How much is a fortnight of television worth? This management consulting case study asks a US network to put a number on the Winter Olympics, and rewards candidates who can separate the hard cash from the harder-to-measure benefits.
Case Scenario
Our client is a significant US television network that has asked us to help determine the appropriate bid for the 2018 Winter Olympics. The Winter Olympics are big business, and acquiring the rights will cost a lot of money. The network wants to be certain that all the appropriate factors have been taken into account before it submits a bid.
Quantitative Approach
The candidate should identify three costs: production costs, opportunity costs, and the time value of money. By factoring in these costs, they will find out whether the investment is worth it.
Qualitative Approach
The rights might give the network access to new viewers. There is prestige associated with broadcasting the event. The air time can be used to promote other programming, and there are opportunities for product tie-ins and supplemental revenue.
Question 1: Broadcasting Revenue
Determine the Winter Olympics' broadcasting earnings.
Weekdays (Monday to Friday): 10 weekdays × 4 hours/day × 10 min/hr × 2 slots/min × $400K/ad = $320M. Weekends: 4 days × 10 hrs/day at $400,000/ad = $240M.
Revenue note: advertisers spend $428,000,000 on advertising for prime time (Monday to Friday 7-11 PM and all weekend) and $200K/ad for non-prime time.
Question 2: Is It a Wise Investment?
Taking costs into account, find the NPV.
With a six-year lag and a 12% WACC, all future cash flows must be roughly halved. $928M − $428M of total costs − $146M of opportunity cost (2 days × 3 hours × $1M/hr) = $346M in present value.
Recommended Solution
The project has a $177M NPV, but because there are additional intangible benefits (new viewers, promotion of our programmes, and prestige), the bid should not stop at $177M. Although there is no single right answer, most replies should fall between $200M and $300M. If there is a considerable departure from the $200M mark, the candidate will need to give detailed reasoning and make a convincing case.
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