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Woodbridge>

I tend to think of expansions differently. At first I thought as you did that the higher the price the more you want of the seats. But then it dawned on me. If you sell 100 seats for $200 per that's 20,000. If you sell 200 seats at $120 per that's 24,000. So 4,000/100 =$40. So each extra seat from 100-200 = a profit of $40 per. It will take roughly 50 weeks to get back the initial investment if the seats cost $2000 each.

The only time when you get a better return on investment is when you are selling out. If you are going to have 2-3 more weeks before you can change prices, then when you build you will get an immediate return on investment for whatever price you sell for for a few weeks until the next price adjustment. So for example I added 1200 bleachers at 200 per. Because I was selling at 10 each, I was able to take a week where each extra seat earned 10. This is 1/20th of the original investment.

The predictability of courtside and luxury box seats makes it better to build these early IMO. That way you can set the price easier and be close to selling out or selling out which is what you want.

Arena expansions only pay for themselves if the pricing is accurate. If you over/underprice considerably than it takes a lot of the gains out of the expansions.

Overall if priced correctly, arena expansions have a slow payback period. Basically I have calculated the payback to be about 2% of the initial investment per home game. It is not going to make your team so much better than an average team in your league. In Div 4, I can average about 40K more earnings per week by having one of the biggest stadiums around. Let's say the average team has 1 M invested. I have 3 M invested. 40,000/2,000,000 = 2%

So overall the goal is to increase your Div first than expanding. If you are looking at this game from a financial perspective. But if you cannot increase your Div because a better team is in your way, expanding is a nice option to have.

Last edited by lawrenman at 6/30/2013 8:28:05 AM

That's one component of the evaluation, to be sure, but the thing I think is underappreciated is the relative cost of expansion as compared to your operating margin as you move up or down the levels. When in IV or V, it's much easier to both field a successful team and still have money left over for investing in infrastructure such as arena or scouting. The higher up you go, the harder it is to have much extra money left over and still be successful. The strategy you're proposing, aiming to expand after you go up, is perilous, as not only will you need to increase your payroll significantly in most cases to remain competitive, but you'd also have to find a way to expand the arena and to do all of this with a lower revenue base than your league competitors.

The way I've always thought about it is that since the seats are a fixed, one-time cost, it's easier to go ahead and get them earlier than later, within reason (i.e., there's no point to build up to a 20k arena while in IV).

I tend to think of expansions differently. At first I thought as you did that the higher the price the more you want of the seats. But then it dawned on me. If you sell 100 seats for $200 per that's 20,000. If you sell 200 seats at $120 per that's 24,000. So 4,000/100 =$40. So each extra seat from 100-200 = a profit of $40 per. It will take roughly 50 weeks to get back the initial investment if the seats cost $2000 each.

I don't really get your calculation, does it include the assumption that if you build 200 seats instead of 100, you need to lower your ticket price from $200 down to $120? In that case, yes the break-even point is far ahead yes, but it's also a pretty extreme situation. You don't regularly double the amounts of seat you have at once.

I have to say my theory had some assumptions too, but not as extreme as yours if I understand you correctly. My assumptions were that you don't invest huge amounts of money at once in your arena, more like max $200k each time. This way, the increase in seats is only a small percentage of the seats you have already, making it less likely you'll have to decrease prices right away for the seats to sell out. I already said that the return on investment only goes for seats that are selling out.

The point of the predictability of the more expensive seats is a valid one, though in my experience in the lowest divisions you'll quickly reach the point where you beat the majority of the league easily, making the bleachers predictable too, since 90% of the team you'll come of a win before a home game. But, if the Return on investment is roughly the same, you could use this point to decide to build the expensive seats first.

And if you reach the point where you can't sell many more seats because your arena is already much bigger than the opposition's, then you might want to prioritze strengthening your roster over your arena, but again that's an exception situation. I appreciate you adding these points to keep in mind, but I was just giving a simplified version of how I think about expanding your arena to help this guy out.

I agree with you to an extent. There is no reason to get into an arms race with a team that you know is going to advance before you. When gearing for a title, you need to have one of the top payrolls to make sure you both have depth and the best starting rotation.

In Div5 this might mean 70K payroll.
In Div4 this might mean 170K payroll.

So you are correct in that as you move up divisions its harder to be successful and still expand.

However, there are teams with a sub 80K payroll in Div4 that did not get demoted last season. I carried an average of 95K a week and made the playoffs. I made a jump from 70K to 95K = 25K increase.

Overall, you may be right in Div III to have a roster that competes need more cash. However in Div 4 the increase to needed to salary is not as great. So moving from Div 5 to Div 4 is ideal except in one circumstance...the draft. Unlike Div 5 Div 4 you can't get a super pick picking last.

