Is Las Vegas' The Sphere the Future of Entertainment or a $2.2B Gamble?
Ever felt the Las Vegas skyline needed even more dazzle? Well, someone clearly did.
The Sphere, a futuristic orb that looks as if it came straight from a sci-fi blockbuster, opened its doors a few weeks ago.
The structure is massive and awe-striking. It houses the world’s largest high-resolution LED screen that wraps around a theater with 18,000 high-tech seats. It has the capacity to use sound, vibration, and even smell to transport audiences into a virtual reality without a headset.
The Sphere’s exterior is equally impressive as 1.2 million programmable LED lights, each the size of a hockey puck, shine bright in 256 million colors.
But great works of architecture often come with a hefty price tag. In five years since the start of construction, The Sphere’s budget reportedly went beyond $2 billion. For comparison, Burj Khalifa, the world’s tallest building, cost around $1.5 billion to construct. Yikes!
So, is The Sphere the entertainment venue of the future or just an extravagant screen? It’s probably too early for a conclusive answer but having a plan to generate a positive return on investment (ROI) is undoubtedly a key consideration for The Sphere’s owners.
But what is this famous ROI that all business people talk about? And how is it relevant to us designers? Let’s dive in.
How to Calculate a Return on Investment
ROI is a really important metric that explains the efficiency of an investment. It's calculated by dividing the net profit of the investment by the initial cost of the investment, then multiplying the result by 100 to get a percentage. A positive ROI indicates a profitable investment, while a negative ROI suggests a loss.
Sounds complicated? Well, let's have a look at an example.
Let’s say that a design firm invests $10,000 in new design software to streamline its processes. Over a year, the firm sees an increase in productivity and that leads to more capacity. So, the firm takes on additional projects, earning an additional revenue of $20,000. The ROI would be calculated as follows:
First, we subtract the initial cost of the investment from the new revenue generated, which gives us $20,000 - $10,000 = $10,000.
Next, we divide this net profit by the initial cost of the investment: $10,000 / $10,000 = 1.
Finally, we multiply by 100 to get the ROI as a percentage: 1 x 100 = 100%.
So, the ROI in this case would be 100%. This means that the investment in the design software doubled the firm's money over the year.
This simple example shows the direct impact of a strategic investment on profitability, a concept that holds true whether we’re talking about design tools or grand architectural projects like The Sphere.
And that’s why business people are obsessed with this metric. By conducting an ROI analysis before the investment is made, they can see if an investment makes sense and compare it with other potential investments to find the most promising one.
What’s The Sphere Game Plan for Positive ROI?
The Sphere owners plan to recover their investment in three main ways. First of all, by licensing the venue's 23 private suites in multi-year agreements. Secondly, by advertising and selling tickets to shows. For example, the legendary rock band U2 already kicked off their 25-show residency, with tickets ranging from $500 to nearly $1,500.
The third way The Sphere will attempt to get to positive might be coming from the outside of the dome. According to an agency pitch deck, a one-day advertising campaign, displayed on the exterior screen, will cost $450,000. A one-week campaign could cost $650,000. Recent promotions include shows like Dancing with the Stars and NBA’s Summer League, while Microsoft lit up the dome with its new Xbox marketing campaign.
Immediate monumental success seems unlikely but some believe investors could recover their investment (or reach a breakeven point) in as little as three to five years, which is really fast for this scale and type of project.
While The Sphere investors definitely created a complicated financial model in a fancy spreadsheet, it’s not just about numbers. It’s about having an idea of how we will recoup the investment.
Why it Helps to Design with ROI in Mind
Understanding and applying ROI is not only critical when making investment decisions. It’s also an essential tool that can help us highlight the impact and value of our work in the business context. So, how can we use it in a design process? Here are two ideas:
Validating Design Decisions: ROI isn't just a financial metric, it's a narrative. When we can show that our design choices lead to positive financial outcomes, it validates our decisions. For instance, investing in user experience can reduce the number of user errors, increase user engagement, or grow sales. By connecting the dots between design and tangible returns, we make it easier for non-designers to see the value of design and get the buy-in. This means that you don’t necessarily have to calculate ROI for every scenario; simply highlighting the potential benefits could often have a similar effect.
Elevating Design's Impact on Business: When we, designers, grasp and communicate in terms of ROI, it shifts the perception of design from just "making things look pretty" to being a critical component of business success. By speaking the language of business, we can actively participate in strategic discussions and align the design goals with broader business objectives.
Inspired to fuse ROI knowledge with your design powers?