ACCT 410 CASE STUDY QUESTIONS


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ACCT 410 CASE STUDY QUESTIONS.pdf Hala Madrid: Managing Real Madrid Club de Futbol, the Team of the Century Fragen 1. With the information in the case, please prepare a draft for the 2004/2005 season budget. Be aware that the figures in the case do not include the effect of the expected « galactico » acquisition for the 2004/05 season. When preparing the budget consider the following decisions: a) With respect to the policy of new player acquisition Real Madrid is considering two options: i. Acquiring two megastars at an estimated cost of EUR 40 million each transfer fees and an annual salary of EUR 10 million or ii. Acquiring four rising stars, young players with enormous potential at an estimated cost of EUR 15 million each in transfer fees and an annual salary of EUR 3 million. In this decision please take into account the following considerations: (1) The new players will most likely affect the sale of team jerseys. New players’ names will be popular in the sale of new jerseys.1 However, some of these sales will come at the expense of cannibalizing sales of existing players jerseys. The marketing department has prepared the following estimation of royalty income from team jerseys as a function of the players acquired and the money invested in equipment advertising: Advertising Royalties 0% 2% 4% 6% 8% Team Jersey Royalties (EUR Millions) Base 2 Megastars 4 Rising Stars 40.0 46.0 41.4 41.3 48.6 42.6 42.3 50.6 43.5 43.1 52.3 44.3 43.6 53.3 44.7 (2) The acquisition strategy will affect the sport potential of the team. Most sport analysts believe the rising stars strategy will have a more positive impact on the chances of advancing further in the Champions League and winning the Spanish La Liga. The immediate economic implications of sport performance are the following: (a) Advancing one more round in the Champions League increases Real Madrid’s revenue by EUR 5 million partly for additional ticket revenue and partly for increased participation in the UEFA marketing pool. Winning the Champions League only produces a EUR 3.5 million increase over qualifying for the semifinal (as 1 Names and numbers are added to the jerseys at the point of sale through a termo-printing process. the final is played in a neutral stadium only increases participation in the pool). (b) Advancing one more round in the Champions League increases salary expenses by EUR 1 million and winning the competition will trigger bonus payments to players for EUR 14 million. b) On October 29, 2004 the Spanish newspaper El Mundo announced that an online betting firm, Betandwin.com, had offered Barcelona C.F. EUR 15 Million a year for having its logo in the team jersey. Respected sport journalist Josep Maria Casanovas wrote the same day in the Barcelona C.F. friendly newspaper Sport that this was an opportunity that cannot be missed. Would you recommend to Jose Angel Sanchez that he should explore the possibility of signing a sponsorship contract with Betandwin.com? c) Real Madrid does not officially decide on the accelerated amortization until the end of the fiscal year. However, you can hypothesize what would you recommend for the 2004/2005 season. Would your recommendations depend on the amount Real Madrid decided to invest in bringing new players to the roster? d) Real Madrid would like to invest as much as possible in the construction of the « Ciudad del Real Madrid ». The amounts being considered between EUR 50 and EUR 100 million. 2. Please prepare the monthly cash budget taking into account the following legal and contractual circumstances: a) As of June 30th 2004 the cash balance for Real Madrid was EUR 169 million. b) Member dues are payable July 1st (usually 70% of the dues are collected during July, 20% in August and the remaining 10% in Sept.) c) Exhibition games are prepaid (cash is received in July) d) TV broadcast rights are paid 50% in July and 50%

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