I think hi la la nice to meet you I'm sayin nice to meet you well welcome to som consulting thank you very much verbally says ahead ago today and we're just gonna dive right in that's on the great wonderful so your client is Playworks an American manufacturer of game and sports services they produce and sell a variety of services including hardwood vinyl and rubber their primary customer of schools of park systems although they've never producers sold it themselves Playworks has observed the popularity of astroturf as a sports surface it is considering beginning to offer astroturf as part of their product mix so it's up to us to decide whether or not to enter the astroturf market ok so it sounds like we're representing Playworks who makes a number of game and support services for some like this is a schools and parks yes schools apart got it and so this would be like kind of like the rubber surfaces that might be in the park for kids or something or alright maybe even a basketball court or something like that all right great makes a ton of sense and that astroturf seems like it fits pretty nicely with that category or industry yes I guess maybe just a couple points of clarification so that I can best best advise them on how how'd it go about deciding so one question would be do they operate only I think you said American company but do they operate only in the u.s. at this point or yes so it's only in the u.s. they're only interested in the u.s. oh great alright so that fifth lien helps make things a little bit clearer right so we're looking at us and just thinking about their goals here so you said there they're looking to potentially enter the astroturf market seems like that you know fits pretty nicely with their their portfolio already are they looking at in terms of just like their objective are they looking at just kind of simply profitability or looking at kind of a larger maybe in just like market sure thanks a profitability you're saying alright great so I think the question seems pretty clear if you don't mind I'd love to just take a couple seconds to sketch out some thoughts on how it actually go about attacking this yeah Thanks great so I can jump into this yeah that seems like a great interesting question for Playworks big basketball player myself so wouldn't know a little bit about I guess the industry so just just kind of base on my initial instinct and they came to us with the question of should play works ultimately look into entering the astroturf market my initial instinct is that seems like a good idea and the reason I'm saying that is because seems like it fits very nicely with their current product portfolio of a number of games and sports services it's exactly what astroturf is and just kind of anecdotally I know that things like soccer professional soccer and they're on the rise and so there's gonna be increasing demand would be my instinct for it for those product so that's that's my natural instinct but I built a framework here that's going to help us prove or disprove that thesis so the categories of things that I wanted to consider we're first and foremost the astroturf market I'm not sure you know how profitable that is so I want to dive into that we want to look at play works itself and see if this actually is a nice fit for the unique dynamics of the firm I think we also need to think about just the the ability to finance this you know is there money and then finally how do we actually want to go about it so to dive into those quickly for the astroturf market I definitely want to know a lot about margins so I'd want to look a little bit into we know what are the fixed and variable costs associated with entering a new market like um like astroturf and ultimately is this something that's profitable or is it something that a lot of these firms are offering as a way to just build relationships with customers and they can cross sell other products that might be more profitable so if it's that then obviously this would not be such a great great industry to look into growth of the overall market like I said my instinct is that it's growing just based on the popularity of sports and and healthy lifestyles but we wonder a little bit about the growth of astroturf what's the overall size you know even if there are great margins there's a lot of growth if it's a pretty small market and Playworks is a big firm may not actually be worth the investment what's the competitive landscape look like you know how many firms are there is it a concentrated industry or is it more fragmented so those would want to think about that in terms of whether or not we can actually get traction by entering looking at Playworks ourself or the client rather we don't to look at their product mix it seems like does it get a dovetail pretty nicely so I'm not super concerned about that capabilities you know if we have a lot of rubber services or hardwoods what's it going to take for us tax should be able to enter something like astroturf which seems like it might actually require some different manufacturing capabilities how does this work with our brand again it seems like after turf would fit nicely in but I would want to look at brand identity and in customers if if we're moving into the astroturf market does that mean we need to build out an entirely new customer base which you know building a sales team around that could be costly or is it going to you know work really well with our current sales position so we want to look in a little bit into our customer base and then on the the financing side just what is you know what is the cost of this and then what capital do we have available