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 Interview with Myself: “Retirement Is Possible”
- 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 Cost of 12 Days of Christmas Items Tops $107,000!
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 – How Credit Cards Work Rewards Into Their Marketing Strategy
- Pelican on Money – Entrepreneurial Wisdom Poster via LinkLuv Friday
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:
1) Don’t Blow Your Christmas Budget This Year
2) My Picks for Vanguard Mutual Funds for Our Roth IRA
3) Building a Special Gift for Your Young Adult Children
Image Credit: Amazon
I’m a little surprised my post warranted a link-back in the mentions section this week, given.. well, you know. I’m glad it all worked out for the best.
Watch my site next week for the Long Tail Pro giveaway!
Water under the bridge Matt. I will tell you that your post inspired me to give Long Tail Pro a try for the 10 day free trial. In fact, I used it to research the keyword “operational cost” for this post. Originally I was going to use “operating cost” or “overhead expense” or something along those lines. But LTP was able to show me that operational cost seemed to have lower competition than my other choices. I’m missing that cool Beta feature that gives you the KC value.
Thanks for the mention! I have to admit interviewing myself was a bit out there but no one else was interviewing me so someone had to do it!
Ha! I’m still waiting for my big time in the spot-light too, Lance. But I’ve had no takers. Perhaps I should do the same as you!
Any LEGO collection has to account for the cost of stepping onto one of the blasted pieces in the dark, 2 am in the morning, falling over and bashing your head on the door jamb or some other hard surface. Maybe it’s not an operational cost, but a cost nonetheless.
By the way, Santa outsources production to subcontractors in China and Vietnam. It’s a variable cost model.
Is there anything that can’t be outsourced these days?
Believe me – If I was crazy enough to buy a $400 Lego set, I think we would put it together with glue! Nothing stings like a knife to the side when you see one of your kid’s $100 Lego sets in a thousand pieces on the floor. And I can’t tell you the evil thoughts I have when I step on one of those little pieces barefoot!
Thanks for the mention! Have a great weekend!
One of our neighbours was a CEO of a well known Toy Company in Canada and he said sales were astronomical. How much does it cost to buy LEGO? Is it that expensive? Clearly I have no kids nor do I shop the toy section. Cheers Mr.CBB
Legos cost anywhere between $5 and $100 usually. I played with them a ton when I was kid, and my son and daughter now love them as well. But over the years, the sets have become more elaborate and more expensive. $400 is a little too much …
You could just tell him that Santa sometimes shops at Meijer to make sure that all elves are under 30 hours per week. That way he won’t have to pay Obama care tax. Have a great rest of your weekend MMD.
My son would like that story – he loves Meijers!
We never went with the Santa thing. Went with the tried and true 2000 year old Christmas story.
Great topic. I love seeing how it all breaks down. TI is very interesting and will wow the family when I bring it up over the holidays.
I forgot to add, that is a ridiculous price for a lego set. I was a big fan of lego when I was little and I am glad they were not that costly when I was growing up. you think they could have broken the toy up into different sets, then it would be more manageable price-wise, and they could also raise the price a bit and make more, cause the child would want all sets.
It was actually $500 over the summer, but they kindly lowered it. Isn’t that crazy?? With the advent of the Internet, they actually have a whole bunch of “collectors” Lego sets that cost ridiculous sums of money. When I was a kid, they only had 3 types of sets and they were only available at Kmart or Toys R Us.
I love your son’s logic! ha ha! Where do you go from there?
I’ve only got a short number of years before he comes up with stuff I can’t argue with! 🙂