Z234: Phi Thi LoanM987Z247: Nguyen Mac To My

The Groningen Arts Centre (GAC) • The GAC is placed in the city of Groningen which is an

important population in the north of the Netherlands and be ranked as one of the ten top cities in the Netherlands

• The GAC is owned by the municipality of Groningen, which is made up of a number of departments. One of the operating entities within the Art & Culture Sub department is the GAC

• GAC includes 4 venues:• The large concert hall, which seats 1,200• The small concert hall, which seats 450• The city theatre, which seats 700• The indoor plaza, which seats 100

Assignments

• Assignment 1: Contracts • Assignment 2: Randy Newman at Groningen • Assignment 3: Latvian Company • Assignment 4: Disappointing results

Contracts • The GAC draws up contracts for the performance & concert to

be given at its venues with 3 main types are described below:• Variable-fee contract: The artist & the GAC receive fixed % of

box-office receipts Bram de Jong gets 75% for next performance in theatre & GAC 25%

• Fixed-fee contract: GAC pay a fixed amount to the artist GAC pays €6,500 for a performance by Bridget Masland in theatre

• Fixed-variable-fee contract: Double Dutch performs in large concert hall & each ticket costs €17.50, Double Dutch receive: €12,500, and 50% surplus box-office receipts, i.e. receipts from tickets sold after a

minimum of 800 tickets have been sold. Last season, the last 200 tickets had to be sold at a competitive price

of €6.25 after extra promotional activities amounting to €500

Assignment 1• Fixed-fee contract: the performance by Bridget Masland• The GAC could ask €15 for each best seat (60% of the total

number of seats) & €10 for each worst seat (40%)• The GAC would expect to sell about 450 to 500 tickets. • It could raise prices, e.g. from €15 to €17.50• Variable-fee contract: by Bram de Jong• The comedian doesn’t want the price of a best or worst

seat to exceed €17.50• (?) Calculate the estimated financial results concerning the

next performances by: the comedian Bram de Jong, the actress Bridget Masland & the brand Double Dutch

By the comedian Bram de Jong (Variable-fee contract)

Case 1( based on last year)

Case 2(based on last year)

Case 3(based on latest season)

# of seats(unit: seat)

Best seats: 60%*700 seats=420Worst seats:40%*700 seats=280

Best seats: 500Worst seats: 200

Best seats:500Worst seats:25%*200=50

Price Best seats: €17.50Worst seats: €15

Best seats: €17.50Worst seats: €15

Best seats: €17.50Worst seats: €15

Revenue Best seats:420 seats*€17.50=€7,350Worst seats:280 seats*€15=€4,200Total: €11,550

Best seats:500 seats*€17.50=€8,750Worst seats:200 seats* €15=€3,000Total: €11,750

Best seats:500 seats*€17.50=€8,750Worst seats:€50 seats*€15=€750Total: €9,500

GAC getComedian

25%*€11,500=€2,887.5075%*€11,500=€8,662.50

25%*€11,750=€2,937.5075%*€11,750=€8,812.50

25%*€9,500=€2,37575%*€9,500=€7,125

By the actress Bridget Masland (Fixed-fee contract)

Case 1(based on last year)

Case 2(based on last year)

Case 3(based on latest season)

# of seats(unit: seat)

Best seats: 60%*700 seats=420Worst seats:40%*700 seats=280

If 500 seats all are the best seats:500

If not, then:Best seats:60%*500 seats=300Worst seats:40%*500 seats=200

Price Best seats: €15Worst seats: €10

Best seats: €17.50 Best seats: €17.50Worst seats: €15

Revenue Best seats:420 seats*€15=€6,300Worst seats:280 seats*€10=€2,800Total: €9,100

Best seats:500 seats*€17.50=€8,750Total: €8,750

Best seats: 300 seats*€17.50=€5,250Worst seats:200 seats*€15=€3,000Total: €8,250

Cost €6,500 €6,500 €6,500

GAC getActress

€9,100-6,500=€2,600€6,500

€8,750-6,500=€2,250€6,500

€8,250-6,500=€1,750€6,500

By the band Double Dutch (Variable-fixed-fee contract)Case 1 (based on last year) Case 2 (based on latest season)

# of seats(unit: seat)

Best seats: 1,200 Best seats: 1,000 Worst seats: 200

Price Best seats: €17.5 Best seats: €17.50Worst seats: €6.50

Revenue Best seats:1,200 seats*€17.5=€21,000Total: €21,000

Best seats:1,000 seats*€17.50=€17,500Worst seats:200 seats*€6.50=€1,300Total: €18,800

Cost Double Dutch gets: €12,500Surplus (from 801th to 1,200th ticket): 400 seats*50%*€17.50=€3,500

Double Dutch gets: €12,500Surplus (from 801th to 1,000th ticket): 200 seats*50%*€17.50=€1,750Surplus (from 1001th to 1,200th ticket): 200 seats*50%*€6.50=€650Extra promotional: €500

