The directors of Hightown United Football Club Ltd are preparing for a meeting with their bank manager to discuss the availability of funds to be used to buy new players. The following information is available:
1 The Hightown United stadium is divided into three separate spectator areas:
|
|
Spectator entry fee per person (£) |
Attendance norm |
|
Ground |
3.00 |
70% of crowd |
|
Enclosure |
4.00 |
20% of crowd |
|
Stand |
5.00 |
10% of crowd |
2 Other income:
Sponsorship: £100,000 fixed fee plus 5 per cent of gross takings for each match.
Advertising: £150,000 per year.
Programmes and refreshments: 70 pence per spectator.
3 Cost of holding a match: Manning turnstiles: 15 pence per spectator. Police presence: £200 per 1,000 spectators.
Advertising and crowd entertainment: £1,000 per match.
If a match is cancelled, turnstile manning and police costs are not incurred but the cost of advertising and crowd entertainments will be paid in advance and will not be recoverable.
4 Other annual running costs:
|
|
£ |
|
Staff salaries |
900,000 |
|
Rates and ground costs |
200,000 |
|
Travel |
150,000 |
|
Other |
300,000 |
5 Expected attendances:
|
|
Home games |
Spectators per game |
|
League |
20 |
16,000 |
|
Cup |
4 |
12,000 |
|
European trophy |
2 |
25,000 |
The number of games predicted for the Cup and European Trophy matches is based on average past performance. At worst the team might play only one home game in each competition. The bank manager has asked that the following information be provided for the meeting:
1 A statement showing the budgeted surplus expected to be generated during the forthcoming season.
2 A calculation of the percentage fall in average attendances which could be tolerated before reaching a break even point.
3 A calculation of the percentage increase which would have to be applied to spectator charges to maintain the budgeted surplus if all expenses were 10% higher than budget but advertising revenue and the fixed sponsorship fee did not increase.
Required
Prepare a report for the directors, containing the information requested by the bank manager and identifying any limitations of the analysis carried out.