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Fuzzy, Fuzzy Math

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Last week The Boot opined that tavern owners would only take a $6,300 hit if their share of video lottery game revenues drops from roughly 24% to 15%. I suspect that The Boot may have attended the Timothy Geithner/Charles Rangel School of Fuzzy Math and/or he/she got a head start sampling some of the delicious barrel-aged brew for the Little Woody festival.

If the average tavern owner earns $70,000 with the roughly 24% commission rate, their gross revenues are approximately $291,667 (that is, $70,000/0.24). If their commission rate is cut from roughly 24% to 15% (a 9 percentage point drop) and the gross revenues stay the same, their commission would fall to roughly $43,750 (that is, 15% of $291,667). Their revenues fall by approximately 37.5% (that is, 1 - 43,750/70,000) and not by 9%.The revenue decrease is the same at the reduction in the commission percentage of 37.5% (that is, 1 -0.15/0.24). Total revenues fall from $70,000 to $43,750 - a whopping $26,250 drop and not a mere $6,300 drop.

A 37.5% drop in revenues is a huge hit for any business. For example, I am sure the Source would feel strongly compelled to resist a 37.5% decrease in your advertising rates.

Bruce Dechert


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