Tottenham Case Study
Tottenham Hotspur Case StudyYijun CaiLingkai KongXin LiuPeiqi WuAssuming Tottenham Hotspur continue in their current stadium following their current player strategy: Perform a DCF analysis using the cash-flow projections given in the case.The net present value of Tottenham is calculated at 67.7m. Based on the information from the case, we can get the weighted average cost of capital 10. 25%.WACC=E/V*Re+D/V*Rd*(1-tax)The positive NPV of Tottenham indicates the current operation plan of the club is making profits and will be welcomed by shareholders. The exhibition 1 shows the calculation of the NPV.Based on the DCF analysis conducted above, we assume the WACC is 10.25% and the long-term growth rate is 4%, the value of this soccer club, which is 125.31m can be calculated by the following formula:PV = CF1 / (1+k) + CF2 / (1+k)2 + … [TCF / (k – g)] / (1+k)n-1 Based on the DCF analysis conducted above, what is the value of this soccer club? Does the club add value with its proposed plans？There are two alternatives for Daniel Levy to achieve a long-term financial success goal- to take his football club to the upper echelon of British Premier League.
1.Building a new 60,000 places stadium.2.Sign in a new top scorer playing in the new stadium.Investment decision analysis based on DCF is as follows.Building a new 60,000 places stadium.A new stadium will take 2 years to be ready. We can project the net present value of future cash flow based on following assumption:1. Revenues The revenue drivers for the club arise from four main sources: gate attendance, sponsorship rights, merchandise sales and broadcast rights. We assume that all components of revenues grow by 9% per year for the first 12 years (until 2019) and then perpetually at 4% per year.2. The two main components of operating costs for the firm arose from player salaries (payrolls) and stadium operating expenses. We assume that payrolls grow by 10%, stadium-operating expense grows by 14% at the end of year 2010, and maintains a 4% growth thereafter.3. Tottenham Hotspur finance 250M of the stadium construction with loan, 125M received each year for each instalment, we assume the repayment of loan in 10 equal payment each year starting from the end of year 2010 to 2020.4.Working capital is based on the difference between current asset minus cash and equivalents and then minus with current liabilities. In this calculation, we assumed that working capital is proportional to Revenue growth of 9%, except in the last year’s prediction (2020) the growth become 4%.