Profit €21,100-12,500-3,500=€5,000 €18,800-12,500-1,750-650-500=€3,400

Assignment 2: Randy Newman at Groningen

• In Feb. 1999: Randy performed in large concert hall• Ticket: were priced at €17.50 & €18.75 respectively• Specified 3 following terms:a. Randy receives 50% of the box-office receipts & GAC receives the

remaining 50%b. GAC pays a fixed amount to Randy if it were the highest bidder & its

bid was therefore acceptedc. GAC sets a ticket price, without prejudice to the provisions under

(a)(?) - Specify at least 3 different bids by GAC by Randy

- Specify con tract term which are in accordance with the terms a, b, and c mentioned above- Do a financial analysis of each contract’s advantages & disadvantages to GAC: indicate which bid is best, give arguments

• Three different bids by the GAC for a single performance by Randy: Variable –fee contract, Fixed-fee contract, and Variable-fixed-fee contract

• In which:• Variable –fee contract is in accordance with term a: Randy

Newman (& his impresario) would receive 50% of the box-office receipts & the GAC would receive the remaining 50%

• Fixed-fee contract is in accordance with term b: the GAC would pay a fixed amount to Randy (& his impresario) if it were the highest bidder & its bid was therefore accepted

• Fixed-variable-fee contract is in accordance with term b: the GAC would be allowed to set a ticket price, without prejudice to the provisions under (a)

Advantages & Disadvantages

• Variable-fee contract: if all the best seats are full, then the sales will be very high

• Fixed-fee contract: although all the best seats and worst seats are full or not full, the GAC still has to pay a fixed amount for the performance

• If GAC gets this contract, it will has to pay other opportunity cost

• Term a: The GAC will get more profit in this case. Recall in the last variable-fee contract, the actress is going to get 75% for his next performance in the theatre and the GAC 25%. But in term a, the GAC is going to get 50%.

• Term b: The GAC always has to pay a fixed amount of €6,500 to the actress at any price as well as any # of prices sold out. Therefore, if the sales is less than the expectation, the GAC will get loss.

• Term c: Recall in the last fixed-variable-fee contract, the GAC has to pay a fixed amount of €12,500 to the actress and 50% of surplus box-office receipts. If the # of tickets sold out doesn’t reach to 800, the GAC doesn’t have to pay that 50%. Therefore, if the sales is less than the expectation, the GAC will get lose.

• After considering the three terms, the variable-fee contract seems to be the best.

A financial analysis of each contractVariable-fee contract Fixed-fee contract

# of seats(unit: seat)

Best seats: 60%*1,200 seats=720Worst seats: 40%*1,200 seats=480

Price Best seats: €18.75Worst seats: €17.50

Sales Best seats:720 seats*€18.75=€13,500Worst seats:480 seats*€17.50=€8,400Total: €21,900

Total: €21,900

Cost Best seats:50%*€13,500=€6,750Worst seats:50%*€8,400=€4,200Total: €10,950

From €6,500 to €12,500

GAC get €21,900-10,950=€10,950 From €21,900-12,500= €9,400to €21,900-6,500= €15,400

Assignment 3: Latvian company• Average capacity usage rate: 70%• Average ticket price: €22.50• Fir capacity usage rates on Fridays & Saturdays, i.e.

80% on average; poor capacity usage rates on Mondays, i.e. 50% on average; on the other days 70% on average

• (?) calculate the estimated financial result of a performance by the Latvian

• Do a financial & policy-specific analysis of the opinions held by the 3 GAC executives mentioned above

• Advice to the director of the GAC

The estimated financial result of a performance by the Latvian

• # of seats: 700 seats• Average ticket price: €22.50• Average sales: 700 seats* €22.50= €15,750• Average sales on Sat.: 80%*€15,750= €12,600• Average sales on Sun.: 70%*€15,750= €11,025• Total average sales on Sat. & Sun.: €23,625• €23,625 is greater than €22,500 (compared to the

expected average sales of Karin), therefore, the estimated financial result of a performance by the Latvian company is better than that of the three GAC executives.

Disappointing result – variance analysis

• For the first two weeks of March 1999, the business results of the theatre were disappointing.

• Of this, I will base on the report of the two week to calculate the variance analysis for individual performance as well as for each categorization. And show that why theatre got unexpected result.

* 20% of the tickets were sold at a discount of 25%** Half of the tickets sold were at a discount of 10%

type estimated price estimated number of visitors actual price actual number of

visitors

cabaret 15.0 470.0 15.0 * 390.0

cabaret 18.0 700.0 18.0 675.0

cabaret 16.0 620.0 16.0 400.0

cabaret 14.0 510.0 14.0 590.0

theatre 9.0 580.0 9.0 560.0

theatre 10.0 540.0 10.0 650.0

theatre 13.0 500.0 13.0 350.0

theatre 10.0 450.0 10.0 570.0

opera 30.0 480.0 30.0 ** 520.0

opera 26.0 450.0 26.0 560.0

congress 20.0 550.0 20.0 430.0

anniversary 30.0 600.0 30.0 525.0

• Estimated revenue = estimated number of visitors * estimated ticket price.

