Background for Financial Analysis and Decision Making

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Background for Financial analysis and Decision Making

Craddock cup is a popular regional Soccer tournament affiliated to CYSL (Craddock Youth Soccer League).  Even with the success of tournament, Craddock cup was averaging a loss of $4000 annually. The General Manager of CYSL, Joe Rivaldo is under pressure to generate profits for this tournament else it would result in scrapping of the tournament and risk of losing his job.

There are two options to consider.

Option 1: Dropping the tournament.

Dropping the tournament will mean loss of corporate contributions amounting to 14000$. CYSL will not make any profit and the tournament related expenses will be eliminated. Expenses such as Registration with State YSL (1500$), Marketing and Advert (2200$), Jansten’s salary (12000$) will be eliminated 4.

Option 2: Making tournament profitable

CYSL expects that the Craddock cup should generate 6000$ in profit to keep the tournament alive. To make tournament profitable Rivaldo will have to revise the allocation of overhead expenses. He is considering expansion of tournament by adding 32 more teams. CYSL board has also asked him to considering increasing the advertising and marketing budget by 1000$.

Solution 1

Salary awarded to Rivaldo will be the same, regardless of the Craddock cup. So will be the money paid for rent and utilities and therefore these can be considered as sunk cost and should be neglected as expenses. Doing this will reduce the expenses by 9000$ make the cup profitable by about 4000$. 5

Concessions form about 40% of the total overhead expenses. Therefore, I would recommend at 10 percent increase in the food and beverages. This and the increase in the registration cost will help Rivaldo achieve profits of more than 7000$, therefore meeting the expectations of CYSL. 5

Solution 2

Adding 32 more teams eliminating the sunk costs will generate 11000$ in profit. 6

Solution 3

The breakeven increase in registration fees per team for 64 teams is 55$. The registration cost per team will be 350$. 7

Suggestion

After analysis of overhead allocation [1] [2] [3], Rivaldo’s plan to add 32 teams should be implemented as it will lead to more profits. Additionally if the sunk costs are eliminated and the overheads are revised, Craddock cup could be a profit generating venture.

With current size of the tournament, 2 fields are not being used. Additional teams would mean better utilization of available resources as all the 10 fields which are being paid for will be used.