Event management refers to the management of large scale festivals, concerts and conferences with effective planning, organizing and financing skills. In other words, it can be defined as an additional feature used to define the process which helps in leveraging automation for managing events in an effectual manner. All large scale events have to be completed as a project within specific budget because they involve huge cost, time and labor efforts (Hall, 2012). Civilization and tourism has promoted the business of event management in the United Kingdom therefore, it has become an important topic for new enterprises in this field. In this report, two similar kinds of events i.e. music events and film festivals have been selected in order to create vivid insights on the financial aspect of event management. The reason for selecting music events and film festival is that London (UK) is a royal destination for organizing music events. In addition to this, such type of events require effective financing therefore, it is rational to discuss upon these two selected paid events (Frank and Goyal, 2009).
In the United Kingdom, music events are mainly based on the theme of culture which is generally organized in summers. As the season is back therefore, a huge music event namely “Gala Day” is to be organized which is arranged every year at the end of June. For these types of events, preparing budgets is a fundamental need so that effective planning of aforesaid music event can be done. Music festivals are big businesses disregarding of the location as they can be held in local area or an exotic foreign destination (Heaton, 2002). Thus, each and every music event involves specific investment, cost and revenue which are discussed under the following heads:
In an economic sense, investment can be defined as a part of saving which is deployed for getting additional income or appreciation in value of an asset. However, in business context, investment can be defined as allocation of funds in various tangible and intangible assets which could provide benefits to business for long run. Thus, investment refers to capital nature expenditure for a business which can produce future profitability to an organization (Kahraman and et.al., 2002). In this case, the event management company has to invest certain amount for organizing this music amount. However, the amount of investment required may vary from one company to another. For example, a newly established event management company is required to invest more in comparison to well established music festival organizers. as being a newly set- up company, it will have to invest significant amount in land and music instruments as well. For the above described music event; “Gala Day”, the investment would be huge because company is going to organize it for the first time. Thus, the amount spent on capital nature expenditure may vary from £1500- £2500 as in London, rent for exotic locations is very high. The location can be acquired on a five year contract basis to organize regular events targeting tourists in the United Kingdom (Palmer, 2013).
Any amount spent of revenue nature becomes the part of the cost of the event which should be evaluated in order to set appropriate ticket prices. For this event, there is a significant cost associated with the same. It is essential to estimate the cost of any event in order to set the prices to be charged for particular services. In financial terms, cost can be categorized in two parts including variable and fixed cost. Both types of costs are described in context to this music event here under:
It is the cost which is directly linked with the level of production or number of people availing the services. Thus, variable cost increases total cost with the level of increase in the total production. For example, the music event management company needs to incur cost for an additional person joining at the event due to food and sitting arrangement. Thus, variable cost is the one which is incurred for each of the person in audience (Van Horne James, 2002).
Such type of cost is not directly related to level of production and is not affected by number of people in audience. Thus, fixed cost does not increase total production and disburse the amount in number of audience. For this music event, significant fixed cost may be incurred including decoration, payment to artists, security and lighting arrangements etc.
For organizing events, there can be two motives: non-profit making and profit making motives. For this event; Gala Day, the motive is to earn profit as it is a paid event therefore, audience will be charged certain price for the ticket (Revsine and et.al., 2005). Revenue for this music event will be the product of price of the ticket and audiences who attended the festival. Prices are set based on certain amount on the total cost so that event can be made profitable.
The event management company can arrange funds for organizing the music festival from different sources of finance. Sources of finance can be categorized in two broader forms including debt and equity. All these financing options are explained and described under the following heads:
It involves borrowing funds from creditors with stipulation of repaying the borrowed funds along with interest on the same at specified future time. In such type of financing, creditors get rewards for financing the event in form of fixed/agreed rate of interest. It is important to note here that debt financing may be secured or unsecured depending upon the nature of business and relations with creditors (Joshi, Al-Mudhaki and Bremser, 2003). Various methods under debt financing for event Management Company are described under the following heads:
These companies may be considered for sourcing the finance for organizing events when the business is not able to source financing from any other source as these companies generally ask for collateral to repay the loan. Thus, Event Management Company can only look up to this source of financing when it has substantial personal assets (Henderson, 2011).
It is the most appropriate source of financing for a specific activity such as managing wedding and music events. Bonds are special type of debt financing instruments which are issues by the company. In such type of instruments, companies determine specified interest rate and the date of maturity on which amount is to be repaid. But issuance of bonds requires cost and certain formalities which may be time consuming (Palermo, 2014).
Commercial lenders and banks are the most popular sources of finance when borrowers are desired to source funding from debt financing. Lenders require excellent business track record as a pre condition to finance the company (Lahdenperä and Koppinen, 2009). For corporate, it is essential to show income statements, cash flow statements and balance sheets to banks or commercial lenders to source the finance.
Friends and relatives can be good source of financing as these falls under the options of private sourcing. Nonetheless, the formalities are required to be completed in similar fashion as it was done in the case of commercial lending.
It refers to exchange in the structure of ownership of a company for financing the company. This option is chosen by the companies when huge funds are to be raised and interest rates are high in the market. Thus, in such type of source of finance, the ownership stake results formation of equity investment to the company that involves permanent investment in the organization (Heaton, 2002). Different options under this type of financing are explained here under:
It is the best financing for raising funds for an event as owners may employ their own savings or equity. These can involve profit sharing, real estate equity loans or cash value of insurance policies.
For a newly started event management company, this can be the most appropriate way to raise funds because it does not cost more to the managers. As events can realize the amount investment soon as these are paid therefore, owners of event management organizations can raise funds from parents or friends for a small period (Reid, 2011).
