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BCG Medium Profitability Marketing

Penn & Teller

#Hospitality #Entertainment #Gaming
ProHub Comment

This case effectively integrates quantitative analysis, requiring candidates to calculate profitability and payback periods. It also challenges them to consider qualitative factors like market competitiveness and the appeal of an act. The case encourages a balanced, data-driven recommendation supported by strategic considerations beyond just the numbers.

Estimated Time 15 minutes
Difficulty Medium
Source Wharton
50 / 100
Our client is Caesars, one of the largest gaming and resort companies in the world. Penn and Teller have been the headlining show at the Rio Hotel since 2001, and they are currently the longest-running headlining show in Vegas history. Caesars, who owns the Rio Hotel where the duo performs in the 1500 seat P&T Theater, is wondering if their act has become stale. Penn & Teller’s annual contract is about to expire, before Caesars has a meeting with the duo they have asked our company’s advice on whether or not to resign the act for another year. What recommendation do you have for Caesars?

Clarifying Information

  1. What goal does Caesars have? As one of the largest entertainment companies on the Strip and around the world, Caesars solely cares about the company’s total bottom line profitability.
  2. How long is a contract for Penn & Teller? : As is the Vegas standard, all contracts are for a one-year time period.
  3. Why does Caesars think the show is stale? The show has plateaued, with no change in bottom line profitability in the past five years.
  4. Who is Caesars/P&T biggest competitors? Caesars’s biggest competitor is MGM Resorts, which also operates about 33% of the Strip. P&T compete against a whole bevy of nighttime entertainment, such as other shows, nightclubs, and gaming.
  5. How many seats? The theater has 1500 seats in three categories, A B and C. There are 300 Category A seats (best seats in the house), 800 Category B seats, and 400 Category C seats (balcony, or in the back of the theater).
  6. Do the seats always sell out? No. On average, 100% of the A, 80% of the B, and 50% of the C are sold.
  7. What are the prices? Category A costs $120, B costs $75, C costs $55
  8. How many shows do P&T perform? They perform at the Vegas standard 6 shows per week, 40 weeks per year (they have 1 day off per week, and three months per year when they are working on other endeavors like TV appearances and book deals)
  9. How has revenue changed? These numbers have been static over the past 5+ years, hence why Caesars thinks the show has become stale.
  10. What are the costs to putting on the show? Costs are broken into six main buckets. Both Penn and Teller each make $2M per year. The Crew (stagehands, showgirls, ushers) in total costs $2K per show. Housekeeping costs $1000 per week. The Props (the doves, playing cards, etc) costs $200 per show. Utilities (the lights) cost $52K per year. SG&A (Marketing, box office staff, insurance) costs $1M per year.