By Nicholas Haberling
*Note: Following along with the accompanying Excel Spreadsheet will prove invaluable when looking at the impact of different expenses. Also any word or sentence followed by (insert number) means a work cited at the end of the post*
In 2015 a fantastic film called Jurassic World roared into theaters. Seeing the prehistoric zoo and theme park brought flashbacks to my childhood love of dinosaurs. While I watched the film with childlike enthusiasm I also saw it with some of the real world perspective that being an adult can bring. For example, there is a scene where we see kids playing with baby dinosaurs in a petting zoo. My first thought was “Why can’t this be real life?!” followed by, “Wow that kid just bear-hugged a baby Apatosaurus. That dinosaur has a substantial dollar value attached to it.” The scene in question forced me to ask the question, “What are the fictional business realities of Jurassic World?” My hope is to answer that question in a three part series that will attempt to provide a Net Present Value analysis of Jurassic World. In this series I will be playing the part of a consultant hired by the Masrani Corporation to determine whether or not Jurassic World is a profitable venture. In Part 1 I am going to try to arrive at an initial cost for Jurassic World that makes sense at least within the confines of the fictional world the Jurassic Park franchise inhabits.
Construction, Architecture, Equipment, and Exhibit Design
It is 2001 and in our office overlooking the skyline we are preparing for the construction of Jurassic World which is set to begin January 1, 2002. It will be a three year project with the intent to finish in time for a grand opening January 1, 2005(1). Logically we will begin with our cost estimate for the year 2002. A substantial portion of our cost estimate begins with the total concrete and buildings materials number of 1.2 billion dollars given by the source material(2).
The calculations for architectural fees stemmed from this construction cost. While a zoo and theme park fall under Category 5 of construction projects(3), I felt the sheer complexity of Jurassic World warranted an increase to the 15% architectural fee for the total project found in Category 7.
Total Architectural fee = $1,200,000,000 X .15 = 180,000,000
The dinosaurs’ exhibit cost was arbitrarily chosen to be $200,000,000 after reading articles(4) about how expensive it is to build habitats and viewing areas for traditional zoo animals. Without information about the size of the dinosaur enclosures there is no way to derive a serious estimate.
The same process was conducted to find an equipment cost for the project. There was no information available on the number of construction vehicles needed for such an endeavor. After looking at pictures of Disney Land’s Star Wars world among other large projects, counting the vehicles present, looking up equipment rental/purchase prices, I decided to go with $300,000,000 in equipment expenses for the entire project. To find the total of four of the major categories of expenses for this project we simply add them together.
$1,200,000,000 + 360,000,000 + 180,000,000 + 200,000,000 = $1,940,000,000
To break down the expenses for each of the three years of construction you divide 1.94 billion dollars by three to get approximately $645 million in nominal expenses each year under those four categories.
Workers and Dinosaurs
Now that we have the major expenses taken care of we can dive into the details. Before we can send construction crews to build our favorite theme park we must first deal with the dinosaurs that are already on the island. According to reputable sources(5), there are seven species of dinosaurs which the original park had that we also want to feature in Jurassic World. With that in mind it would be cheaper to capture these dinosaurs rather than kill and re-clone them for our new park. So in the month of January we will have one hundred private security contractors on hand to capture the rogue dinosaurs. We will be optimistic and say that by the second day of operations they have caught all the dinosaurs we need and the construction crews can be sent in. These contractors in January will cost $75,000 per day(6). It should be noted that after the first month of construction the number of security contractors on site drops to twenty since the risk of injury by dinosaur has fallen. This drop in the number of contractors impacts employee wages, FICA, and health insurance costs.
On day three the rest of our employees arrive. This includes 1,800 construction workers alongside a handful of zoologists and veterinarians. The 1,800 construction workers number was derived from the maximum amount of workers present during the construction of Gigafactory 1 by Tesla. Admittedly, theme park construction may have provided more accurate numbers however that information was not available. Construction worker daily pay is assumed to be at the higher end of their industry at $145 per day(7). Veterinarians(8) and zoologists(9) were also given larger than average industry salaries. Since it is unlikely employees will be able to pack lunches to work on the island it was determined that Masrani Global would pay to have food brought in. Food costs were determined by taking the cost of three Meal Ready to Eat(10) packages and applying a 25% assumed discount for buying in bulk. FICA expenses were calculated by adding construction worker, security contractor, veterinarian, and zoologist wages and then multiplying them by the 7.65% the employer is responsible for(11). To calculate employee healthcare expenses it was decided employees would demand the average premium family plan(12) considering the dangerous environment they are working in.
To calculate how much it would cost to feed the dinosaurs each day we first split them into two groups: carnivores and herbivores. Large modern carnivorous animals such as tigers eat 3% of their bodyweight each day(13). Through some divination it was determined it would cost $1.76 per pound of carnivorous dinosaur food. That number was derived in this fashion(14):
$6,760 Food cost per year/ 365 days = $18.52 food cost per day / 10.5 LBS = $1.76 per LB
The math going into the cost of feeding a T-Rex goes like this:
18,000LBS X .03 = 540 LBS per day X $1.76 = $950 per day
For the large herbivores I decided to use the daily feeding requirements of an elephant which is 10% of its total bodyweight(16). To arrive at the cost per pound to feed the herbivore dinosaurs I took the cost of a bag of herbivore pellets and divided it by its weight(17).