Overall woodbridge the math works the same. When you lower the price of your seats it lowers the price of all seats. Therefore your return on investment lowers. I just used 100 seats vs 200 seats for simplicity.

What you are doing in your math is only when you are selling out. The ROI is better when you sell out and add more seats. But it falls when you later reduce the price. Its still net better than zero until you reach a point where you can no longer reduce the price to sell seats. Overall your math only works when adding seats where you cannot change price AND you are selling out.

My math dictates that it doesn't matter which seat you build. What matters more is the predictability of pricing. Therefore you should build up court/lux first. Then worry about lower/bleacher. Overall though the math is correct, when pricing is accurate the payback is about 2% of initial investment per home game during the regular season. So around 25% per season. But its also a low risk/high reward investment. Unlike buying trainees or starters which always carry more risk.

Yes I understand your point and as I said, I've included that you need to pick a type of seats you're selling out. For a incremental change, which I assumed was the case and I later explained too, you don't have to lower the price to sell the couple of extra seats you built. Maybe afterwards you don't totally sell out, so the next time you invest you don't include that type of seat in your options.

I did not give advice on what is the best formula to calculate ROI. I was just giving some help to decide which seats to build first, and added a simplified theory with some conditions to help in that decision. That's all I wanted to do. It's all nice to be able to calculate your actual ROI in all cases, but I think that's not necessary when deciding what seats to build.

So if you're selling out both your Luxuy boxes and bleachers, luxury at $600 per seat and Bleachers at $15 per seat, you suggest just building more Luxury? I would assume not, but then at what point would you? Do you have a calculation for that? You need to strike a balance in ROI and predictability, and I think it's hard to calculate a point where one is better than the other. I suggest just looking at ROI the way I proposed for incremental increases in seats, and when the ROI is close then go for the more expensive seats.

I must have really lucked out to end up in my D5 league because I've got like a 38k salary and have far and away the best team due to computer players being awful, that's why I'm spending so much on my arena now because I have the luxury of not really having to worry too much about competing when the competition is so low.

When choosing between 600 Lux or 15 bleach...the return is the same. Except when you first buy the seats. If you are selling out both than adding more bleach is better. However, its a temporary gain. Overall the more weeks go by, the better adding the lux is because of predictability of sales.

So I always propose to add court and luxury to the max first than work your way up. Courtside are easiest to add because the price is higher and you get to max seating of 500 quicker (Div 4). Luxury takes longer before you reach max...because you reach minimum prices quicker (Div 2).

Personally I've already maxed my lux/court for Div 4. I have already maxed my bleachers at 12,000 (which I don't plan on adding to). So until I get into the playoffs I don't need more Lux. The only thing I need at this point is lower tier.

If you spend 200k on bleachers which you're selling at $15, you get 15k more income each home game. That's just 7,5k if you spend that same 200k on Luxury boxes that you're selling at $600. If you continue investing in Luxury/Courtside with such little gain, you're missing out on a lot of money. You might not get 15k each game, but maybe somewhere between 10k and 15k for those extra seats, but it's still more than the sure 7,5k with predictable sales of your luxury boxes.

I agree that the higher predictability is worth something over the bleachers, but there's a tipping point where that predictability isn't worth the lower income that you generate. I don't know where that is exactly, but it's certainly before the point that you get $600 for luxury and $15 for bleachers if you ask me.

What should be noted here is that a $15 bleacher seat in Div 5 would result in sub 3000 seats sold.

But lets discuss how this would work out.

Div 4 only:
Going from 13 boxes to 25 boxes in Div 4 (price from 600 to 400 avg) would result in $2000 per game.
Going from 3000 bleach to 3960 in Div 4 (price from 14.49 to 11.97 avg) would result in $4000 per game.

So your example is accurate. However, the gain is smaller than you think it is because the price would ultimately fall.

Also since Div 5 teams start with bleachers at a reasonable level, they are better off adding court/box. Even if they overbuild because the pricing is simple to manage.

Basically when the price gets to 80% of normal price it is better to build the lower sections without a doubt.

Note the pricing is based on USA offsite. Which normally is lower because of all the sucky teams that don't have a clue.

Last edited by lawrenman at 6/30/2013 9:05:56 PM

I don't know where you get those numbers from, since I thought everyone started out with 4500 bleachers (is that different for USA DIV 5?), but still those are big changes % wise. In that case, it might be better to do smaller increases or spread increases (like 100k on each of your best selling seats).

That 80% that you name is what I was looking for. I do wonder how you determined that at that point it's best to switch, or is it just a rough estimation?