Yesterday, I shared with you a few tidbits of research on what it might really cost to run Santa's workshop in the North Pole. The limitations of the infographic format kept me from offering more detail on this idea, but there's no time like the present to dive right into the economics behind this commercial icon of Christmas. You've seen it in pictures, so now let's drill down into the numbers. This is Santa Corp. uncovered.
Targeting the audience
Children get gifts from Santa, and adults get gifts from each other. To find the number of children in the U.S., we use two sources. The latest U.S. Census Bureau population data, which has estimates up to 2011, says 23.7% of Americans are under the age of 18. There are bound to be young Americans who don't believe in Santa, but they're still getting presents under the tree, so they'll play along for our analysis. The Pew Forum also gives us information on roughly how many Americans are celebrating Christmas this year: 246.8 million.
- U.S. population celebrating Christmas: 246.8 million.
- U.S. population under age 18: 23.7%
- U.S. children celebrating Christmas: 58.5 million.
Parenting magazine conducted a survey last year of thousands of parents, and it found that the average child would get $271 worth of gifts on Christmas. This is the most accurate data on Christmas spending for children, so we'll use it. That gives us $15.8 billion in total spending -- in other words, $15.8 billion in gifts from Santa Claus.
By comparison, two of the world's largest publicly traded toy makers, Hasbro (NASDAQ:HAS) and Mattel (NASDAQ:MAT), could not combine to create a larger source of revenue. Hasbro earned only $4.1 billion in the trailing 12 months, and Mattel has earned $6.3 billion. With $10.4 billion in combined revenue, "Has-Mat" only gets up to two-thirds of Santa Corp.'s size.
If Christmas happened every day, Santa Corp. would be generating $5.8 trillion a year -- nearly twice the revenue earned by all 30 components of the Dow Jones Industrial Average (DJINDICES:^DJI) put together. It would earn more than 12 times as much revenue as Wal-Mart (NYSE:WMT), the largest Dow component by revenue. That much revenue would make Santa Corp. as large as Japan's economy. Let's stick to one day of the year for now, as I don't think there are many American parents who would want to (or could) spend almost $300 per day on each child.
Drilling down into North Pole data
Since Santa Claus has been seen for decades as the master of a workshop full of elves, let's see what it would really cost to manufacture presents at the North Pole.
Using Hasbro's and Mattel's cost of goods sold, not including any royalties or advertising outlays, would give us a baseline $5.7 billion cost of goods for the Has-Mat toy-making portion of Santa's workshop. There are so many electronics gifts given each Christmas that the cost of the remaining goods should have similar margins to Apple's (NASDAQ:AAPL) -- about 40%, which gives us about $3.2 billion in necessary component spending.
- Santa Corp. total "revenue": $15.8 billion.
- Santa Corp. cost of goods: $8.9 billion.
- Santa Corp. gross income: $6.9 billion.
Santa also needs labor. No one has ever seen Santa paying his elves for their work in his workshop, but we don't want to go down the road of assuming Santa is either a slave owner or a perfect Communist. I used two assumptions in the infographic, and it simply would not be possible for Santa to successfully operate a manufacturing enterprise at the North Pole by paying his elves American-level union wages. We'll use Chinese manufacturing averages (and, most likely, working conditions) to stand in for the compensation of the average elf. Those conditions, assuming that assembling each child's toys will take 12 total working hours, gives us 191,200 employees earning about $1.5 billion in total wages -- which are $2.18 per hour for most Foxconn workers, according to The Week. Who knows what they do with it at the North Pole. Maybe they hoard snowmobiles.
Either those elves can pay Santa for room and board or he can provide it. Since Santa is essentially exempt from the typical expenses of sales, marketing, and logistics, and he has no need for profit except to plow it back into manufacturing capacity, we'll add those things in. Alaska can stand in for the North Pole in terms of costs of living, as it's also cold and isolated.
Rent in Alaska averages out to $1,050 for a two-bedroom apartment. Elves are small, so we'll put them two to a bedroom. Food in Alaska averages $122 per week for a family of four. We'll assume elves eat half as much. An elf needs health care -- rather, "helf care" -- too, and the OECD average for that is 9.5% of GDP. Let's add all of that up.
- Elf wages: $1.5 billion.
- Elf room and board: $754 million.
- Helf care: $1.5 billion.
- Total elf-employment costs: $3.8 billion.
We still have to handle electricity and basic upkeep for Santa's reindeer. Alaska consumes 899 million Btus of total energy per person each year. Diesel fuel is the only reliable source of power generation this far north, so 899 million Btus work out to about 6,950 gallons of diesel per capita. Elves' small size and Santa's ability to hitch a ride on a magic flying sleigh should reduce that substantially, so we'll shave half the demand off our final total. With diesel prices in the remote north hovering above $5 per gallon, Santa will spend $3.3 billion each year to keep the power on at the North Pole. It's too bad he can't sell parts of the country to oil companies the way Alaska does to recoup his extreme spending on energy.
Finally, Santa has to keep his factory in top shape. Taking another cue from Foxconn, Santa spends about 3% of his revenue on capital expenditures, resulting in about $500 million in capex spending.
- Energy expenditures: $3.3 billion.
- Capital expenditures: $500 million.
- Total costs: $16.5 billion.
- Net loss: $700 million.
Paying the cost to be the Claus
Santa's workshop illustrates how difficult it can be to operate a manufacturing company in the wrong part of the world. The only way for Santa to break even on this arrangement is to pay his elves less or charge them a fee for room and board. Either way, the end result is the same. Santa could also install solar panels to generate electricity all day and all night. Of course, that would only work for half the year, but it's still enough to swing Santa from a loss to a $900 million profit. If Santa wanted to be generous with that windfall, each elf would be eligible for a $4,700 bonus, equivalent to a 60% pay raise. Someone let First Solar (NASDAQ:FSLR) know that a well-known jolly old elf might be looking to build a solar farm soon.
Do you think my calculations made sense? Think I missed something important? Keep in mind that we are talking about an imaginary mascot for consumerism, who makes more deliveries in one day than FedEx (NYSE:FDX) can manage in an average workweek with its fleet of almost 700 aircraft and more than 90,000 delivery vehicles. Accuracy is hardly guaranteed -- but I welcome your thoughts and comments.