• Actual revenue = actual number of visitors * actual ticket price.

type estimated revenue actual revenue Revenue variance

cabaret 7,050.0 5,557.5 (1,492.5)

cabaret 12,600.0 12,150.0 (450.0)

cabaret 9,920.0 6,400.0 (3,520.0)

cabaret 7,140.0 8,260.0 1,120.0 Total cabaret 36,710.0 32,367.5 (4,342.5)

theatre 5,220.0 5,040.0 (180.0)

theatre 5,400.0 6,500.0 1,100.0

theatre 6,500.0 4,550.0 (1,950.0)

theatre 4,500.0 5,700.0 1,200.0 Total theatre 21,620.0 21,790.0 170.0

opera 14,400.0 14,820.0 420.0

opera 11,700.0 14,560.0 2,860.0

total opera 26,100.0 29,380.0 3,280.0

congress 11,000.0 8,600.0 (2,400.0)

anniversary 18,000.0 15,750.0 (2,250.0)

Price variance = (actual price – estimated price) * actual number of visitors Quantity variance = (actual number of visitors – estimated number of visitors) * estimated price of ticket

type revenue variance price variance (revenue) quantity variance (revenue)

cabaret (1,492.5) (292.5) unfavorable (1,200) unfavorable

cabaret (450.0) - favorable (450) unfavorable

cabaret (3,520.0) - favorable (3,520) unfavorable

cabaret 1,120.0 - favorable 1,120 favorable

total cabaret (4,342.5) (292.5) (4,050)

theatre (180.0) - favorable (180) unfavorable

theatre 1,100.0 - favorable 1,100 favorable

theatre (1,950.0) - favorable (1,950) unfavorable

theatre 1,200.0 - favorable 1,200 favorable

total theatre 170.0 0.00 170

opera 420.0 (780.0) unfavorable 1,200 favorable

opera 2,860.0 - favorable 2,860 favorable

total opera 3,280.0 (780.0) 4,060

congress (2,400.0) - favorable (2,400) unfavorable

anniversary (2,250.0) - favorable (2,250) unfavorable

type Contractual cost Fixed cost extra cost types

Type of contract Staff cost Catering cost

cabaret lump sum 6000

600 - -

cabaret price ppv 16

600 - -

cabaret mix 5000 + 6 ppv

600 - -

cabaret lump sum 6000

600 - -

theatre lump sum 4500

600 - -

theatre Price ppv 8

600 - -

theatre price ppv 10

600 - -

theatre mix 1000 + 6 ppv

600 - -

opera Lump sum 12000

600 - -

opera price ppv 23

600 - -

congress - -

600 8,000 15 per possible visitor

anniversary - -

600 15,000 20 per possible visitor

Lump sum: cost was unchanged for estimated and actual Price ppv = contractual cost * number of visitorsMix = lump sum + (price ppv * number of visitors)

typecontractual cost

estimated cost actual cost cost variance (from quantity)

cabaret 6,000 6,000 -

cabaret 11,200 10,800 (400)

cabaret 8,720 7,400 (1,320)

cabaret 6,000 6,000 -

total cabaret 31,920 30,200 (1,720)

theatre 4,500 4,500 -

theatre 4,320 5,200 880

theatre 5,000 3,500 (1,500)

theatre 3,700 4,420 720

total theatre 17,520 17,620 100

opera 12,000 12,000 -

opera 10,350 12,880 2,530 total opera 22,350 24,880 2,530

type Contractual cost Fixed cost extra cost types

Type of contract Staff cost Catering cost

cabaret lump sum 6000

600 - -

cabaret price ppv 16

600 - -

cabaret mix 5000 + 6 ppv

600 - -

cabaret lump sum 6000

600 - -

theatre lump sum 4500

600 - -

theatre Price ppv 8

600 - -

theatre price ppv 10

600 - -

theatre mix 1000 + 6 ppv

600 - -

opera Lump sum 12000

600 - -

opera price ppv 23

600 - -

congress - -

600 8,000 15 per possible visitor

anniversary - -

600 15,000 20 per possible visitor

Estimated extra cost = staff cost + (catering cost * estimated number of visitors)

Actual cost = staff cost + (catering cost * actual number of visitors)

we can see that the difference between estimated and actual extra cost was just due to the quantity of visitors

type

extra cost

estimated extra cost actual cost extra cost variance

congress 16,250 14,450 (1,800) favorable

anniversary 24,000 25,500 1,500 unfavorable

Total 40,250.0 39,950.0 (300.0)

type estimated revenue

actual revenue

revenue variance

price variance (revenue)

quantity variance (revenue)

TOTAL 113,430.0 107,887.5 (5,542.5) (1,072.5) (4,470.0)

type

contractual cost

fixed cost

extra cost

estimated cost actual cost

cost variance

(from quantity)

estimated extra cost

actual cost

extra cost variance

TOTAL 71,790.0 72,700.0 910.0

7,200.0 40,250.0 39,950.0

(300.0)

Implication

• In general, the total cost was not changed too much (cost increased by about $600), but the revenue decreased more than 5,500 => as the result, an unexpected result was unavoidable.

• Base on the variance analysis, the decrease of revenue was because of the decrease of quantity of visitors. Therefore, the theatre should build a policy which would attract more customers.