CEO of Frontier Park
You are the CEO of Frontier Park, one of the largest in the United States. The park hosts over 200 species of animals and attracts around 2 million visitors annually. It is known for its conservation efforts and educational programs. You want to take your park to the next level and lease brown panda bears to attract visitors and contribute to the conservation of the species.
Objectives
-Secure a breeding pair of giant brown pandas from China for a period that maximizes your park’s financial and educational benefits.
-The park’s Board has authorized you to pay up to $5 million for the pandas’ visit.
-Ideally, you want the pandas for five years, with an option to extend the agreement.
-Aim to negotiate an annual fee as low as possible, but the maximum you can agree to is $1 million annually.
-Explore opportunities for collaborative research and conservation projects with the Panda Conservation organization.
Context
- The Board of Management has authorized you to agree to pay up to $5 million in fees for the pandas’ visit.
- The Board did not dictate a visit duration or distribution schedule.
- The park cannot afford the typical annual fee of $1 million plus related costs for ten years.
- Your research has shown that new exhibits have a diminishing rate of return—with each passing year, the additional number of visitors due to the new exhibit decreases.
- The most significant boost in additional visitors due to a panda exhibit usually occurs during the first three years.
- Park revenue could increase by $9.3 million during the first year, but a 10-year exhibit would likely result in a net loss.
Cost Estimates
- The construction of a large-scale panda exhibit at Frontier Park that meets Chinese specifications is estimated to cost $8 million. Alternatively, building a more modest enclosure could reduce this cost to $5 million.
- Projected annual food costs are high ($150,000) because a giant panda consumes large amounts (10-18 kg/day) of specific types of bamboo that are not in ready supply in the U.S.
- All other panda-related expenses not covered by the park’s regular budget and resources are estimated at $200,000 annually.
Negotiation Strategy
- Set specific objectives and initial offers for the duration of the visit and the annual fee.
- You have learned that another zoo obtained a pair of giant pandas for ten years and recently negotiated a five-year extension of their agreement at a reduced fee of $500,000 per year.
- If you think the Panda Conservation Board will insist on a 10-year term (whatever the annual fee), one possible course of action is to partner with another zoo, and share the pandas’ time. Another option is to reject the demand.
Strategic Opportunity:
- The Oregon Fair will be held in Bend from July 10-26, 2025, bringing an estimated 250,000 people to the city. If the park has giant pandas in place by then, it could take advantage of this massive inflow of visitors.
By adhering to these instructions, you can effectively negotiate the acquisition of giant pandas, ensuring that Frontier Park maximizes its financial benefits and contributions to global panda conservation efforts.
Frontier Park: Financial Scenarios for a Giant Panda Exhibit
Operations Expenses
- Annual Food Costs: $150,000
- Annual Maintenance Costs: $200,000
Additional Income from Panda Exhibit
| Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 |
|---|---|---|---|---|---|---|---|---|---|---|
| Additional Income ($) | 9,300,000 | 6,200,000 | 3,100,000 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Other Factors
- Interest Rate: 5%
Financial Scenarios
| Scenario | Annual Lease Fee ($) | Enclosure Cost ($) | Total Expenses Year 1 ($) | Net Income Year 1 ($) | Total Expenses Year 2-10 ($) | Net Income Year 2 ($) | Net Income Year 3 ($) | Net Income Year 4-10 ($) |
|---|---|---|---|---|---|---|---|---|
| 1 | 500,000 | 11,000,000 | 11,850,000 | -2,550,000 | 850,000 | 5,350,000 | 2,050,000 | -850,000/year |
| 2 | 600,000 | 11,000,000 | 11,950,000 | -2,650,000 | 950,000 | 5,250,000 | 1,950,000 | -950,000/year |
| 3 | 700,000 | 11,000,000 | 12,050,000 | -2,750,000 | 1,050,000 | 5,150,000 | 1,850,000 | -1,050,000/year |
| 4 | 750,000 | 11,000,000 | 12,100,000 | -2,800,000 | 1,100,000 | 5,100,000 | 1,800,000 | -1,100,000/year |
| 5 | 800,000 | 11,000,000 | 12,150,000 | -2,850,000 | 1,150,000 | 5,050,000 | 1,750,000 | -1,150,000/year |
| 6 | 900,000 | 11,000,000 | 12,250,000 | -2,950,000 | 1,250,000 | 4,950,000 | 1,650,000 | -1,250,000/year |
| 7 | 1,000,000 | 11,000,000 | 12,350,000 | -3,050,000 | 1,350,000 | 4,850,000 | 1,550,000 | -1,350,000/year |
| 8 | 1,100,000 | 11,000,000 | 12,450,000 | -3,150,000 | 1,450,000 | 4,750,000 | 1,450,000 | -1,450,000/year |
| 9 | 1,200,000 | 11,000,000 | 12,550,000 | -3,250,000 | 1,550,000 | 4,650,000 | 1,350,000 | -1,550,000/year |
| 10 | 500,000 | 17,000,000 | 17,850,000 | -8,550,000 | 850,000 | 5,350,000 | 2,050,000 | -850,000/year |
| 11 | 750,000 | 17,000,000 | 18,100,000 | -8,800,000 | 1,100,000 | 5,100,000 | 1,800,000 | -1,100,000/year |
| 12 | 1,000,000 | 17,000,000 | 18,350,000 | -9,050,000 | 1,350,000 | 4,850,000 | 1,550,000 | -1,350,000/year |
Explanation:
- Annual Lease Fee: The cost paid to CAZG annually for the pandas.
- Enclosure Cost: One-time cost to build or renovate the panda enclosure.
- Total Expenses Year 1: Sum of the enclosure cost, annual food costs, annual maintenance costs, and the annual lease fee.
- Net Income Year 1: The profit or loss in the first year, calculated as Total Income minus Total Expenses.
- Total Expenses Year 2-10: Sum of the annual food costs, annual maintenance costs, and the annual lease fee for each subsequent year.
- Net Income Year 2: The profit or loss in the second year, calculated as Additional Income minus Total Expenses for that year.
- Net Income Year 3: The profit or loss in the third year, calculated as Additional Income minus Total Expenses for that year.
- Net Income Year 4-10: The profit or loss in each subsequent year (4 through 10), calculated as Total Expenses for those years since no additional income is expected.