Profitability Analysis

Profitability Analysis

 

Road Atlanta is a racing facility located in Northwest Georgia.  Road Atlanta’s management team has been faced with the decision whether or not to open their private racing events to the public.  By allowing spectators to SCCA amateur racing events additional operating costs will be incurred.  Should Road Atlanta open their private racing events to the public? 

Based on extensive analysis, Decision Science Analysis Team does not feel that it will not be profitable for Road Atlanta to open SCCA amateur racing events to the public at this time.  

Since SCCA amateur racing events have always been private events, the Road Atlanta management team projects an estimated attendance of 2,000 individuals for a typical race.  At only 2,000 spectators operational costs are considerably higher than revenue generated from sales of tickets, souvenirs and concessions.  With only 2,000 spectators in attendance Road Atlanta can expect a profit loss of $30,441.

With a ticket price of $25 Road Atlanta will need to sell a minimum of 3,826 tickets in order to break even.  At 5,000 spectators a profit of $63,843 will be earned.  At the facility’s maximum capacity of 10,000 a sold-out event will generate a profit of $220,983.  Since SSCA amateur racing events have always been private, it will be difficult to initially attract the number of spectators needed to generate a profit.  Weekend races at Road Atlanta’s facility are held with or without fans in attendance.  With no spectators in attendance considerable losses will be experienced due to the increased costs of additional security and staff overtime. 

·         If advertising and publicity budgets were increased above the current $75,000 level then more spectators will be expected to attend thus increasing the profits for Road Atlanta.

·         A higher ticket price will lessen the demands on the number of spectators needed in order to generate profits.  By increasing the recommended ticket price from $25 to $40 will generate profits with only 2,000 tickets sold.  (Refer to attachment for further price scenarios.)

The following assumptions were made with regards to the Road Atlanta profitability Analysis project.

1.       A fixed advertising cost of $75,000 is provided for marketing and promotion of SCCA events.

2.       Staff salaries and wages are fixed at $10,000 regardless if a weekend event occurs.  The only additional staff labor cost is a result of overtime incurred with cleaning duties only if more than 2,000 spectators are in attendance. 

3.       Overtime for cleaning duties are forecasted at $0.64 per each spectator over 2,000.

4.       Additional insurance for the facility for a two-day weekend event will cost $8,927.

5.       Sales expenses have been projected include the cost of a ticket seller.  The weekend cost will amount to $350.

6.       Per law, one additional security guard is required for every 2,000 spectators.  Road Atlanta’s current security company can provide additional guards at a weekend rate of $1,064 each.

7.       A survey of similar events throughout the Southeast United States shows that the average spectator spends $4.00 on food and drink.  Road Atlanta’s current contract entitles them to 30% of all concession sales earned by outside food service vendors on racing property. 

8.       It is estimated that it will cost $300 to operate the souvenir shop for the entire weekend.  A survey of similar events throughout the Southeast United States shows that only 25% of all spectators purchase anything from souvenir shops.  Marketing analysis predicts that of the 25% of consumers who purchase souvenirs, each will spend $64.

9.       All assumptions with regards to the number of spectators required to break even is solely based on ticket sales without taking concession or souvenir sales into consideration.