Penn & Teller

The Penn & Teller case is a medium-difficulty profit-and-loss case modeled after BCG first-round interviews. The client is Caesars, one of the world's largest gaming and resort companies. Since 2001, the magic duo Penn & Teller has headlined at the Rio Hotel, becoming the longest-running headlining act in Las Vegas history. However, Caesars is concerned that the act has become "stale," as profitability has plateaued over the last five years. With the duo’s annual contract set to expire, the consultant must determine whether Caesars should re-sign the act for another year or replace them with a fresh alternative, such as a recent winner from America’s Got Talent (AGT)

The Venue: The Penn & Teller Theater at the Rio Hotel features 1,500 seats. Performance Schedule: The duo performs 6 shows per week for 40 weeks per year (totaling 240 shows annually). Market Context: Las Vegas is a highly competitive landscape. Caesars' primary competitor is MGM Resorts, which operates approximately 33% of the Strip. Client Priorities: Caesars is focused exclusively on the total bottom-line profitability of the company, not just the isolated success of the show. Contract Standards: Vegas contracts are typically issued for one-year periods

The central challenge is to provide a data-driven recommendation to Caesars on whether to maintain their relationship with Penn & Teller or pivot to a new headliner. The consultant must: 1. Quantify Current Profitability: Calculate the annual revenue and costs associated with the Penn & Teller show. 2. Evaluate Alternatives: Compare the existing profit margins against a potential new show (AGT winner), accounting for switching costs and payback periods. 3. Strategic Brainstorming: Identify creative ways to increase profitability for whichever act is chosen, considering both internal show revenues and "halo" effects like casino gaming and hotel stays.

Step 1: Baseline Profit Analysis Calculate the "as-is" profitability of Penn & Teller by aggregating ticket revenue across all three tiers and subtracting annualized fixed and variable costs. Step 2: Comparative Financial Modeling - Model the AGT winner’s profitability. - Calculate the payback period for the $2.4M upfront investment. - Decision Pivot: Determine if a 4-year payback is too long given the 1-year contract standard. Step 3: Strategic Profit Improvement - Revenue Growth: Brainstorm bundling tickets with dinner, overnight stays, or casino credits. - Cost Management: Evaluate union vs. non-union labor for crew and revisit marketing spend. - Product Retooling: Consider shortening the show to increase the time patrons spend in the high-margin casino environment. Step 4: Final Recommendation - Option A (Re-sign P&T): Prioritize the $18M stable profit and avoid the 4-year payback risk in a competitive market. - Option B (Sign AGT): Prioritize "freshness" and the $600K higher annual profit margin if the brand expects long-term appeal.