Opportunity cost for ads

Question

Hello all,

Today I came across a concept of opportunity cost for the first time. Could you please help understand it? The prompt of the case is:

"Our client is a major US television network that is trying to figure out how much to bid for the 2024 Summer Olympics and has brought you into to help us figure out the right bid. The Summer Olympics are a huge deal and will require a significant amount of capital to secure the rights. Before our network bids on the Summer Olympics, we want to make sure that we’ve considered all the right things."

You also can find out that:

Summer Olympics schedule (16 days)

Day 1 Friday is opening ceremony w/ 3 hours of
programming from 8 11pm

Day 2-15: Games 10 hours / day
•Weekday (9 12, 2 5, 7 11)
•Weekend (11am 9pm)
Day 16: Closing ceremony w/ 3 hours of programming

Revenues
• No subscription revenue, but can keep 100% of advertising
revenue
• Ad rates are $400K / 30 second ad for primetime (M F 7 11Pm, all
weekend) and $200K / ad for non primetime

Costs
•$428M of total costs
•Opportunity costs for ads: $1M / hour
•Time value of money: 6 year lag for receipt of revenue

My questions for you are: 1) How do you calculate opportunity costs usually? 2) What are opportunity costs for ads and how should I calculate those here? (I have the answers too, but I don't see how the casebook got to it).

Thank you

Answer 1

Hi! These are typical questions you HAVE to ask the interviewer! You cannot just assume something or, even worse, apply "real world knowledge". What is tested in these interviews is your ability to think through an issue and to identify the critical information and definitions that needs to be nailed down in collaboration with the client (aka the interviewer).

This is why using solutions of case books is usually quite harmful and contributes to the widespread fundamental non-understanding of what cases are actually testing. Cases are no oral exams where you are asked to showcase conceptual or factual knowledge! Cases are a mechanism to showcase rigorous thinking, crystal clear communication, and rock solid quantification (aka written math) skills.

Cheers, Sidi

Answer 2

Congrats on getting these interviews in the first place! We are looking for the same qualities in the written case as... (read entire answer)

Congrats on getting these interviews in the first place! We are looking for the same qualities in the written case as in the verbal one. You should have 1 hour to prepare so the... (read entire answer)

Answer 3

The actual case is different from office to office and they do not focus on any one specific industry only. The cases... (read entire answer)

The actual case is different from office to office and they do not focus on any one specific industry only. The cases also get recycled with new ones coming in frequently and he... (read entire answer)