THE CRADDOCK CUP Jose Rivaldo shuffled through the papers on his desk and sighed. As the general manager of the Craddock Youth Soccer League (CYSL), Rivaldo was committed to providing high-quality soccer activities to boys and girls in the area. In addition to managing regular CYSL operations, Rivaldo was heavily involved in putting on a regional soccer tournament, the Craddock Cup, which brought approximately 32 premier high-school soccer teams from throughout the region each May. This year's tournament, like its predecessors, had been considered a great success by players, their families, and the local community. The weather had been beautiful, the referees had been fair, and the local hotels and restaurants had profited from the influx of people, Nevertheless, Rivaldo knew that the Craddock Cup was in trouble. Tournament expenses continued to rise, while corporate sponsorships remained difficult to obtain. CYSL had founded the Craddock Cup, in part, to fund a field-acquisition program for the league, with the expectation that the tournament would generate at least $6,000 annually toward that goal. Unfortunately, with tournament profits averaging a loss of almost $4,000 a year, CYSL's board of directors was beginning to express frustration with the lack of profits generated by the Craddock Cup. Rivaldo knew the Craddock Cup was in danger of being canceled and that he risked losing his job with CYSL if he did not devise a plan to increase tournament profits. He decided to review the organization and expenses of the Craddock Cup to see if there was a way to increase the Cup's profits and continue the tournament. BACKGROUND The Craddock Cup was widely regarded as the premier tournament for high- school soccer players in the region. The tournament consisted of a boys' high-school bracket and a girls' high-school bracket, each with 16 teams. Through a series of rounds and consolation rounds, the rankings of all the teams, from 1 to 16, were determined, with each team playing four games throughout the course of the tournament, See Exhibit 1 for the current year's Boys' High School Division results and bracket structure. Funding for the tournament came from team registration fees, corporate sponsorships, T-shirt sales, concession sales, and participation fees for soccer clinics held during the tournament for younger siblings of tournament participants. Each team paid a $295 registration fee to enter the tournament. During the past few years, the Craddock Cup had evolved into a showcase event . for talented high-school players. On average, about 25 college scouts attended the tournament each year for recruiting purposes. The Craddock Cup encouraged recruiters" attendance by paying for their hotel rooms and by publishing a "face book" that included CASE: THE CRADDOCK CUP 31a photograph and profile of each player 16 years of age or older. The presence of the scouts also enabled the tournament to attract the region's best high-school teams. PROFIT STATEMENT ESTIMATES Rivaldo looked at the profit estimate for next year's Craddock Cup (Exhibit 2). He planned to use this information as the basis for his recommendations to the CYSL board. He used the following data in compiling the profit statement: 1. CYSL purchased tournament T-shirts for $6 a shirt, and sold them for $15 each. Historically, the tournament sold 10 shirts per team. 2. The Craddock Cup expended the equivalent of $15 for food and beverages per player to stock the concession stands. These concessions were sold at a 100% markup. 3. The tournament hosted two soccer clinics (one on each day of the tournament) for younger siblings of tournament participants. The participation fee was $10 per child per day; it cost CYSL $6 per child per day. The previous year, 216 children had participated in the soccer clinics each day. 4. Corporate contributions averaged $14,000 a year. Despite Rivaldo's best efforts, he had been unable to secure additional corporate sponsorships for the tournament. 5. CYSL was required to pay $1,500 every year to register the Craddock Cup with the state Youth Soccer League, and also had to pay a $4 insurance premium per player. On average, each team fielded 18 players. 6. CYSL rented 10 soccer fields from the city for 40 weeks a year for a total fee of $48,000. Although the Craddock Cup used the fields for only two days a year, Rivaldo allocated one week's rent to the Craddock Cup. In addition to the two days of tournament play, CYSL spent two days preparing the fields for the tournament and two days cleaning up after the tournament. 7. Each team played four games during the course of the tournament, and each soccer field accommodated four games a day. Currently, the Craddock Cup required the use of eight soccer fields. Additional fields could be rented from local schools at a cost of $150 per day per field, while two goals for each additional field were rented at a cost of $60 a day. 8. Two soccer balls were purchased for each field at a cost of $27 per ball. 9. Three referees were hired for each game at a cost of $100 a game ($25 each for two linesmen and $50 for the head referee). 10. Trophies were provided for each player on the winning team in each bracket. On average, each trophy cost $25. 11. The Craddock Cup defrayed approximately $80 a night in hotel costs for each college scout attending the tournament. The scouts generally stayed for two nights.12. Face books were published at a cost of $6 a book. The Craddock Cup published extra face books and sent them to colleges that requested a face book but did not send a representative to the tournament. The previous year, the tournament had published 75 face books. 