or what capital display works out of available would it have to be debt financed is there cash on hand is it equity finance and then I'd want to actually go into on the kind of economics of it a break-even analysis of how long is it going to take a space on our projections and answering a lot of the above questions I mentioned actually breakeven on this on this investment and then finally part of that math is comes to this how how do we want to go about this obviously there are players out there that are in this space so we could go about an M&A transaction to actually bring it in-house we could consider going organically if we feel like we have the capabilities to do that we could also look into some kind of a joint venture so overall those are the big questions that I think we'd want to answer I guess I have an instinct for where I might go first but if you have any thoughts on that analysis would be a curious and I think what you're interested in is first checking the size which you mentioned there so I'm good unfortunately we don't have that information but fortunately you let them know how you would go about market sizing that's what sure market in the US all right so you're looking at just coming to make an estimate for the size of the astroturf market oh great all right yes I guess in that case do you mind if I take a couple seconds to just think through how I might structure going about that yeah great so I have a structure here we want to walk you through a little bit of just how I would actually attack this so the way I'm thinking about this is you know we're looking at the US market and I guess I would have thought back to the context in which I've seen astroturf and so one of those is schools I think you mentioned schools is already a client of play works and I think you know not really thinking that there are many yet like middle and lower schools or elementary schools but I know high school is definitely some use astroturf colleges certainly have astroturf so it basically is a sports get more competitive and people get older I think you're gonna see kind of a higher level of adoption for astroturf so I have a one category as high schools one is colleges one is pro sports where you know certainly pro football fields have it and then I think there are other potentially a small contingent of parks or maybe other uses that is quite small so the way that I was thinking about going about this is that for each of those categories you want to figure out basically how much is sold and then just add that up across the four categories so I want to do a quick basically estimation of you know how many actual total units are in just terms of high schools colleges etc across the u.s. what is the adoption rate so of the number of high schools how many actually would have an astroturf field this the average size of that field we want to multiply that by because my instinct is that they likely priced this by something like maybe square foot yeah and then we don't think about the replacement rate so I can kind of just walk through that pretty quickly there's quite a bit of calculation to do so if you don't mind I'll use some somewhat rough estimates that I'll hopefully back up with with as much justification as possible so you know for the high schools in the u.s. I guess my instinct is that we'd be looking at is actually a middle school teacher so another and as you get older grades there are fewer of the schools so you know let's say on average that there are be 500 high schools per state to be looking at 500 high schools per state eight times fifty states across the country so we're looking at two five sets 25,000 colleges I think there's gonna be a lot fewer I would say maybe like a hundred colleges on average I know there are a lot of kind of smaller colleges out there so we'll say a 100 colleges per state times 50 states is gonna be 5,000 colleges across the u.s. pro sports teams they're gonna be fewer still I think you know say on average when you include kind of soccer basketball hockey and all those things you'd be looking at maybe five per state so we'll say five times 50 so you're looking at 250 sports teams and then thinking about kind of other facilities that might like parks and things that might qualify I think as a I think we're gonna have low adoption of and I'll put this into the adoption rate of of astroturf but let's say there are you know maybe about a hundred kind of similar to colleges that that might actually use it so 100 times again 50 states we're looking at 5,000 kind of other facilities and I'm kind of thinking public parks are probably the best best example of that all right so we have the number in each of those categories then we want to think about the adoption rate for those high schools I think most these high schools army public high schools where they might not be able to afford astroturf my sense is that up keeping things like that are pretty expensive so I'm gonna say adoption rate for those schools is actually I can't you know even in playing soccer and things I can't remember I don't think I actually even played once on an astroturf field but I do know they exist I did have some friends had to played lacrosse on astroturf in high school so I'm gonna say about 1% adoption for high school so pretty small and high schools which is gonna give us 250 high schools across the u.s. that are using it for colleges I think it's gonna actually be pretty high would have would actually have a field so I would say probably like I'd say about 80% so let's say 80% of colleges have some kind of a specter field which is going to give us 4,000 units then on pro