Hitachi Baseball is a major league baseball team beginning its fifth year of operation. The team had losing records in e

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Hitachi Baseball is a major league baseball team beginning its
fifth year of operation. The team had losing records in each of its
first 4 years and finished near the bottom of its division.
However, the team was young and generally competitive. The team’s
general manager, Wales Takashi, believes that with a few additional
good players, the team can become a contender for the division
title and perhaps even for the pennant. They have prepared several
proposals for free-agent acquisitions to present to the team’s
owner, Hitachi Sports Nagoya. Under one proposal, the team would
sign several good available free agent players, including two
pitchers, a good fielding shortstop, and two power-hitting
outfielders for $42 million in bonuses and annual salary. The
second proposal is less ambitious, costing $25 million to sign a
relief pitcher, a solid, good-hitting infielder, and one
power-hitting out-fielder. The final proposal would be to maintain
the current team and continue to develop. The general manager,
Wales Takashi, wants to lay out a possible season scenario for the
owner so he can assess the long-run ramifications of each decision
strategy. Because the only thing the owner understands is money.
Wales Takashi wants this analysis to be quantitative, indicating
the money to be made or lost from each strategy. To help develop
this analysis, he has hired two new staff, Jenna and Philips, to
undertake the task. Jenna and Philips analysed the league data for
the previous eight seasons for attendance trends, logo sales (i.e.
clothing, souvenirs, hats, etc.), player sales and trades, and
revenues. In addition,they interviewed several other owners,
general managers, and league officials. They also analysed the free
agent players that the team was considering signing. Based on their
analysis, Jenna and Philips feel that if Hitachi Baseball does not
invest in any free agent players, the team will have a 20% chance
of contending for the division title and an 80% chance of being out
of contention most of the season. If the team is a contender, there
is a 0.70 probability that attendance will increase as the season
progresses and the team will have high attendance levels (between
1.7 million and 2.0 million) with profits of $160 million from
ticket sales, concessions, advertising sales, TV and radio sales,
and logo sales. They estimate a 0.20 probability that the team’s
attendance will be mediocre (between 1.2 million and 1.4 million)
with profits of $105 million and a 0.10 probability that the team
will suffer low attendance (less than 1.0 million) with profit of
$90 million. If the team is not a contender, Jenna and Philips
estimate that there is 0.05 probability of high attendance with
profits of $85 million, a 0.35 probability of medium attendance
with profits of $55 million, and a 0.60 probability of low
attendance with profits of $35 million. If the team marginally
invests in free agent players at a cost of $25 million, there is a
55% chance it will be a contender. If it is a contender, then later
in the season it can either stand pat with its existing roster or
buy or trade for players that could improve the team’s chances of
winning the division. If the team stands pat, there is a 0.70
probability that attendance will be high and profits will be $190
million. There is a 0.20 probability that attendance will be
mediocre with profits of $140 million and a 0.10 probability of low
attendance and profits of $110 million. Alternatively, if the team
decides to buy or trade for players, it will cost $8 million, and
the probability of high attendance with profits of $190 million
will be 0.80. The probability of mediocre attendance with $155
million in profits will be 0.10, and there will be a 0.10
probability of low attendance, with profits of $115 million. If the
team is not in contention, then it will either stand pat or sell
some of its players, earning approximately $10 million in profit.
If the team stands pat, there is a 0.20 probability of high
attendance, with profits of $125 million; a 0.35 probability of
mediocre attendance, with profits of $60 million; and a 0.45
probability of low attendance, with profits of $40 million. If the
team sells players, the fans will likely lose interest at an even
faster rate, and the probability of high attendance with profits of
$100 million will drop to 0.15, the probability of mediocre
attendance with profits of $50 million will be 0.25, and the
probability of low attendance with profits of $35 million will be
0.60. The most ambitious free-agent player strategy will increase
the team’s chances of being a contender to 65%. This strategy will
also excite the fans most during the off-season and boost ticket
sales and advertising and logo sales early in the year. If the team
does contend for the division title, then later in the season it
will have to decide whether to invest in more players. If the team
stands pat, the probability of high attendance with profits of $210
million will be 0.80, the probability of mediocre attendance with
profits of $170 million will be 0.15, and the probability. of low
attendance with profits of $125 million will be 0.05. If the team
buys players at a cost of $10 million, then the probability of
having high attendance with profits of $220 million will increase
to 0.83, the probability of mediocre attendance with profits of
$180 million will be 0.12, and the probability of low attendance
with profits of $130 million will be 0.05. If the team is not in
contention, it will either sell some players’ contracts later in
the season for profits of around $15 million or stand pat. If it
stays with its roster, the probability of high attendance with
profits of $115 million will be 0.15, the probability of mediocre
attendance with profits of $85 million will be 0.25, and the
probability of low attendance with profits of $65 million will be
0.60. If the team sells players late in the season, there will be a
0.10 probability of high attendance with profits of $100 million, a
0.30 probability of mediocre attendance with profits of $65
million, and a 0.60 probability of low attendance with profits of
$50 million.
Tasks: 1) Articulate the problem using a flow diagram or pay-off
table to show the process.
2) Develop a decision tree and show all expected values and
probabilities associated with.
3) Interpret your decision to the team owner and assist Jenna
and Philips in determining the best strategy to follow.