Nhl Profit Maximization Case Study

In: Other Topics

Submitted By catherine19844
Words 1855
Pages 8
Do NHL teams profit maximize? Explain how the authors come to this conclusion.

Overview:

Before we dive into the details on whether the NHL team or any sports team for that matter maximize profit, it would be worthwhile to answer 2 basic questions as put forth by the author:

 Would a sports fan not go to a game which he is die-hard fan of because he/she thinks the team profit maximizes?
 Would a sports team forego additional revenue?

As with any commodity, price of an arena seat is set by supply and demand. This is why it always rings false when NHL execs try to link ticket prices to player salaries.

Any sports game ticket demand in North America is influenced by a number of factors:
 Changes in per capita consumer income
 The number of consumers in a given market
 Changes in consumer attitudes, tastes, and/or preferences
 Changes in the price of a complementary product
 Changes in the price of a substitute product









Factors Influencing the PROFIT GOAL of the FIRM

What is Market Equilibrium and Why is it Relevant in this Context?
The market for sports tickets, or any other product, comes into balance—into equilibrium — when the quantity of tickets that fans demand equals the quantity of tickets that teams supply. Markets are said to be in balance when:
1. Sellers are satisfied with the quantity they are selling at a certain price.
AND
2. Buyers are buying all they want at that price and would not want to buy more at a higher price.
But in everyday economic life, markets seldom, if ever, reach a state of equilibrium because supply and demand are continually changing.
During the 1990s, demand for sports tickets remained strong in most major markets, while the supply of tickets remained constant. More people with extra money to spend were competing for a fixed number of seats, and that’s why ticket prices raised so…...

Similar Documents

Case Study Pa504 Government and Non-Profit Accounting

...Course Project Proposal GM591- Leadership and Organizational Behavior I. Overview of Organization and My Role in it The Emirates Airlines is the organization that will be the topic of discussion in my final project. “Emirates Airlines is the Emirates Group’s rapidly expanding and award winning international Airline. Emirates started in Dubai and flew out with only two aircrafts in 1985 on 25th October which involved just a leased Boeing 737 and an airbus 300 B4. Today the Airline has orders worth over US$ 68 billion for 200 more of the latest aircraft, with plans to operate in many more destinations in the months and years ahead. Emirates global network now sees it flying to over 110 destinations across 6 continents, operating a modern fleet of over 150 wide-bodied aircraft. Emirates airlines accounts to about 40% of the total movements of flights and aiming for at least 70% total flights coming in and going out of Dubai International Airport.” (http://www.emirates247.com/look-back-2010-onto-2011/the-most-popular-stories-of-2010) I am an accountant for Emirates Airlines and in charge of creating a project aiming to increase the company’s market share and gain more profit without sacrificing the company’s quality of services and reputation. I just recently began my employment in the company and now facing the big challenge of creating this project and attaining the goal of making it huge in...

Words: 1182 - Pages: 5

Simple Example of Profit Maximization

...The goal of a competitive firm is to maximize profit, which equals total revenue minus total cost. We have just discussed the firm’s revenue, and in the last chapter, we discussed the firm’s costs. We are now ready to examine how the firm maximizes profit and how that decision leads to its supply curve. A Simple Example of Profit Maximization Let’s begin our analysis of the firm’s supply decision with the example in Table 2. In the first column of the table is the number of gallons of milk the Smith Family Dairy Farm produces. The second column shows the farm’s total revenue, which is $6 times the number of gallons. The third column shows the farm’s total cost. Total cost includes fixed costs, which are $3 in this example, and variable costs, which depend on the quantity produced. The fourth column shows the farm’s profit, which is computed by subtracting total cost from total revenue. If the farm produces nothing, it has a loss of $3 (its fixed cost). If it produces 1 gallon, it has a profit of $1. If it produces 2 gallons, it has a profit of $4 and so on. Because the Smith family’s goal is to maximize profit, it chooses to produce the quantity of milk that makes profit as large as possible. In this example, profit is maximized when the farm produces 4 or 5 gallons of milk, for a profit of $7. There is another way to look at the Smith Farm’s decision: The Smiths can find the profit-maximizing quantity by comparing the marginal revenue and marginal cost......