sports I would say these are the number of teams and so I would say but probably about half of them have an astroturf piece I think I think yeah I'd say about 50% nabis like a hockey team would not but I think football teams for example sometimes have two fields yeah so I think about 50% would be a good estimate for that so you're looking at about 125 and then for these parks I would actually use prob about 10% of like 10% of those like I said it won't gets a very high adoption rate which gives us 500 okay so this is the size of the kind of the number of consumers across those markets and then we'd want to actually figure out the size of consumers the size of the fields so what a new kind of Bishop quick I really think that so for the high school in college I think those are going to be pretty similar and I actually think we could probably use a similar metric for parks as well the pro sports fields tend to be a lot a lot bigger I think so I think we want to use the same size for the first the for those three categories so just to do some kind of rough math I'm gonna do it over here to stay organized we'd be looking at an overall let me think so football I think we can kind of use a football field as an estimate you know there are about a hundred yards in length and I think like roughly 50 yards wide but I know there's some space on either end so I think we could say really about 200 in total length when you include end zones and and space on the other side by a hundred so we're looking at two or about twenty thousand square feet and it's where it's not a lot of space so to be honest I can imagine that actually being about a dollar a square foot when it comes down to it so we're looking at you know average size of 20,000 square feet for college and let's say $1 I think pro sports may want higher end stuff so it actually may be estimate their price at about double that so it's a $2 per square foot for them and I'm actually gonna say their fields are twice as big also okay well I'm gonna adjust that I say 50% larger like I said B's they have media crews and things I need to be on those so we'll say 30,000 square feet overall for those and then okay said 20k here so we're looking at about let's see here no I'm looking at 20,000 times $1 is gonna be $20,000 per field times high schools is gonna be give me one second on this math yeah so this is $20,000 and then we're gonna multiply that by 250 so we're gonna have so we have 5 million as the high school market and I we will have to calculate in a replacement rate for this and in college is going to be pretty big clearly so we're gonna go 2 times 4 is going to be 8 and then so then we have 80 million for the overall size of the college market and then for pro sports we have 30,000 per times a hundred no see me it actually me sixty thousand per field because we're multiplying by $2 per square foot and then I'm going to multiply that by 125 I know that six times 100 is six hundred six times 25 is gonna be 150 so we have 750 so that's gonna be 7.5 million and then finally for our parks again we're at 20,000 per unit times 5 so 2 times 5 is gonna be 10 10 million for parks great so this is the overall amount that they were if they were all by in one year we add those up but I'm thinkin it doesn't have to be replace that often I'm gonna guess about a 10% replacement rate so I'm gonna quickly do that math or at 0.5 million in each year in the high school market we're at 40 million each year in the college market we're at three point seven five million in the pro sports market and we're at five million in other so I'm just gonna add those up to give you this yeah he's a ten percent correct oh shoot me I did I didn't end up doing half here right so this is gonna be good catch so that's gonna be a bit smaller to about 8 million there 0.75 million there and then 1 million there so we're actually yet that's going to be 9 this is gonna be 10 point 2 5 million there's the overall annual market size for brass or turf so I think this structure was a good structure to use for coming to a best-guess my instinct I'm ten point two five million is that that seems pretty low just given what I know about the ubiquity of astroturf yeah so I think they're they're probably a couple things that I might change maybe replacement rates a little bit more often or they're actually a lot more high schools adopting it that 1% maybe a little bit low but right now I'm looking at about ten point two five million there if you had to pick one assumption that you mean you think maybe you'd want to double-check what you know what you pick I think I'd want to look at as I just referenced me the adoption rate for the different you seem like these categories we're close to exhaustive but I think the adoption rate especially on my high school is that probably the biggest metric is that's I think there there could be both a lot of high smore high schools than I estimated as well as their adoption rate even if because of there are so many of them even if you up that by say from like one to four percent yeah that'd be a huge difference yeah in the market yeah yes so I think you're right so so we have actually said the calculations so after seeing this play works let's decide to move forward with entering the astroturf industry so our research has shown that the mark is actually 63 million dollars annually okay and so we have some more additional details to show you so give you this look at it and let me know what you see after you take a moment true so it looks here see it looks like you're looking at the overall market for astroturf in the US and yeah this is any a little bit