The ALLTEL Pavilion Case: Strategy and CVP Analysis
Edward Blocher and Kung H. Chen
ABSTRACT: The ALLTEL Pavilion case is intended for the undergraduate management accounting or cost accounting course and the M.B.A. management accounting course. It provides an excellent context in which to examine strategic issues in using cost volume profit (CVP) in a service business. Based on an actual entertainment pavilion, the case develops many factors unique to a service business and illustrates how pavilion management can use CVP analysis to determine which artists to attract and what kinds of contracts to have with these performers. The Pavilion has two types of customers (paying ticket holders and free ticket holders) and earns profits from three types of revenues (ticket revenues, concession revenues, and parking fees). The case requires you to identify the best strategy for different types of artists, conduct cost-volume-profit analyses, consider the strategic issues related to operating leverage and how this affects the choice of performer and contract, and assess pricing strategies.
ne day in early November, Pam Berg, Manager of the ALLTEL Pavilion, was reviewing the operating results for the year just completed in preparation for the executive board meeting the following Friday. While the year ended in the black, she was disappointed that the ALLTEL Pavilion failed to earn the budgeted profit goal. This was the second year since Ms. Berg assumed the manager’s position at the ALLTEL Pavilion. After the somewhat disappointing first year, she was determined to exceed the budgeted profit in the coming year. While not all events developed exactly as expected at the time of preparing the budget for the year, there were no major surprises during the year. Yet, the operating results are below the budgeted goal. In addition, Pam was frustrated by the lack of clear guidelines for contract negotiations with artists, for setting ticket prices, and in dealing with unexpected low ticket sales for certain concerts. THE ALLTEL PAVILION FOR LIVE ENTERTAINMENT The ALLTEL Pavilion in Raleigh, North Carolina (http://www.alltelpavilion.com/) is an outdoor amphitheater that provides live concerts to the public from April through October each year, hosting as many as half a million patrons a year. The seven-month season usually hosts an average of 40 concerts, and 12 year-round staff plan and manage each season. SFX Entertainment Inc. (http://sfxyes.liveonline.net/) operates the pavilion. SFX is one of the largest diversified promoters, producers, and venue operators for live entertainment events in the United States. It has 71 venues either directly owned or operated under lease or exclusive booking arrangements in 29 of the top 50 U.S. markets, including 14 amphitheaters or pavilions in 9 of the top 10 markets. Edward Blocher is a Professor at The University of North Carolina at Chapel Hill, and Kung H. Chen is a Professor at the University of Nebraska–Lincoln.
Blocher and Chen
ALLTEL Pavilion wants to be the nightlife for the Triangle (Raleigh-Durham-Chapel Hill, NC) and eastern North Carolina, and one of the most beautiful, technologically advanced, and successful amphitheaters in the world. It features the most modern state-of-the-art acoustics and video of any facility of its kind. In the last few years, ALLTEL Pavilion staged shows by the Dave Matthews Band, Alan Jackson, Brooks & Dunn, Toby Keith, Santana, Tim McGraw, Aerosmith, James Taylor, Jimmy Buffett, and many other national, regional, and local artists. The Pavilion claims, “There isn’t a bad seat in the house. Whether you choose to spread a blanket on our gently sloping festival lawn or select a reserved seat in our pavilion seating area, you are guaranteed a great view of the action on the stage” (ALLTEL Pavilion website). Exhibit 1 shows the stage and seating of the...