Planning by the Groningen Arts Centre M987Z234: Phi Thi Loan M987Z247: 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=420 Worst seats: 40%*700 seats=280 Best seats: 500 Worst seats: 200 500 25%*200=50 Price Best seats: €17.50 Worst seats: €15 Revenue 420 seats*€17.50 =€7,350 280 seats*€15=€4,200 Total: €11,550 500 seats*€17.50 =€8,750 200 seats* €15=€3,000 Total: €11,750 Worst seats:€ 50 seats*€15=€750 Total: €9,500 GAC get Comedian 25%*€11,500=€2,887.50 75%*€11,500=€8,662.50 25%*€11,750=€2,937.50 75%*€11,750=€8,812.50 25%*€9,500=€2,375 75%*€9,500=€7,125

By the actress Bridget Masland (Fixed-fee contract) Case 1 (based on last year) Case 2 Case 3 (based on latest season) # of seats (unit: seat) Best seats: 60%*700 seats=420 Worst seats: 40%*700 seats=280 If 500 seats all are the best seats: 500 If not, then: 60%*500 seats=300 40%*500 seats=200 Price Best seats: €15 Worst seats: €10 Best seats: €17.50 Worst seats: €15 Revenue 420 seats*€15 =€6,300 280 seats*€10=€2,800 Total: €9,100 500 seats*€17.50 =€8,750 Total: €8,750 300 seats*€17.50 =€5,250 200 seats*€15=€3,000 Total: €8,250 Cost €6,500 GAC get Actress €9,100-6,500=€2,600 €8,750-6,500=€2,250 €8,250-6,500=€1,750

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: €17.50 Worst seats: €6.50 Revenue Best seats: 1,200 seats*€17.5 =€21,000 Total: €21,000 1,000 seats*€17.50=€17,500 Worst seats: 200 seats*€6.50=€1,300 Total: €18,800 Cost Double Dutch gets: €12,500 Surplus (from 801th to 1,200th ticket): 400 seats*50%*€17.50=€3,500 Surplus (from 801th to 1,000th ticket): 200 seats*50%*€17.50=€1,750 Surplus (from 1001th to 1,200th ticket): 200 seats*50%*€6.50=€650 Extra 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: Randy receives 50% of the box-office receipts & GAC receives the remaining 50% GAC pays a fixed amount to Randy if it were the highest bidder & its bid was therefore accepted 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 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 contract Variable-fee contract Fixed-fee contract # of seats (unit: seat) Best seats: 60%*1,200 seats=720 Worst seats: 40%*1,200 seats=480 Price Best seats: €18.75 Worst seats: €17.50 Sales Best seats: 720 seats*€18.75=€13,500 Worst seats: 480 seats*€17.50=€8,400 Total: €21,900 Cost 50%*€13,500=€6,750 50%*€8,400=€4,200 Total: €10,950 From €6,500 to €12,500 GAC get €21,900-10,950=€10,950 From €21,900-12,500= €9,400 to €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.

type estimated price estimated number of visitors actual price actual number of visitors cabaret 15.0 470.0 15.0 * 390.0 18.0 700.0 675.0 16.0 620.0 400.0 14.0 510.0 590.0 theatre 9.0 580.0 560.0 10.0 540.0 650.0 13.0 500.0 350.0 450.0 570.0 opera 30.0 480.0 30.0 ** 520.0 26.0 congress 20.0 550.0 430.0 anniversary 600.0 525.0 * 20% of the tickets were sold at a discount of 25% ** Half of the tickets sold were at a discount of 10%

Actual revenue = actual number of visitors * actual ticket price. 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) 12,600.0 12,150.0 (450.0) 9,920.0 6,400.0 (3,520.0) 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) 5,400.0 6,500.0 1,100.0 4,550.0 (1,950.0) 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 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 (revenue) quantity variance (revenue) 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) (450.0) - favorable (450) (3,520.0) (3,520) 1,120.0 1,120 total cabaret (4,342.5)   (4,050) theatre (180.0) (180) 1,100.0 1,100 (1,950.0) (1,950) 1,200.0 1,200 total theatre 170.0 0.00 170 opera 420.0 (780.0) 2,860.0 2,860 total opera 3,280.0 4,060 congress (2,400.0) (2,400) anniversary (2,250.0) (2,250)

type Contractual cost Fixed cost extra cost types Type of contract Staff cost Catering cost cabaret lump sum 6000 600 - price ppv 16 mix 5000 + 6 ppv theatre  lump sum 4500 Price ppv 8 10 1000 + 6 ppv opera Lump sum 12000  price ppv 23 congress 8,000 15 per possible visitor anniversary 15,000 20 per possible visitor

cost variance (from quantity) Lump sum: cost was unchanged for estimated and actual Price ppv = contractual cost * number of visitors Mix = lump sum + (price ppv * number of visitors) type contractual cost estimated cost actual cost cost variance (from quantity) cabaret 6,000 - 11,200 10,800 (400) 8,720 7,400 (1,320) total cabaret 31,920 30,200 (1,720) theatre 4,500 4,320 5,200 880 5,000 3,500 (1,500) 3,700 4,420 720 total theatre 17,520 17,620 100 opera 12,000 10,350 12,880 2,530 total opera 22,350 24,880

type Contractual cost Fixed cost extra cost types Type of contract Staff cost Catering cost cabaret lump sum 6000 600 - price ppv 16 mix 5000 + 6 ppv theatre  lump sum 4500 Price ppv 8 10 1000 + 6 ppv opera Lump sum 12000  price ppv 23 congress 8,000 15 per possible visitor anniversary 15,000 20 per possible visitor

Estimated extra cost = staff cost + (catering cost 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)

cost variance (from quantity) 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 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.