Do you see that thing over on the left? That is the Lego Star Wars Death Star, and it’s what my son wants for Christmas (among a thousand other things). It’s pretty amazing as far as Lego sets go; capturing several different scenes from the Star Wars movies into one toy. However, it also costs around $380. (It was $400, but they kindly knocked the price down for Christmas). That is pretty ridiculous; even for a Lego set. Plus it is way over the limit my wife and I are prepared to spend for each of our kids.
While picking up my kids from school, I tried to explain to my son that I don’t think he’ll be getting a Lego set that costs the equivalent of a car payment for Christmas. To that, he replied “That’s okay, I’ll just ask Santa”. When I tried to reason with him that that was even too expensive for Santa, he said “But Dad – Santa just makes all the presents out of magic, so it won’t cost him anything”.
Good response. But this got me thinking about something completely ridiculous: What is the operational cost for the Christmas presents that Santa Claus makes and delivers each year?
Estimating the Operational Cost for Santa’s Christmas Presents:
Suppose we compare Santa Claus and the whole North Pole operation to one of the world’s largest manufacturer of toys: Mattel, Inc. (NASDAQ:MAT).
Since I once thought about buying Mattel stock after seeing they had a handsome dividend yield and some good forecasts for the future, I have a copy of their 2011 Annual Report. From reading through it, I know the following facts:
• Net Revenue: $6.3 billion, selling products in more than 150 nations.
• Cost of Goods Sold: $3.0 billion
• Total Operating Expenses $5.2 billion
• Employs approximately 28,000 people in 43 countries and territories
With a good benchmark to compare to, the next question we’d need to ask is:
• What is the total market for selling toys to kids around the world?
One way to tackle this question would be to try to associate some dollar figures for toy sales in the US. Looking at the January 2012 report of the market research company The NPD Group, U.S. retail sales of toys generated $21.18 billion in 2011.
In my house, I’d say we tend to buy roughly about a third of our toys around the Christmas time. Since Santa only supplies toys at Christmas, we reduce our figures by 0.33.
If we assume that roughly half of Mattel’s 2011 revenue was in the U.S., then that would be would put $3.15 billion dollars in revenue. And since the U.S. market was $21.18 B, then $3.15 B would mean the total U.S. share increases our costs by a factor of 6.72.
Finally, according to Wikipedia, the U.S. constitutes about a quarter of the World’s young population. Therefore, our figures would increase by another factor of 4.
Therefore, we can estimate the following about Santa’s annual production to prepare for Christmas Eve:
• Santa’s total operational cost (Cost of Goods Sold $3.0 billion plus Operating Expenses $5.2 billion) = $8.2 x 0.33 x 0.5 x 6.72 x 4 = $36.4 billion. Surprisingly, that’s not even close to Apple’s total operational cost. Plus, unless Old Saint Nick has got some significant advertising revenue coming in, that all cost technically goes down on the books as a loss each year!
• By the same logic, Santa must employ a crew of 28,000 x 0.33 x 0.5 x 6.72 x 4 = 124,186 to output that many toys. That’s a lot of elves!
Remember to break out this fun little exercise if you’re sitting on the couch at a Christmas gathering with family members you haven’t seen in a while and you want to wow them with your intellectual knowledge of practical economics! It should be a hoot!
Link Love – Blogs You Should Check Out:
In case you missed them, here are a few great stories you should check out this weekend:
- DC from Young Adult Money had one of the best early work reflections in 10 Things I Learned from Working at Pizza Hut
- Free Money Finance works the retirement numbers in A Simple Way to Calculate Your Retirement Number
- Lance from Money Life and More writes a great interview (of himself) about his retirement aspirations in
- Average Joe shares a very special (and hilarious) Christmas memory in My Favorite Christmas Moment–Learning the Value of Exercise
- Rich from Money Wise Pastor breaks down the cost of the 12 days of Christmas in
Carnivals & Mentions:
My Money Design was featured on the following sites this week:
- Eyes on the Dollar – Can’t Take My Eyes Off These Blogs #16-Hackers Suck Edition
- Friends of the Family – Friends of the Family: Holiday Party Edition
- Modest Money – Beginning of December 2012 Exclusive Cash Giveaway and Favorite Posts
- Dumb Passive Income – How to Use Keyword Research for Blog Post Optimization
- Club Thrifty – The VIP Club Roundup – 12th Edition
- Frugal Rules – Frugal Friday: Posts That Ruled This Week, Christmas is in Two Weeks Edition!
- Reach Financial Independence – Friday recap, home alone and seven new friends!
- The Payoff Credit Card Network –
- Pelican on Money –
Thanks to everyone for linking to my site and enjoying my posts. I really appreciate your support and hope you continue to visit!
Posts This Week:
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