Proposal for Sports Betting
The purpose of this analysis is to determine whether or not the approval of sports betting would help Central increase gambling revenue. I will conduct this analysis by building a Decision Support (DSS) model that forecasts the proposed sports betting program’s financial situation for the next 10 years. This model will be used to provide proper reasoning for the approval or disapproval of the sports betting proposal; also I will use this model to support and explain my recommendation on the matter of sports betting.
DSS Model: Summary and Analysis The results illustrated below analyze the Net income, Cash on hand, Debt owed, and Average return on investment for the year 2018 using the four pre-defined scenarios, including Low roller (monopoly), High roller (monopoly), Low roller (competition), and High roller (competition). These scenarios represent the best case and worst case scenarios and help us examine the results under different variables.
For the purpose of this memo all results are illustrated below and are expressed in the year 2018 because the statements in this year, being the last year for our purposes, will provide the most comprehensive results for the purpose of our analysis. According to the Decision Support model (summary included below) designed for this case only one scenario yields positive results in 2018; that scenario being the High roller (monopoly) scenario and all others yield negative results.
The net income is negative in most scenarios, with the exception being the High roller (monopoly) scenario, implying that the project will be operating under a loss even after 10 years. This leads me to the negative cash on hand requiring the project to borrow money in order to sustain the minimum required balance of $5 million. We can see that this happens to be true in our analysis, we only have the minimum required cash on hand in all scenarios, suggesting that the project did not have enough cash and needed to borrow in order to continue its operations.
This is even true in the High roller (monopoly) scenario, even though we have positive net income it is still not sufficient to meet our minimum ‘Cash on Hand’ requirements; hence we have to borrow money to meet the set requirement. We can also see that in most scenarios we have a negative ROI, implying that the state will go further in debt on the project if it was to continue till 2018, the only exception being the High roller (monopoly) scenario. Although the ROI in the High roller (monopoly) scenario is positive it is still not significant.
The reason for that can be further explained by examining the Debt Owed. The financing required for the project will be of $60 million; but we can see in my calculations that the Debt Owed will increase in most scenarios rather than decrease, which is the opposite of what we expect. The debt decreases only in the High roller (monopoly) but the decrease is not significant because over 10 years we would only have regained approximately $34 million out of the $60 million originally financed.
In other words we would not turn a profit in the next 10 years on our investment; in fact we will still be in debt. Summary of Scenarios Scenario2018 Net Income2018 Cash on Hand2018 Debt Owed Average Return on Investment (ROI) Low roller, Monopoly-$2,052,859. 00$5,000,000. 00$84,645,904. 00-0. 0822 High roller, Monopoly$5,339,578. 00$5,000,000. 00$25,847,938. 000. 1138 Low roller, Competition-$16,402,941. 00$5,000,000. 00$193,135,159. 00-0. 438 High roller, Competition-$11,783,196. 00$5,000,000. 00$158,544,652. 00-0. 3285 Recommendations In my opinion my prospects for the sports betting idea are not excellent. I say so because in three out of the four the scenarios tested it is not very likely for the investment to generate a profit, and even if the High roller (monopoly) scenario does yield positive revenue it might take longer than the preferred 10 years to gain a profit on our investment.
Whether or not we should take a chance on the sports betting idea is another question to be addressed. In my view we should not take a chance on this idea because according to my analysis it is not likely for us to have a positive return on our investment. Even though the addition of sports betting to our ‘racinos’ will help us differentiate ourselves from the expected competition, all variables have to work out perfectly in our favor in order to generate a profit.
This approach seems to be a bit farfetched, especially if Northwest and Eastern decide to adopt casino style gambling in their state. If they do in fact adopt the casino style gambling then we might see a decline in our gambling revenue but on the other hand if we adopt the sports betting proposal we risk going further into debt and may still lose some gambling revenue. In the end it is better for us to stay out of sports betting and in turn stay out of debt.