Beer Licensing at Eastern Michigan University Football

In an effort to find alternate revenue streams for their athletic program, as well as to enhance the game day experience for fans, Eastern Michigan University ran a pilot program to sell beer at one of their six annual home football games.Despite an approximate $3,000 net loss on the program, the pilot was deemed a success because it gave them valuable information needed about fan interest and required infrastructure if they decide to move forward with more football beer sales in the future.See the attached newspaper article for more details about this pilot program.

One potential reason for the net loss was the low attendance at the Sept. 26, 2015 game against Ball State University.Attendance for the game was 4,463, much lower than their normal attendance of approximately 8,000 fans.Even so, it is safe to assume that the demand for beer (i.e., the percentage of fans that buy beer) has been correctly estimated by the pilot since the demographics at that game was nearly identical to the demographics of a typical game.

For this pilot program, EMU rented some infrastructure items (i.e., tables, tents, hedges and other equipment) that the attached article refers to as 'one-time rental fees'.Those rental fees are only 'one-time' costs in that the pilot was a one-game trial program - in order to stay in compliance with local laws and ordinances, as well as the requirements from EMU's insurance company, those items would have to be either rented or purchased if EMU decided to sell beer on an ongoing basis.One of the goals of the pilot program was to give administrators information on how much they could pay for this infrastructure and still earn a profit over the season.

Read the attached article for all other case data.

Required:

Write a memo addressed to EMU's Athletic Director, Heather Lyke, with your analysis of the success (or failure) of the pilot program, including answers to the following questions.Include your financial analyses, either at the end of the memo or in an attached document, where you show the calculations needed to support your analysis.

1.Identify the fixed and variable costs associated with this pilot program (as specified in the article).Assume that a 16-oz cup of beer is the cost object.

2.Write a profit equation for this pilot program (as specified in the article) of beer sales at EMU football games.

3.What attendance would have been required for the pilot program to break even?Given the current cost structure, is it likely that beer sales would be a good revenue stream?Why or why not?

4.The 2014 season's average home attendance was 16,250 (the high attendance was abnormally high because corporate sponsorships enabled EMU to offer free tickets).What would the net profit (loss) of the pilot have been at an average game in 2014?Assume that the demand for beer has not changed.

5.Assuming 'normal' game attendance and that the demand for beer has not changed, how much could EMU pay for infrastructure and still earn a profit over one six-game season?