1. ABUS 465 Final Project
Winery Owner vs. Wine Maker
By:
Nick Franze and Adam Toomire

2. Intro:
For our project we decided to combine our passion for the wine industry with the final project
for ABUS 465. Our idea was to compare the career paths of working 50 years as a winemaker
versus actually buying and operating a winery for the same amount of time, and then selling it.
This project obviously had to account for an extreme amount of variables. Many in the wine
industry (and most industries in general) are hesitant to share financial details regarding their
operations. Luckily, Adam works at one of the largest wineries in the area and I also happen to
work at a local winery, so we were able to pick the brains of some local experts. Therefore with
our contacts as well as some dogged research on the internet, we were able to fairly accurately
illustrate the revenues and costs associated with both choices.
Winemaker:
This half of the project was definitely the most straightforward from a numbers standpoint. The
variation of salaries for a winemaker is much smaller than the variation of all the wineries in
California. We decided to settle on a base salary of $93,000 which is the nationwide average.
Many winemakers in Napa and Sonoma counties (as well as all of California) make more than
this so we added in an annual raise (randomized from 1-3%) and a yearly bonus of $5,000. By
year 50 the base salary was over $197,000 which would be an accurate assessment for a
successful winemaker who had managed a winery for fifty years. To counter the salary increase
we also added in a risk factor to account for investing the money as well as if the winemaker
had a bad year or production was not optimal. This number was randomized from 0.01-.9 to
account for the wild differences between vintage years in winemaking as well as the other

3. hiccups that can occur during crush. After inputting all of these variables we then accounted for
the Net Present Value of the salary for a winemaker over 50 years. We added in an inflation
rate of 3.22% which is near the national level of inflation over 50 years. The final NPV for a
winemaker was $3,148,309.
Winery:
The second half of the project was much more difficult to tackle and had many more moving
parts. With that being said this section will be broken down into multiple parts.
Property) The property cost of the winery was one of the first costs that had to be
accounted for. For this section we used an online real estate website that listed whole wineries
for sale. These wineries all included planted grapes, tasting rooms, production equipment, and
bottling equipment. To have a well-balanced average, we used properties from multiple areas
throughout California to reduce any discrepancies. These areas included Napa, Solano County,
North Coast and Paso Robles. Each of these wineries had different prices, acreage and living
quarters. We decided to average the costs and acreage of all five in order to give us an accurate
picture of the costs. Obviously, starting a winery in Napa compared to Butte County will be
much more expensive, however for this project a state average was more effective for
computing all of our costs. Our winery cost came out to $4,039,167 and 28.2 acres of land.
Now, the next step was how to pay for this!
Financing) once we decided on our total winery property cost, we had to figure out
an amortization schedule. To do this we had to calculate what we thought would be a normal

4. timeframe for such a large loan. Through research on mortgage rates and payback times, we
decided on using a 30 year mortgage. Through our research we learned that over a 30 year loan
the average interest rate is 5-7%. We decided to use an interest rate of 7% over 30 years. We
used an online loan calculator using those variables and came out with a yearly payment of
$325,501. This would be paid off over 30 years as stated above, therefore allowing us 20 years
to be making a profit on the property before selling it.
Resale value of the land) the next step of the equation was calculating the resale
value of the winery. This step was relatively straightforward and only needed us to account for
value added, as land is one of the few assets that appreciates over time. We decided on a 3.4%
average increase in land value, as demonstrated by the national average over the last 50 years.
The initial value of the land was $4,039,167 and the final resale value came out to $21,497,072.
Sales revenue from wine) this step of the process was one of the most difficult to
put together. The process of pricing wine, making it, and selling it is one that can be covered in
an entire 3 unit class. However, for this project we decided to simplify it based on our
experience in the industry as well as industry averages. We decided on having 24 acres of vines
planted, thus leaving 4.2 acres of land that has living quarters, the winemaking equipment, and
the tasting room. We are assuming these vines are at a maturity where they can produce fruit
once the 50 years start. We decided that each acre of vines would produce 6 tons of grapes a
year, which equates to 360 cases of wine, or 4,320 bottles an acre. This is assuming that these
are all one grape variety. Our initial price point was at $15/bottle which is a nationwide average
for hand produced wines (Not mass produced wines such as Gallo, Mondavi, and Kendal-

