Predictive Modeling

and finance Allah shmoop How do you forecast earnings All

right we'LL ask an old Wall Street warhorse and you'LL

get the joke about first putting on blindfolds spinning around

three times and sniffing for a donkey's butt Yeah but

the process really isn't that opaque You own a football

stadium a small one seat seven thousand people and caters

to a large pacifist organisation that loves the game but

wants to see tackles replaced by light feathery taps You

have football if you can still call it that in

the fallen winter Baseball in the summer a few concerts

weddings and bar mitzvahs Owen A rodeo or two You

only sell seeds for anything about one hundred days a

year like you don't sell many Tuesday nights in the

winter And City Ordinance doesn't allow you to sell tickets

in the summer when the weather forecast is supposed to

be over one hundred degrees because your power grid usage

would then blow out the city's electricity Your average seat

ticket net to you is thirty bucks net because you

pay five dollars commission to StubHub Ticketmaster and while other

vendors to market your local wears so they retail for

thirty five each but you keep thirty and on average

when you do sell a night you sell five thousand

tickets The stadium is rarely sold out so it plunks

along with a total of one hundred nine times five

thousand seats on average sold which is a total of

El half A million seats Seat units sold per year

at an average ticket price of thirty bucks to you

Well revenues last year were about fifteen million dollars In

addition you sell recycled but boiled horse hooves which you

call hot dogs along with Coke Fear popcorn and Candy

Floss which is actually floss you can use to get

those horse hooves out of your teeth They really stick

in there at another two million bucks in revenue for

all that stuff And that's what you had in revenues

last year Well what about costs Well when you had

your light hitting baseball in football teams you had to

pay licensing fees for them Tio you know show up

of three million dollars a year for the other events

like concerts and weddings and bar mitzvahs He only had

incremental cleanup costs for beer spillage and vomit of about

two million dollars And your quote food unquote costs were

another million You had insurance electricity legal and well other

bills totaling another million box You had total expenses then

of seven million dollars and made pretax ten million dollars

So you had total expenses of seven million box He

had seventeen million of revenue with seventeen money Seven Its

pretax ten million dollars on the set of calculations is

a kind of forensic starting place in forecasting future earnings

And you start with a spreadsheet This thing like Well

what happens to pre tax profits if you can average

thirty four dollars a ticket instead of thirty a ticket

Well there you go What if you average fifty eight

hundred seats sold instead of five thousand OK well we're

trying to forecast earnings here So is that what you

think you'LL actually earn Or just what you hope you'LL

earn Well forecasting earnings is all about being real not

hopeful Meaning you try to be porridge Not too hot

not too cold but actually accurate So if you're suddenly

going to grow from five thousand to fifty eight hundred

seats on average sold over one hundred ninety year than

What changed Did Amazon build a new warehouse in the

neighbourhood Do you expect many tall women to be attending

ballparks now Is Oprah showing up to every event and

giving out free human days What happened Maybe there's a

new popular glow in the dark cotton candy that actually

makes you glow in the dark It doesn't glow but

it makes you glow You make another mil for selling

it or you think you will Maybe Well how do

you forecast What data do you put in What assumptions

did you make Well in this sense the qualitative factors

that make up your predictions are everything in that the

numbers well that you just randomly type in could be

almost anything But if they're not accurate numbers or reflective

of well the nation's new love affair with pickled horses

or whatever is driving you to new heights and profitability

well than it best there just hopes Nay pipe dreams 00:04:02.493 --> [endTime] Yeah don't do that