this positive can think as it's in line with how I segmented it so we have like the high schools and colleges and professional that seems like really the the overall to make up pretty much the entirety of the market and we have the overall revenue so kind of how those contribute to that sixty three million annually and it looks like we have the materials costs which seem to vary a little bit by segment so I'm seeing different margins here so that implies to me that I think as I surmised maybe the quality of the materials our views might be different for college professional in high school the pricing is actually a little bit different and then we have the growth over the last few years so I think you know given given what I'm looking at it seems like we could maybe make some estimates s because it sounds like yes they've decided to enter so this actually for me you know makes me think this is going to be helpful information to actually think about where we might enter so the the just to give you a little bit of context I guess on how I would approach that so we decided yes we want to enter and so then I think it's a question of you know where do we enter so I think some of the considerations I would be thinking about is you know where are we gonna have the highest margin so profitability we'd want to look at this overall size and we think we have a little bit information here on the size of potential market and then I think we'd also want to look at the growth not only the you know the overall relative size but also you know what's what's going to be growing and then I think finally considering you know ease of adoption so if we do have sales channels in with these particular this particular segment that would be a lot easier for us to be able to actually enter so ease of sales so I'm gonna be looking I guess do you think it makes sense for me to go ahead and move like identify which maybe one or two of these markets that might be a good place to start yes I think you listed a lot of great things went on a note based off of these components which I think are the key issues to think about yeah what can you what do you have here that can help you answer some of that yeah I think I think we should be able to get pretty close so we see some different growth rates looks like you know for example professional soccer seems you know that's not would be not something that we would have easy access to because it seems like we work more with like schools and and park systems if you have good growth or they're pretty small so I'm probably not there so I'm looking up here where we have some of the bigger segments that seems to me maybe like a good place to start it looks like actually for both the high school categories however they have quite small margins something like well less than 10% actually in both soccer and football and also have a slightly lower growth rates looking down at college football which is actually the second largest market it looks like we actually have a pretty strong margin looking at actual about 20% and it's also the second highest growth rate so college football to me kind of seems like it would be one of the stronger ones so I'm just want to kind of compare it for so for growth that was one of my criteria it's the second highest so that seems good it's also the second highest in terms of overall revenue for the full category so that seems strong I also said it actually looks like it may be the highest and profitability based on just some rough estimation nations looks like it's close to the highest and profitability and then ease of sales you did say schools it's a little bit unclear I guess do you have a sense of is the school's kind of in for Playworks current sales does that encompass colleges as well great yeah so you know my instinct just based on what I'm seeing here and then also that ease of ease of being able to actually kind of integrate this into our sales sales channels MIT college football would actually be the best place to focus our energy for play work at least in terms of the initial introduction to the field great yeah so that is where they have decided to go for those exact reasons so in order to do the required research and development to bring a switcher to market today works we'll need to invest 2.2 million dollars up front okay and so we know if the variable cost per square foot for astroturf is $1 in ten cents we want to know how many fields what they need to sell in order to break even so $1 10 cents in variable costs ok so the nice thing here is that we actually think yeah you gave us can I use this purpose of the price that they charge great so we have for college football the price per square foot so price per square foot is going to be 150 which is great that gives us our contribution margin so if we take our price 150 less a dollar 10 that's going to give us so they have a profit of forty cents per per square foot and then and so you said we're looking for just the number of fields they need to sell to break even yeah alright so the number of fields to break even we have the amount they make on each square foot and we have the fixed cost that they have to overcome the 2.2 million and do you have a sense of how big so I have some estimations about how big the fields are see of us is there any kind of data on how of the average size for a college football field my favor there so it's a hundred yards by 140 yards alright so a hundred yards nice and wide by it so we have 100 by 140 and you said yards right all right all right so that's important math um alright so we're going to take so 100 yards is going to be actually 300 feet yeah so I