Finance for Marketing Decision
The concept of "net present value" (NPV) is borrowed from the world of finance. It means that a dollar paid to me today has a greater value than a dollar paid in the future. By knowing the concept of the net present value, the manager can analyze whether to make the investment or not. Why net present value is important?
First, it helps to calculate time value. It recognizes the time value of money, which means the money you received today is worth more than the money you received tomorrow. One of the elements in calculating time value is the "discount rate". The discount rate represents a combination of the cost of capital and the uncertainty of income.
Second, it can help to measure of profitability. It uses all cash flows occurring over the entire life of the project in calculating its worth. Therefore, it is a measure of the investment’s true profitability. The net present value method relies on estimated cash flows and the discount rate rather than any arbitrary assumptions, or subjective considerations.
The last but not the least, it helps managers to make the decision about the investment. As it can tell, the net present value in the spreadsheet is negative, what does it tell us? In my opinion, it means that at the first year the manager is better off not investing in the project.
a. Yes, I think the increased franchise value is realistic. The followings are reasons why I think it is important:
First, based on the Exhibit 4, we can easily tell that the team who has the highest value will also have the highest revenue; on the contrary, the team with lowest value is also the team with lowest revenue. As an audience, I will want to see the game not only because I am the fan of the team but also because it is a famous team so that I am willing to spend money going to the stadium and watching the game. As a result, the baseball team can increase both profits and popularity.
Secondly, the team who has higher franchise value will be more attractive to potential sponsorship partners, which can make a good result to both sides.
For example, many famous corporations sponsor New York Yankee, including McDonald's Corp., Verizon Wireless, the Coca-Cola Co. and Fleet Bank. In that way, Yankee sponsors using team to boost their businesses. To sum up, based on the reasons I mentioned above, increasing franchise value is critical to the baseball team.
b. For baseball, local TV viewership and revenue still staying strong. In my opinion, Americans are really crazy about baseball and many people will sit down night after night to watch their hometown baseball team more than anything else on television. As far as I am concerned, television is still a media that are used by majority of marketers, which means there are lots of people still seem television as an important media to acquire new information. Therefore, I predict that broadcast revenue will still staying strong in the future.
c. To me, I think increase in average number of wins, improved chance of reaching ALCS, and franchise value revenue multiple are all realistic.
The first one- increase in average number of wins, is one of the basic but critical point to baseball team. Why do I say that? In my opinion, a baseball team with many championships will gain lots of benefits externally and internally. For instance, the team will have high popularity and money to hire better coach making the team better than ever, in addition, the team may obtain lots of free sportswear from sponsors. These are benefits they will get from increasing in average number of wins.
The second one is improve chance of reaching ALCS.