Revenue Sharing Assignment

Based only on the information below, first P&L for each team for the 2018-19 season. Next, apply the revenue sharing plan criteria to determine the amount that should be included for Revenue Sharing.

Background

The National Basketball League is a professional sports league in North America. Each team in the league must participate in the revenue sharing system. For the purposes of the revenue sharing plan, there are no limits to the amount each team may contribute to the plan. Each team is subject to receipt limits based on their designated market area (DMA). For teams with a DMA between 1.5-2.249 households, the final receipt limit is set at 75% of the initial receipt; for a DMA of 2.5-3.249M, the final receipt limit is set at 25% of the initial receipt.; for DMAs over 3.25M, the final receipt limit is set at 0%.

If a team rents their arena, items such as fixed signage, temporary signage, and luxury suites are included in the plan at 100%. If the team controls their arena with no cotenants, the team must include these items at 75%. For a team that has another professional team as a cotenant, the respective inclusion percentage is 40%. Post-season revenues and expenses are excluded from the revenue sharing calculation. Player salary and other expenses are taken at the league average, which were $90M and $6.5M respectively for the 2018-19 year.

Each team in the league plays 82 regular season games a year. The league's national television deal provides each team with $30M annually in revenue with $3M in associated expenses. Additional league managed items such a licensing provided the teams with $15M in revenue and $3M in expenses. Each team also received a $900k playoff distribution from the league.

If there is no inclusion percentage specified, items are included in the revenue sharing plan at 100%.

Team A

Team A is an arena controller with an NHL cotenant. The team has 3.0M households in their DMA. The team signed a new local cable deal worth $40M annually which took effect for the 2018-19 season. The average gate attendance per game was 16,500 people. The team had one of the highest average ticket prices in the league at $103 and a novelties and concession per cap of $7.25. The team's associated gate expenses were $1.75M and concessions expenses totaled $1.25M. The team also leases 20 suites for a total of $5M per year. Fixed signage inventory generated $4M with an 90% margin, while temp signage revenue was $3M with a 90% margin. The team's main expenses were player salaries ($85M), basketball operations ($17M), G&A ($8M), and other expenses ($2.4M). The team has been in a rebuilding phase and has not qualified for the playoffs the past three seasons.

Team B

Team B is an arena renter. The team has 1.85M households in their DMA. The team signed a new local cable deal worth $18M annually. The deal, which took effect for the 2015-16 season, stipulated that the $18M fee was based on the television network broadcasting 60 games. However, the team did not fulfill its obligations as the network only had access to 58 games for 2018-19 so the team's revenue was adjusted proportionally.

The average gate attendance per game was 14,100 people. The team's average ticket price in the league was $85 and a novelties and concession per cap of $6.25. The team must pay their concessionaire $2.95 per transaction. The team also leases 22 suites for a total of $6.65M per year. Fixed signage inventory generated $3M with a 75% margin, while temp signage revenue was $4M with a 90% margin. The team has been successful the past few seasons, making it to the second round of playoffs in 2018-19, earning net revenues of $8M.The team's largest expenses were player salaries ($92M), basketball operations ($25M), G&A ($4M), and other expenses ($4.0M). The team also had expenses tied to gate receipts where they had a 90% margin.