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Revenue-sharing agreements in the live entertainment industry: a practical risk analysis framework

Author

Listed:
  • Ventura Charlin

    (Pontificia Universidad Católica de Chile
    V.C. Consultants)

  • Arturo Cifuentes

    (Pontificia Universidad Católica de Chile)

Abstract

Revenue-sharing agreements are very common in the live entertainment industry. Such agreements typically include a minimum revenue guarantee for the benefit of the entertainer, combined with a formula to split the revenue, in case the revenue exceeds the minimum guarantee. In essence, these are derivative contracts between the event organizer (O) and the entertainer (E). This study introduces several closed-form expressions to evaluate the risks associated with these contracts for both parties (O and E). These expressions enable the estimation of revenue for each party based on the type of agreement and the valuation of the embedded option. Notably, the expressions do not require an assumption of symmetrical information—O and E can have access to different sets of information. Additionally, the expressions are valid regardless of the risk profiles of O and E, which could be different. Finally, the usefulness of the approach is demonstrated with an example that includes a scenario analysis, that is, exploring how variations in the two key parameters defining the revenue agreement affect the revenues of both O and E.

Suggested Citation

  • Ventura Charlin & Arturo Cifuentes, 2024. "Revenue-sharing agreements in the live entertainment industry: a practical risk analysis framework," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 23(5), pages 384-395, October.
    • Handle: RePEc:pal:jorapm:v:23:y:2024:i:5:d:10.1057_s41272-024-00501-w
    DOI: 10.1057/s41272-024-00501-w
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    References listed on IDEAS

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    1. Mihai Banciu & Andreas Hinterhuber & Fredrik Ødegaard, 2023. "Revenue management in sports, live entertainment and arts," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 22(3), pages 185-187, June.
    2. repec:bla:jindec:v:49:y:2001:i:3:p:223-45 is not listed on IDEAS
    3. James D. Dana, Jr. & Kathryn E. Spier, 2001. "Revenue Sharing and Vertical Control in the Video Rental Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 223-245, September.
    4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    5. Alireza Bakhshi & Jafar Heydari, 2023. "An optimal put option contract for a reverse supply chain: case of remanufacturing capacity uncertainty," Annals of Operations Research, Springer, vol. 324(1), pages 37-60, May.
    6. Gérard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
    7. Jin, Hongyu & Liu, Shijing & Sun, Jide & Liu, Chunlu, 2021. "Determining concession periods and minimum revenue guarantees in public-private-partnership agreements," European Journal of Operational Research, Elsevier, vol. 291(2), pages 512-524.
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    Cited by:

    1. Ian Yeoman, 2024. "Using revenue management and pricing beyond the airline and hotel industries: an ever increasing pathway of success," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 23(5), pages 381-383, October.

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