5. Jackson which can have price points as low as $5/bottle). Here were some of our assumptions
over time: 1) wine will sell out at this price point within the calendar year. 2) Price will rise by
$.40 every year as the wine gets more popular. 3) The average price per bottle will start at $15.
To account for the yearly harvest differences that occur during any sort of farming, we inputted
a variance in yield from 80%-120% of total possible yield. This difference in yields was then
calculated into total tons harvested, number of bottles, etc. Our total returns on sales over 50
years was $5,444,079.
Production costs) to add up the production costs we needed to account for all aspects
of wine production. We included property tax/utilities, vineyard operating expenses,
maintenance, lab testing, winemaker labor, cellar worker labor, harvest worker labor,
equipment repairs, barrels and supplies, bottling materials, bottling truck, admin costs, and
mortgage cost. Then we calculated the per bottle cost based on average yield. The variable cost
based on average yield came out to $2.27/ bottle. To calculate the expected annual cost we
added Annual fixed costs during mortgage ($670,188) + Annual fixed costs post mortgage
($344,686) + Variable cost per bottle ($2.27). The total cost during years 1-30 was $909,560,
and after year 30 the total cost was $584,058.
Total returns of winery) this section of the project is where we put all of the previous
parts together into one spreadsheet. We put each of the previous sections into their own
spreadsheets then combined the numbers in the final spreadsheet to eventually calculate our
NPV of owning a winery. We added up the annual revenues-costs (including all of the factors
listed above) to calculate our net returns which was $113,861,319 with an average yearly

6. return of $2,264,206. After this calculation, we had to calculate the NPV of this investment. For
the NPV calculation we used a discount rate of 5%, an inflation rate of 3.22% and a risk rate of
1% to account for any other potential issues regarding production. Our grand total NPV for
owning and operating a winery was $12,308,830.
Possible Errors and Unaccounted Factors:
With so many variables to be accounted for over the timeframe of 50 years as both a salaried
winemaker as well as a winery owner/ operator there are obviously going to be some factors
and externalities that are difficult to account for numerically. We believe that we accounted for
almost all factors by including risk, potential yield, inflation, salary increases, wine sales, etc.
Into each of our spreadsheets. However some of the factors that could not be accounted for do
not have a percentage value. Those factors for owning a winery include stress levels, time
required to work past normal hours, not selling all of your wine, or the issue of being able to
obtain a $4,000,000 loan to purchase an existing winery. As a winery owner you do not just go
home from your job and forget about work. Owning and operating a winery is something that
will be on your mind 24/7, as most winery owners have a lot at stake when running such an
operation. Actual winemakers have the benefit of not completely relying on their place of
employment for survival, which is not the case for winery owners. That factor alone could
influence the decision making process when deciding to pursue either of these career paths.
Although the financial gains from owning a winery are significantly higher than pursuing a
winemaker career, the hidden costs may well add more liabilities to your personal mental
health balance sheet. Another factor that was averaged and generalized was the amount of

7. land being used on the winery to actually produce grapes. Our real estate source garnered
multiple different wineries of varying sizes and prices and we averaged all of them to get our
final product. Some wineries may have less or more acreage for growing grapes, or even none
at all. Some wineries decide to source their grapes directly from growers instead of growing
grapes themselves to cut costs and focus on the actual production of wine instead of the entire
process. For our project we decided to focus on a winery that grows, harvests, and produces
their own wine with their own grapes, which is what many wineries in Butte County do as well.
Finally, and possibly the most important factor, what if nobody likes our wine? In our project
we accounted for the fact that all of our wine will be sold by the end of the year. But for many
up and coming wineries, that simply does not happen, as evidenced by the multitude of
wineries that can be found for sale online. If people do not like the wine that your winery
produces, your business will struggle and potentially fail. Accounting for less sales or bad
vintages could have created a more realistic financial picture of our business plan for the future.
Conclusion:
In conclusion, we decided to figure out the financial difference in two career paths in the wine
industry. These two options were over the span of 50 years of work. The first being a full time
winemaker for a reputable winery, and the second being a winery owner/operator and
purchasing your own winery to run. To put this idea into action we needed to account for many
variables. In the case of becoming a winemaker we accounted for inflation, salary increases,
bonuses, risk, as well as some other factors. The final Net Present Value over 50 years as a
winemaker came out to $3,148,309. Next we decided to tackle the exponentially more difficult

8. task of purchasing, operating, and owning your own winery. To do this we had to account for all
of the same variables as above as well as land prices, costs of operating a vineyard, labor, wine
sales, wine costs, equipment costs, vineyard yields, mortgaging the winery, as well as selling the
winery at the end of 50 years. The final Net Present Value of owning and operating a winery
came out to $12,308,830. The highest NPV came out to be in favor of owning and operating the
winery. However, as listed in the category above, there are many hidden costs that came with
owning and operating a winery that are not associated with being a winemaker. Therefore if
this was a choice being made by an individual, they would have to decide which factors were
more important besides just the financial figures. All in all this was an extremely rewarding, yet
difficult project. It shed light on the difficulty of opening your own business, as well as the
potential financial rewards of doing a good job at it.