Words: 362 - Pages: 2

Nhl Profit Maximization Case Study

..., some more favorable than others. (2) Likelihood ratio Test results: The author also computes a likelihood ratio test statistic of 13.32 which for the 8 cross equation restrictions does not represent a rejection at conventional significance levels. Author’s conclusion: The author concludes by stating that the empirical results are in line with the economic behavior hypothesized by the model to a considerable extent. My thoughts based on this article: Is the cost of higher salaries being passed on to fans/consumers in the form of higher ticket prices? Of course it is. Labor is a resource—a factor of production, an input—and if team owners have to pay more for labor, they will try to pass the additional costs on to fans. But the driving force behind higher ticket prices is strong demand, not high salaries. And just like all sports teams, the NHL does profit maximization as well and the author does manage to indicate the same through the series of data interpretations. I...

Words: 1855 - Pages: 8

Nhl Case Study

...Case Study: Marketing the National Hockey League Executive Summary: Hockey started in 1917 with teams who played competitive games, professionally as a form of both entertainment, and economic income. Teams entered the National Hockey League (NHL), but many folded, leaving six teams, also known as "The Original Six" who survived by 1943. Over the years, the league expanded all through North America, up until 1995 when the league had 26 teams competing for the "hockey veil"- The Stanley Cup. Men from all over the world were being scouted and drafted to the NHL, turning the league into a thriving business for players, coaches, owners, and advertisements. Looking at the bigger picture, hockey is still substantially less popular than other professional sports that are being listened to on the radio, watched on the television, and being played recreationally. The problem is that there is not a large enough fan base coming out of Canada. Ways to change this are: more involvement with Canadian media, have Canadian hockey players reach out to their hometowns, or have the NHL put together another Canadian team. When it comes down to the best alternative for the NHL to expand, involving more of the Canadian media is the best option. If the plan is implemented, the overall outcome would be beneficial to the NHL. Situational Analysis: Problem Statement: The National Hockey League is a business where marketing is incredibly important. Since 1917 when hockey was introduced...

Words: 1204 - Pages: 5

Profit Maximization Problem

...EXAM IN PROFIT MAXIMIZATION AND LOSS MINIMIZATION MONSOUR A. PELMIN Problems 1. MONSOUR PELMIN SPORTS CORP. produces golf balls and can sell them for Php.15 each. The output, price, average revenue, Marginal revenue, marginal cost, average variable cost, and average total cost are shown in the table below. a. Fill in the values for average revenue and marginal revenue in the table above. b. On the axes provided below, plot the marginal revenue and the average total, average variable, and marginal costs. What is the profit-maximizing level output? How do you know? How much profit will the firm makes? Shade the area of profit on the graph. 2. Using the same data presented in the table above, suppose the price of golf balls drops to P3. Show the profit-maximizing or loss-minimizing level of output. Should this firm continue to produce at this price? How do you know? Calculate the amount of profit or loss at this price. Shade this area on the graph. 3. Suppose the price of golf balls drops to P2. What should the firm do now? How do you know? ANSWER KEYS 1. a. The average revenue and marginal revenue are the same as price. They are all P15. b. The graph shown on the following page gives the profit-maximizing output and level of profit. The Firm maximizes profit by producing 7,000 balls. Profit is (P15.00- P8.5)7,000 = P45, 500. The profit maximizing level of output occurs where MR = MC. 2. The firm’s loss is shown below as the area......