$26.49 / 50 LBS = $.53 per LB
To illustrate the cost of feeding a herbivore dinosaur we will use the mighty Triceratops as an example.
20,000 LBS X .10 = 2000 LBS per day X $.53 = $1,060 per day
For the Gallimimus I decided to use the Ostrich daily food intake percentage since Gallimimus has characteristics of both the carnivores and herbivores. This meant it ate 2.5% of its daily bodyweight(18). The Gallimimus is using the same cost assumption with herbivore pellets.
500 LBS X .025 = 12.5 LBS per day X $.53 = $6.63 per day
For clarification these are the costs to feed a single individual of each of these dinosaur species. Taking the Triceratops as a demonstration I determined that a herd of eight Triceratopses would be sufficient for Jurassic World. This means to get their daily feeding cost I multiply $1,060 by 8 to get a feeding cost $8,480 per day for the entire herd. For those of you following along in the Excel spreadsheet, this concludes the primary costs for the year 2002. The monthly average of expenditures in 2002 comes at just under $67.2 million with the entire year totaling to $806 million.
2003 will see a rise in expenses due to dinosaur production and R&D. In the original expense sections we will see an increase in employee wage expenses, FICA, and healthcare as we add zoologists to keep up with the increase in dinosaurs. Dinosaur feeding costs will also go up with the introduction of more species and the number of dinosaurs in general. Jurassic World plans to display five dinosaur species that haven’t been developed by InGen (the genetic company tasked with creating new dinosaurs from fossilized DNA). In order to determine the research and development costs for new dinosaur species we have to make some assumptions. In the film Jurassic World, Simon Masrani the CEO of Masrani Global says the reason they won’t kill the escaped dinosaur, Indominus Rex, is because the dinosaur was valued at $26 million. I am going to hypothesize that the $26 million came from genetic research. In a later scene it is also revealed by Dr. Henry Wu, the lead scientist, that all dinosaurs have had their genetic code meddled with because of gaps produced in the DNA by fossilization. The only difference between Indominus and other dinosaurs is that the additions to its code are more pronounced. With that in mind, I can only assume the research costs of a regular dinosaur compared to Indominus are not too far apart. I decided the average dinosaur research and development cost would be $20 million with the more apparent genetic deviations in Indominus giving it a $6 million premium.
However we must still account for dinosaur production costs. To find the cost to produce each individual dinosaur I searched for the cost discrepancy between first and later generation clone farm animals. According to this less than ideal website source(19) it cost 500,000 British pounds to clone the first mammal, Dolly the sheep. According to this 2007 article(20) the cost of cloning a farm animal is $17,000. Upon adjusting Dolly’s research and development costs to U.S. dollars (at current rates), it was determined that cloned animals of later generations cost 2.79% of the first generation. This means that assuming initial research and development of dinosaurs costs $20 million, subsequent generations cost $558,000 per individual dinosaur.
Without any more available information it can only be determined that the initial cost of $558,000 applies to all dinosaurs regardless of their infant or adult size. However future variable costs especially in terms of food consumption will vary considerably. Incubation times for all dinosaurs is two months(21). I decided at the very least it would take as long as the longest incubation time for modern birds which is the 60 days for emperor penguins. Upon hatching I have no idea how long it will take for dinosaurs to grow to their maximum size. Because of that I used the food cost of their adult species as the baseline measurement.
The 2003 monthly average of expenditures was $79.4 million and the total for the year was a little shy of $954 million. The monthly average is slightly misleading because of the R&D costs incurred in January as well as the production costs in both January and February. After April of 2003 we don’t see any expense changes. This consistency in expenditures carries through to the entire year of 2004. 2004 monthly expenses averaged to $68.4 million and totaling to $820 million for the year.
According to my estimates the initial cost of building Jurassic World would be $2,580,468,814 in nominal dollars. Other sources(22) depict a much higher number. The reason for this discrepancy is I considered a lot of the assumptions they made to be sunk costs since Masrani Global already purchased InGen. Employees and assets owned by InGen have been already taken into account in the initial purchase of the company and their use afterwards does not factor into this project. Regardless, Jurassic World is a very expensive project. In Part II I hope to find revenues and operating expenses to determine yearly cash flows. Once that is completed Part III will focus on putting the initial expenses and operating cash flows together to determine a Net Present Value for Jurassic World.
*Note: Even in post-production there are a number of expenses I missed which have been noted. For example, prior to its grand opening there would likely be a massive marketing campaign for Jurassic World which hasn’t been factored in. This among other expenses will be added in order to get a more accurate representation for Part III. *
(1) http://jurassicpark.wikia.com/wiki/Jurassic_World_(park) States that Jurassic World construction began in 2002. Opening was in 2005. No specific star or end dates were given. For the sake of simplicity I used the 1st of January each years.
(2) Construction and building material cost http://jurassicpark.wikia.com/wiki/Jurassic_World_(park)
(4) http://www.marketwatch.com/story/10-things-zoos-wont-tell-you-1306528026434 and http://articles.latimes.com/1990-02-23/local/me-1092_1_scripps-institution
(15) Dinosaur weight: http://islanublar.jurassicworld.com/dinosaurs/tyrannosaurus-rex/