The Scotland Jammers hockey club is considering offering Bud Kelly a hockey contract. As a star player, Kelly expects to be well paid. The general manager at Scotland Jammers believes the team will have to pay Kelly a bonus of $2,000,000 when he signs his contract and an annual salary of $5,000,000 per year. Kelly is demanding a five year contract.
The team plays 35 games a year. On average, the Jammers receive $75 per ticket for home games and sell $20 of food and merchandise to each customer. The variable cost per customer averages approximately $40.
Current ticket sales average about 15,000 per game and signing Kelly is expected to increase average ticket sales to 17,000 per game, which is the arenas capacity.
Required:
a. What would this contracts effect be on total five year income ignoring the time value of money?
b. The general manager believes that simply focusing on regular season games understates Kellys value to the club. On average, the Jammers play six home playoff games each year, which are all sold out. However, the general manager believes the number will increase to eight playoff games per year. Given this information, what is this contracts effect on income?