actually think I made a small mistake earlier and I think I was using feet rather than yards as my benchmark so that actually could have been one of the other levers because football fields are actually 100 yards rather than 100 feet so this much smaller size of a field actually might have been one of the other three things that the the market size is a bit bit smaller so we have 300 feet this way and then it's gonna be 300 feet plus 120 peaks of 420 so the the size of the field is 420 by 300 feet so then I'd want to multiply that those two numbers so I'm gonna do 42 times 3 is gonna be 126 I believe get 126 so 126 thousand square feet square feet and on each of those square feet it is a pretty big you know that the volume of actual square footage is pretty big which I think actually makes sense now that we have this pretty small margin of 40 cents per per per square foot but you know when you're selling that kind of volume you can actually make make a good profit so we want to do 40 cents on the dollar so 40 40 cents on 100,000 would be 40 thousand and then 40 cents on 26,000 is going to be 40 cents on 10 is 4 8 plus 8 and then 40 cents on the 6 is going to be 2 2400 so we're looking here $48,000 $50,000 50,000 for hundred dollars per for field would be the profit and so that's their profit per field and we're shooting now for the number of fields they need to break even is that's correct great is it you feel comfortable I kind of estimate this round this down to just 50,000 is the the the number 8 profit per field okay so I'm gonna move that to 50,000 per field which is a pretty easy number to work with which means every every 20 fields they sell they have a million dollars in profit so 20 fields equals 1 million in profit and we're going for 2 2.2 million so 40 fields to 20 more fields would be 2 million and then to get the 200,000 we would need 4 more fields so we're looking at 44 fields would be the break-even point given the one more time yep so we're making 50,000 per field yes fifty thousand times twenty fields would give us 1 million dollars correct yep and then so that would be the first million another twenty fields would be the second million so that's two million in profit and then the two the 2.2 million that's the 2.2 million represents two hundred thousand two hundred thousand divided by fifty thousand would give us another four fields okay so I'm looking at 40 I guess forty four fields would be the break-even point and then I think the natural question then is you know what's a reasonable they've already decided it sounds like to enter the market but you know what's the reasonable aspiration in terms of how quickly they'd be able to do that and understand that I'd wanna understand a bit about the industry dynamics you know is there one entrenched player is it a more is there is more fragmented market where we might be able to actually enter and take up market share more quickly so those would be definitely interesting questions to answer to real to kind of look into how quickly this actually is feasible yeah well great yeah that's a good question I think so we're at a place where so it works as a three year for even titling and so we want to know given that break-even timelines if it's a like a reasonable goal I think this stage was just love for you to put that in consideration come up with a recommendation for our client okay great now do you mind if I take a couple of seconds to just sketch that out okay sure okay so my recommendation is that yes as we've talked about they should go ahead and enter the astroturf market which is just as I initially epatha sized within that market my recommendation is that they actually focus their initial entry into the college football market as we talked about before the reason we should enter in the first place is that overall the market is sixty three million dollars per year I'm curious about the growth rate on that hopefully it's continuing to grow and the reason we're focusing on the college football market in particular is that because we already have existing sales channels with colleges it is one of the more profitable from a margin perspective markets within the astroturf business and it's also positioned to grow at four percent it's been growing four percent per year and also represents one of the bigger slices of the overall a certificate herb market with respect to your question about the break-even timeline of three years we're really looking at about a little less than fifteen given the the break-even point of 2.2 million were looking at about fifteen fields per year I think that my instance feel manageable and so I think they're gonna be in a position to be able to actually overcome that I think it some risks here or we don't know at this point a whole lot about the actual landscape I think it could be that there are just a couple very big entrenched players they're gonna make it very difficult for us to actually get in and make inroads as quickly as we want particularly and like something like the college market which may be pretty locked up by some big contracts maybe through the NCAA or something in terms of next steps I think we want to look at one kind of internally what are our capabilities for being able to actually develop this and if we don't have those capabilities what's the best alternative entry point maybe M&A or a joint venture as well as you really want to be able to kind of get our hands dirty in terms of understanding the landscape and what the best way to actually access those those colleges to to actually get you know start putting our product on the fields great it gives much cachet Thanks
