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Case Scenario - Our Client is a significant US television network, to assist us in determining the appropriate bid for the 2018 Winter Olympics. The Winter Olympics are a big business, and acquiring the rights will cost a lot of money. We want to be certain that we've taken all the appropriate factors into account before our network submits a bid for the Winter Olympics.
Quantitative approach- They should identify 3 costs (production costs, opportunity costs, and time value of money) By factoring in these costs, they will find out if the investment is worth it.
Qualitative approach- Might give network access to new viewers - There is prestige associated with hosting this event - We can the air time to promote another programming - Opportunities for product tie-ins, and supplemental revenue.
Question 1- Determine the Winter Olympics' broadcasting earnings.
Answer- Weekdays (M-F):. 10 weekdays x 4 hours/day x 10 min/hr x 2 slots/min x 400K/ad = $320M, weekends (W-D): 4 days x 10 hrs/day/weekend ($400,000/ad, $240M),
Question- Is this a wise investment, taking costs into account? Locate the NPV.
Answer- With a six-year lag and a 12% WACC, we know that all future cash flows must be halved. $928M - $428M of total costs - $146M of opportunity cost (2 days x 3 hours x $1M/hr) = $346M in present value (NPV).
Revenue- Advertisers spend $428,000,000 of their own money on advertising for prime time (M-F 7-11 PM, all weekend) and $200K/ad for non-prime time.
Recommended solutions-
The project has a $177M NPV, but because there are additional intangible benefits (new viewers, promotion of our programmes, and prestige), the proposal should only be $177M. Although there is no one right response, the majority of replies should fall between $200M and $300M. If there is a considerable departure from the $200M target, the applicant will need to give detailed reasoning and make a convincing case.
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Frequently asked questions
How should a TV network evaluate bidding for the Winter Olympics?
A network should use both quantitative and qualitative approaches. Evaluate revenue, production costs, opportunity cost, and time value of money. Consider prestige, new viewership, and promotional benefits to assess total value beyond direct profit.
What were the estimated broadcasting revenues for the Winter Olympics?
Projected ad revenues included $320M on weekdays and $240M on weekends. Combined with non-prime slots, total expected advertising revenue reached $928 million over the event’s duration.
What are the major costs associated with broadcasting the Winter Olympics?
Key costs include $428M in production, $146M in opportunity costs, and the time value of money due to a six-year lag. These expenses directly impact the project’s financial feasibility and net present value (NPV).
What is the Net Present Value (NPV) of the Olympic bid project?
After factoring in costs and discounting future cash flows at a 12% WACC, the calculated NPV is $177M. This positive NPV supports a cautious bid between $200M and $300M, balancing financial returns with intangible benefits.
What intangible benefits should be considered in the bidding decision?
Benefits include prestige, attracting new viewers, cross-promotion of existing shows, and brand partnerships. These non-financial advantages can significantly boost long-term network positioning and justify a higher bid.
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