Words: 322 - Pages: 2

Ownership and Control Effect on Profit Maximization of S Firm

...RICHARD ANTWI-BOASIAKO 13029817 ASSIGNMENT 1 SELECT ANY FIRM OR INDUSTRY OF YOUR CHOICE AND ANALYZE THE OWNERSHIP AND CONTROL EFFECT ON PROFIT MAXIMIZATION. UNILEVER PLC as a case study Ownership of a company may be private, collective, or common. Determining ownership involves determining who has certain rights, duties and share of dividends over the company. These rights and duties, sometimes called a 'bundle of rights', can be separated and held by different parties. The managers of a company may be different from its owners. Profit maximization is the short run or long run process by which a firm determines the price and output level that returns the greatest profit. Unilever PLC is a supplier of fast moving consumer goods with operations in more than 100 countries and sales in 180. Unilever PLC's product categories include savoury, dressings and spread; ice cream and beverages; personal care, and home care. The Company's brands include Axe/Lynx, Blue Band, Dove, Becel/Flora, Heartbrand ice creams, Hellmann's, Knorr, Lipton, Lux, Omo, Rexona and Sunsilk. Consumers buy 170 billion Unilever packs worldwide every year, and Unilever products are used over two billion times a day. The Company operates in five regions: Asia, Africa, Central and Eastern Europe, the Americas and Western Europe. BOARD OF DIRECTORS (EXECUTIVE) Paul Polman (Chief Executive Officer) and Jean-Marc Huët (Chief Financial Officer...

Words: 1395 - Pages: 6

Week 2 Profit Maximization Concept Application

...Week 2 Profit Maximization Concept Application In order to maximize profit for University of Phoenix it would be advisable for the school to enroll 28 students. This would give the university a profit of $19,390 per class and be the most profit it can make with the resources given. In order to achieve maximum profit the university must use the formula MC (maximum Cost)=MR (maximum revenue) to find the correct number of students to allow per class. Looking at table 1 below we can see the MR for 28 students is $1,250 and is more than the MC of $1,192, if one more student was added then the MR would be less than the MC and the school would be loosing money. If the school were to allow for 29 students then the maximum revenue would be greater than the maximum cost and therefore would loose profit for this extra student being added. By changing the cost variable in table one by 15% we see that the maximum students per class would change to 17 students. This new number would give a profit of $9,392 for each class and would be the best use of resources for the school. This table could be adjusted again if the school found a way to lower it’s incidental costs as we can see the amount of profit go up when the variable costs were lower in table 1. It would be recommended that the Admissions Director keep the class size to 28 students if the costs are aligned with table 1 and keep a class size of 17 students if the costs are aligned with table 2. I there are any changes to......

Words: 343 - Pages: 2

Explain Profit Maximization According to Two Approaches

... A. When subtracted, total revenue and total cost provide the amount of profit for a given quantity of widgets produced. Once all profit values are determined via the TR – TC = P calculation for each increment of production, the point at which profit maximization occurs can be concluded. The largest gap between total revenue and total cost indicates the point at which profit maximization is achieved. (See Table 1) When using the marginal revenue to marginal cost approach, the ideal situation to have is when marginal revenue equals marginal cost. This is the point when the highest possible profit is being achieved. The logic behind this is that if the revenue of producing more widgets is less than the cost of producing the widgets, there is a profit to be made. If the cost of producing the widgets exceeds that of the revenue brought to the company by the selling of the widgets, then the company is losing money. Once the output quantity is established that provides the company with equal values for marginal revenue and marginal cost, the number of widgets can be adjusted accordingly. This will provide the company with a more financially successful situation. (See Table 1) B. Marginal revenue is defined as the additional revenue that is generated by increasing sales by one unit. The calculation used to determine marginal revenue is the change in total revenue divided by the change in quantity. (MR= TR/ Q) The marginal revenue in the given example decreases by $10 for...