13. Marketing and advertising costs had been $2,200 the previous year. 14. Currently, CYSL employed Rivaldo full-time at $42,000 a year and three part- time workers at $12,000 a year each. Rivaldo worked on both the Craddock Cup and regular CYSL operations. He spent approximately 15% of his time on the Craddock Cup. One of the part-time employees, Rence Jansten, worked solely on the Craddock Cup, while the other two part-time employees did not work on the Craddock Cup at all. Currently, office rent and utilities were allocated to the Craddock Cup based on the time Rivaldo spent working on the Craddock Cup, as follows: CYSL Allocated to Cost % Allocated Craddock Cup Rivaldo's salary $ 42,000 15% $ 6,300 Jansten's salary 12,000 100% 12,000 Rent, utilities 18,000 15% 2,700 Total $ 72,000 $ 21,000 Rivaldo thought about the overhead expenses allocated to the Craddock Cup and wondered whether the allocation was accurate or even whether overhead should be allocated to the Craddock Cup at all. If the tournament were discontinued, CYSL would still incur field-rental expenses for 40 weeks. Furthermore, CYSL would still have the same salary expenses for Rivaldo and two of the other employees, though Jansten's position would be eliminated. Rivaldo wondered what the tournament's true operating profit really was, as a portion of the tournament's costs was allocated from CYSL. THE FUTURE OF THE CRADDOCK CUP Looking at the profit data, Rivaldo thought about what changes, if any, could be made before next year's tournament to improve profitability and convince CYSL's board to continue hosting the event. One easy way to raise additional revenue would be to increase the size of the tournament by adding two middle-school brackets, one for boys and one for girls. This move would increase the number of participating teams from 32 to 64. Because most of the high-school teams had a corresponding middle-school team, Rivaldo thought he could easily double the size of the tournament with little effort. Rivaldo knew the Craddock area had enough fields, equipment, hotels, and referees to support a tournament with 64 teams. Above this number, Rivaldo estimated that the costs for additional fields, rented goals, and referees would increase significantly. The CYSL board had also asked Rivaldo to determine the profit impact of increasing the marketing and advertising expenses. The board was hoping that a big advertising push would increase the visibility and prestige of the tournament. Rivaldo thought that by spending an additional $1,000 on marketing and advertising, he might CASE: THE CRADDOCK CUP 33attract about 15 more college recruiters to the tournament. This action would require CYSL to increase the number of published face books to 95. Rivaldo thought that this strategy might allow CYSL to charge a higher registration fee for the tournament. In preparing for his meeting with the board, Rivaldo decided that he needed to review the overhead-expense allocations and determine the impact of adding 32 teams to the Craddock Cup. Finally, Rivaldo planned to calculate the financial impact of increasing the tournament's advertising budget by $1,000 and to determine how much the registration fees for 64 teams would have to be raised in order to fund this initiative.Exhibit 2 THE CRADDOCK CUP Profit Statement Current Size Registration fees S 9,440 T-shirts 4,800 Concessions 17,280 Soccer clinic 4.320 Contributions 14,000 Total revenue $ 49,840 T-shirts 1,920 Concessions 8,640 Soccer clinic 2,592 Player insurance 2,304 Registration with state YSL 1,500 : City field rental 1,200 Soccer balls 432 Referees 6,400 Trophies 900 Hotels 4,000 Face books 450 Marketing and advertising 2,200 CYSL salaries 18,300 CYSL rent 2,700 Total expenses $ 53,538 Profit (loss) $ (3,698) PART I: UNDERSTANDING COSTS AND COST BEHAVIORSTHE CRADDOCK CUP Business Case requirements 1) Complete the schedule provided. (The Matrix Excel file) a. Identify the cost as fixed or variable. b. State if the cost is relevant or irrelevant to the decision. c. Detail the metrics and methodology used to calculate the total dollar amount of the cost or revenue. 2) On a new tab in Excel, develop a corrected profit statement at 32 teams. Include detail of revenue and expenses similar to the proposed profit statement shown in the Case. State specific reasons for any changes you make to the proposed profit statement. You can simply make notes at the bottom of the worksheet. 3) Develop a profit statement at 64 teams. Include detail of revenue and expenses similar to the profit statement in the case. 4) Identify 4 non-financial things that should be considered in making a decision whether to operate the tournament with 32 teams, 64 teams or some other scenario. 5) State your recommendation (eliminate Craddock Cup tournament, 32 teams, 64 teams, something else) and support your recommendation with financial data from your calculation in steps 2 and 3 above and non-financial considerations from step #3. Present this as if you were presenting it to the tournament committee so ensure it is complete, clear, logical and convincing. 6) Calculate the breakeven increase in registration fees per team for 64 teams given a $1,000 increase in advertising expense, 15 more college recruiters, and 20 additional face books. To get partial credit you must show your calculations. If I see that your logic is correct but you had a minor calculation error I will give you most of the credit only if you show me your calculations and how you arrived at your answers