Tottenham Case Study
Autor: Vincent Guo • June 12, 2017 • Case Study • 454 Words (2 Pages) • 594 Views
1. Assuming 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.
2. Based on the DCF analysis conducted above, what is the value of this soccer club? Does the club add value with its proposed plans?
3. Comment on how a professional sports club like Tottenham Hotspur makes money.
4. How does a better player and a larger stadium affect Tottenham Hotspur's revenues, costs, and profits?
Revenue growth in the premiership had been avg 9% per year across all sources.
Cost: player salaries growing 10% per year
G=4%(1.5 faster than inflation)
First, if we want to perform a DCF analysis using the cash-flow projections given in the case. We have to acquire some key information first. We have to know the growth rate in case to get the present value of the sequences of cash flows. Also for the same purpose, we have to know the WACC (the cost of capital). For the preparation to get a WACC, we need to know the beta of the company, risk premium, risk free rate( which was given in the essay) for cost of equity and also we need to know the cost of debt borrowing. Here are the notes for some assumed data.
Notes | |
Revenue growth until 2019 | 9% |
Long-term growth after 2019 | 4% |
Salary growth until 2019 | 10% |
Long-term growth after 2019 | 4% |
Long-term growth rate of everything else | 4% |
Those assumptions both made in the original essay. Also, Tottenham Hotspur’s debt rate was not given in the essay. So we have to make an assumption of that the cost of debt equal to the risk free rate. Based on those information, we can acquire the cost of equity firm by using CAPM model. By using unleveraged beta, we have beta equal beta / 1 + (1 - tax rate) x (debt / equity).( 1.29/(1+0.65*(0.12/0.88))). So CAPM=ke=4.57%+1.185*5%=10.5%. Also we got kd= 4.57%(1-35%)=2.97%. After all, we are able to acquire the WACC=2.97%*11%+10.5%*89%=9.67%.
In addition, we need FCF in order to perform a DCF. FCF=EBIT(1-t) – CAPEX – ΔNWC + Depreciation. Due to the EBIT was given. We have to calculate CAPEX and ΔNWC first. NWC= current asset – current liability which both factors was given in the Exhibit 4. We assume the factor’s ratio to revenue will stay same than we can have better estimate of future NWC.
(CA-CL)/Revenue=0.5143. So we can use this ratio to estimate future NWC. Here is the exhibit for FCF:
2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
Capex | 3.30 | 3.43 | 3.57 | 3.71 | 3.86 | 4.01 | 4.18 | 4.34 | 4.52 | 4.70 | 4.88 | 5.08 | 5.28 | 5.49 |
NWC | -38.11 | -41.54 | -45.28 | -49.35 | -53.79 | -58.64 | -63.91 | -69.67 | -75.94 | -82.77 | -90.22 | -98.34 | -107.19 | -111.48 |
change (NWC) | 0.00 | -3.43 | -3.74 | -4.08 | -4.44 | -4.84 | -5.28 | -5.75 | -6.27 | -6.83 | -7.45 | -8.12 | -8.85 | -4.29 |
FCF | 0.72 | 4.60 | 5.40 | 6.26 | 7.19 | 8.19 | 9.27 | 10.42 | 11.66 | 12.98 | 14.39 | 15.89 | 17.48 | 13.26 |
Terminal Value | 212.14 | |||||||||||||
Sum | 0.72 | 4.60 | 5.40 | 6.26 | 7.19 | 8.19 | 9.27 | 10.42 | 11.66 | 12.98 | 14.39 | 15.89 | 17.48 | 225.40 |
NPV | 119.84 |
Notes for this exhibit:
Notes | |
Discount rate | 9.67% |
(A/P)/Sales ratio | 0.2698 |
(A/R)/Sales | 0.869 |
Inventory/ sales | 0.225 |
(CA-CL)/Revenue | 0.5143 |
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