Words: 828 - Pages: 4

Nhl Salary Regression Evaluation

...NHL Regression Analysis Write-Up 1. I chose the topic because I am a big hockey fan, namely the Los Angeles Kings, who I have been following for quite a while. I am trying to find out whether the amount of goals scored, the number of minutes penalized and a Canadian nationality correlates to a player's salary amount. 2. I think my model will predict estimates of the conditional expectation of my dependent variable (annual salary), given the independent variables (goals, PIM & Canadian nationality). I expect the b for x1 (goals) to be positive as the more goals one scores, it warrants higher skill, thus higher pay. I expect the b value for x2 (PIM) to be negative as an increase of penalty minutes translates into less playing time which can result in lesser opportunities to score/assist on plays. Also, players that accumulate more penalty minutes are more likely to play the role of "enforcer" than "goal scorer", thus are historically paid less than most players. I expect the b value of x3 (Canadian Nationality) to be positive as most players in the National Hockey League are of Canadian nationality. 3. The coefficient parameter for annual salary, goals, penalty minutes and nationality are as respectively follows: 39058.28, -10044.7929 and -354824.588. B0: This intercept literally means if goals and PIM were 0 while nationality was not considered at all, that annual salary is 39058.28. That would not be sufficient. We are relatively more interested in the change of the...

Words: 1676 - Pages: 7

Calculus of Profit Maximization

...8.c. The Calculus of Profit-Maximization by a Competitive Firm Any profit-maximizing firm chooses inputs and outputs to maximize economic profits. By definition, maximization of economic profits entails maximization of the difference between the firm's total revenue and its total cost. • A firm's total revenue is defined as the quantity, Q, sold at a price, P(q): TR(q) = P(q) ∙ Q • A firm's total costs are defined as the quantity of capital, K, used multiplied by the price of capital, v, plus the quantity of labor, L, used multiplied by the price of labor (wage rate), w. TC = vK + wL • Therefore, economic profits (π), are defined as the difference between total revenue and total cost: Π(q) = TR(q) – TC(q) Maximization of this equation is found by applying the derivative with respect to q and setting equal to 0: (d π)/(dq) = (dTR)/(dq) – (dTC)/(dq) = 0 (dTR)/(dq) – (dTC)/(dq) = 0 moving things around we get (dTR)/(dq) = (dTC)/(dq) or the derivative of total revenue with respect to q is equal to the derivative of total cost with respect to q. The derivative of total revenue is marginal revenue, and the derivative of total cost is marginal cost. And thus you come to the profit maximizing equation of MR = MC In the case of a competitive firm, the firm is free to sell all the q it wants at the market price without the firm having a notable affect on the market price. This is...

Words: 949 - Pages: 4

Concussions in the Nhl

...Concussions in the NHL Today in the National Hockey League, concussions have become a serious reoccurring problem. Some of the league’s best athletes have had to end their professional careers prematurely, because of concussions. Gary Bettman, the NHL’s President, general managers of each team, and the National Hockey League’s Players Association, have been trying to come up with a solution to reduce the numbers of concussions each year. The NHL’s regular season ended the second weekend of April. Soon after the NHL announced that this year the league recorded the most concussions ever. The NHL is failing to reduce the numbers of concussions each year. So we ask this question, is the NHL doing a good enough job of protecting its players from this serious injury? Sidney Crosby, the superstar of the Pittsburgh Penguins, and arguably the best hockey player in the NHL, has been sidelined with a concussion problem since January 5th. During the Winter Classic game on January 1st, Crosby collided with David Steckel of the Washington Capitals. After the hit Crosby laid face down on the ice for some time. In obvious pain Crosby skated back to the Penguins bench to talk to his team’s medical staff. Hockey players have the mentality of being tough, so Crosby took his next shift, and played the rest of the game. During his next game, against the Tampa Bay Lighting, Crosby took a hard check into the boards again taking a hard to the head. This time he wasn’t so tough. Crosby skated...

Words: 1270 - Pages: 6

Profit

...Profitability Profitability is measured after assessing the income and balance statements of SIGnature. Profitability foreshows how successful SIGnature were in regard to sales over the financial year. Gross profit percentage of sales: Gross profit Sales This is the measurement of the profit made by SIGnature created by selling their services higher than they buy them. This calculation shows that for every £1 of sales, SIGnature are making a gross profit of 58.63p. This is a positive figure as it shows that the company are gaining a profit from their services which is what they would aim to do and therefore the business should aim to increase their gross profit percentage of sales. Due to SIGnature being a new business, this implies good performance as they are gaining a profit from their services although it is only half of the figure gained from sales. The profit may be low because SIGnature may need to be putting the money created from sales back in to the business in order to keep it running the way it is. To increase this gross profit percentage, SIGnature could potentially attempt to decrease their outflow as they would then not have to put as much money back in to the business. If the gross profit is low because of cost of materials, SIGnature may find it hard to improve this percentage as they need the materials to produce their services. Net profit percentage of sales: This is the measurement of the profit made by SIGnature after they...

