72459298 BF322 Arundel
BF322: Advanced Corporate Finance
Case Study – Arundel Partners: The Sequel Project
Group Members:
Chen Yanheng
Loon Shu Juan Melissa
Ong Joseline
Tan Hui Kiow
Fundamental Analysis
Arundel Partners is an investment group, set up to purchase sequel rights associated with films produced by one or more major U.S. major studios. By owning such rights, Arundel will be able to wait and see if the movie was successful, before deciding whether to exercise its right and produce a second film based on the story or character of the first.
However, Arundel’s profit margin would depend on how much it has to pay to purchase such a portfolio of sequel rights, and this problem would be analyzed in our report.
1. Why do the principals of Arundel Partners think they can make money buying movie sequel rights? Why do the partners want to buy a portfolio of rights in advance rather than negotiating film-by-film to buy them?
The principals of Arundel believe that they can make money with the purchase of the movie sequel rights due to the volatility associated with a movie’s success. Such volatility is precious in an option and therefore, the principals think that they can make use of such unpredictability in the movie industry to their advantage. Furthermore, the principals have the right not to exercise the option if the movie was not successful, and therefore not produce any sequel. Therefore, the loss associated with such a movie with bad response from the public would be limited to the premiums paid by Arundel for the option. However, the gain on the upside can be unbounded and this provides Arundel with the opportunity to make money. Furthermore, Arundel can also sell the rights to the highest bidder if it does not want to produce the sequel itself. This is also another method where Arundel can make money with the purchase of the rights.
It is of critical importance that Arundel buy the portfolio of rights in advance rather than negotiating film-by-film
Case Study – Arundel Partners: The Sequel Project
Group Members:
Chen Yanheng
Loon Shu Juan Melissa
Ong Joseline
Tan Hui Kiow
Fundamental Analysis
Arundel Partners is an investment group, set up to purchase sequel rights associated with films produced by one or more major U.S. major studios. By owning such rights, Arundel will be able to wait and see if the movie was successful, before deciding whether to exercise its right and produce a second film based on the story or character of the first.
However, Arundel’s profit margin would depend on how much it has to pay to purchase such a portfolio of sequel rights, and this problem would be analyzed in our report.
1. Why do the principals of Arundel Partners think they can make money buying movie sequel rights? Why do the partners want to buy a portfolio of rights in advance rather than negotiating film-by-film to buy them?
The principals of Arundel believe that they can make money with the purchase of the movie sequel rights due to the volatility associated with a movie’s success. Such volatility is precious in an option and therefore, the principals think that they can make use of such unpredictability in the movie industry to their advantage. Furthermore, the principals have the right not to exercise the option if the movie was not successful, and therefore not produce any sequel. Therefore, the loss associated with such a movie with bad response from the public would be limited to the premiums paid by Arundel for the option. However, the gain on the upside can be unbounded and this provides Arundel with the opportunity to make money. Furthermore, Arundel can also sell the rights to the highest bidder if it does not want to produce the sequel itself. This is also another method where Arundel can make money with the purchase of the rights.
It is of critical importance that Arundel buy the portfolio of rights in advance rather than negotiating film-by-film