It refers to financing that is made from companies and other individuals in the business of investing in young and privately owned organizations. Venture capital firms provide capital to young businesses for exchanging the ownership share of the business.
For emerging event management businesses, this can be the best method for sourcing the finance for arranging the money. Event management companies, if publically traded can offer shares to public as fresh issue to finance the events.
From the evaluation of different sources of debt and equity financing, it can be said that both have certain advantages and disadvantages. The Event Management Company is recommended to adopt combination of these two methods so that debt-equity ratio canbe maintained up to desired level (Hall, 2012). Thus, from equity financing, personal savings and debt financing, loan from friends and relatives can be taken to organize this music event successfully.
For this event; Gala Day, the selling price can be determined based on the consideration of various factors described below:
In order to determine the price, cost should be estimated first so that appropriate price can be fixed for this music event. Cost of this music festival involves activities such as contract price, artist booking, artist payment, accommodations, drinks, snakes, contract riders and other artist expectations. All these activities involve heavy cost which contributes in the pricing of the tickets for this event (Stickney and Weil, 2006).
Before setting the price for attending event per participant, it is important to research the size of the audience that will be attracted by talent (music artists). Appropriate venue may be of 20000 seat arena for such a large event. The total cost will be distributed among attendants of the event therefore; price of the ticket largely depends upon number of participants (Katz and Green, 2007).
In London, music events are often organized for local and tourist audience for fun and leisure. In such a competitive era, an event should be effective enough to attract participants to come into the spot light. In such a situation, the price should not be significantly higher than competitor’s ticket price.
Promotion of concert event should be based on its uniqueness because it considerably affects selling of the event ticket. Thus, if the event is expected to attract eye balls of participants and it is unique than that of competitors then relatively higher prices can be charged for the same (Cotriss, 2009).
Thus, based on the above mentioned factors, the price for this music event will be determined. There are various pricing strategies which can be used to set the prices for the event is explained here under:
It is a pricing strategy in which price for the service provided is produced based on the cost of the services. This event is to be organized in porch location of United Kingdom therefore; rates for exotic location will be high. In addition to this, in a music event, the prices should be charged based on the cost so that it can be made profitable. Cost based pricing strategy is used when objective of launching of an event is to earn desired profit (Irwin and Scott, 2010). Thus, in such type of pricing, a fixed percentage of profit is added in the cost to determine total revenue which should be further divided by number of participants to determine price.
Penetration is a common phenomenon in costing in which marketers determine price of a product at a lower margin. In such type of pricing method, large number of audience can be attracted by keeping the ticket price lower (Edwards and et.al., 2013). Thus, market penetration method is used for identifying the price when event managers aim at obtaining large number of market share. This strategy can be adopted by this company for the first year. Once it manages to organize the event successfully in first year, prices can be increased in next year.
This pricing strategy is opposite to the market penetration because unlike market penetration strategy, skimming pricing seeks to determine higher price for the tickets so that maximum profitability can be earned. This strategy is said to be appropriate in the case of event management when there are reputed music artists and sponsors. Audience gets ready to play more for unique and reputed concerts therefore, skimming pricing strategy helps in achieving actual goal of concert organizers (Bearzotti, Salomone and Chiotti, 2012).
It is a pricing strategy in which price of the tickets of this music festival; The Gala Day can be set based on the review of competitor’s price of the ticket. This pricing strategy is based on the assumption that participants are redundant to pay more than industry standards and they are rational enough to make purchasing decision of music concert ticket (Irwin and Scott, 2010).
Thus, from the evaluation of above pricing strategies, it can be stated that for this music event cost based pricing is most appropriate as newly launched Event Management Company wants to make its business profitable and sustainable. In addition to this, the overall estimated cost was identified which would be approx. £2500. Thus, the price per ticket is kept £45 per ticket which is based on certain percentage of profit on cost.
There are various investment techniques which can be used for financial management of an event such as Net Present Value, Internal Rate of Return, Average Rate of Return, Payback Period etc. A brief introduction of the same and their significance for management of selected music event and film festival is discussed.
It refers to financial metric for cash flow analysis which provides necessary information regarding the time required in recovery of initial investment. In other words, payback period is a time which is required for investor to get up to breakeven point (Kierulff and Petersen, 2009). It is calculated by dividing the initial investment from annual income. For these two events, a hypothetical example has been taken for explaining the decisions based on payback period.
ARR can be defined as a simple rate of return which is calculated by dividing the average accounting profit from average investment. Thus, a higher accounting rate of return is considered favorable in this regard. Here, the average rate of return for both cases is calculated so that appropriate investment decisions can be made by Event Management Company.
Although there are certain advantages of this method as it is easy to calculate but there are certain disadvantages as well like it ignores time value of money and there is no uniform formula for the same. On the basis of above calculation, film festival event is found favorable and thus, it may be selected (Frank and Goyal, 2009).
Internal Rate of Return is a rate on which discounted cash inflows and discounted cash outflows are equal. This is one of the modern techniques of selecting best project of the given alternatives because it considers time value of money in calculation (Masterman, 2014).
NPV is also one of the commonly used investment appraisal techniques which assist in determining the profitability at the end at specified discounting rate (Will and et.al., 2001). For these two projects, the NPV is calculated.
It can be concluded from the above report that management of an event is required to have planning, organizing and management skills as various decisions are to be taken which should be based on the evaluation of financial aspects. Any event is said to be successful if it is able to achieve its objective whether it is profit making or non-profit making. Thus, it can be concluded that appropriate capital budgeting techniques can be adopted by the company in order to take correct decisions.