Words: 1634 - Pages: 7

Profit Maximization and Wealth Maximization

...Profit Maximization and Wealth Maximization An activity or decision is not useful unless it has an objective attached and this is the same goes for Financial management. Traditionally, profit maximization considered as objective of finance management and a lot of us currently look that as a short term approach which is true. It also suffered from serious limitations and is currently discarded as a main objective of finance management Profit maximization in the organization are aimed towards keeping profit as #1 priority which in other words, means that all the unprofitable ideas, projects gets rejected/put on hold vs. others. On one hand where Profit maximization can be justified on multiple ground like * The main aim of most organization is to earn profit * Profit can be suitable criteria to measure success * Efficient utilization of resources that can further maximize the profit * Profit maximization can lead to welfare of society It is also criticized on the basis of * Vague and ambiguous – As the ‘term’ profit is not defined * It ignores time value of money * Quality of benefit is ignored * Value for owners ignored * It is based on accounting policy which can be altered On the other hand, In current phase Shareholder Wealth maximization looks at the long term approach It accumulates * Market value of shares or market capitalization which is nothing but Market price per share * no of share * Reserves and surplus...

Words: 507 - Pages: 3

Profit Maximization vs Wealth Maximization

...Profit Maximization and Wealth Maximization are two objectives of Financial Management. Financial Management takes cares for proper utilization of funds, such that it will increase company earnings. Profit Maximization refers to the profit of the firm should be increased while in Wealth Maximization objective of a firm is to maximise its wealth and the value of its shares. There is always a debate regarding which more important. Profit Maximization The basic concept behind profit maximization is to earn a large amount of profit. It is a short term objective of the company (every fiscal cycle). There is no consideration for risks and uncertainty. It acts as measure for operational efficiency of the company. Profit maximization is necessary for growth and survival of the company. Wealth Maximization The goal of wealth maximization is to improve market value of shares. The main focus is on achieving long term objectives. There is consideration for risks and uncertainty. It tends to gain a large market share. It accelerates the growth rate of a company. I cannot say which one is better. Profit is basic requirement for any company. Profit feeds oxygen in the system to take breathe and survive. As we know profit is directly proportional to the risk. Higher the profit, the higher will be the risk. Risk factor can be neglected for a short run (profit maximization) but in long run (wealth maximization) risks or uncertainty cannot be ignored. Shareholders invest in company in...

Words: 944 - Pages: 4

Nhl Economic

... For many cities in the United States and Canada, having a professional or college sports team is highly coveted. Different cities value different sports and certain regions hold different sports in higher regard than others. Many people think that having a sport teams in their city or region is a gigantic source of revenue. However, that’s not always true. Time and time again we have seen sports franchises fold or relocate because their overall presence didn’t fit their location. For example we have seen Atlanta fail to support a National Hockey League (NHL) team twice, the Flames and Thrashers. Both teams relocated to Canada. This has happened in all of the major sports leagues. But, is a city or region necessarily dependent on these sports franchises to boost their economy? Has Atlanta’s economy declined since the Thrashers left? No. Also, let’s make sure that we don’t leave division one college football and basketball programs out of the discussion. Now, we’ll take a deeper look to see if college and professional sports teams make as big of an impact on their regions economy as we might think they do. The National Football League (NFL) is the biggest sporting draw in the United States. There is activity related to the NFL going on in fifteen cities around the United States on a Sunday at any given time during the season (30 teams play each other). Monday night is also a large draw for the NFL. Because of the massive attendance numbers and money that is...

Words: 4630 - Pages: 19