Tottenham Case

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Mona School of Business
The University of the West Indies, Mona

Masters in Business Administration
Cohort 15

SBFI6020 – Advanced Corporate Finance

Tottenham Hotspur
ID#:
620039225

Date: January 30, 2013
Lecturer: Harry Abrikian

MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:

Daniel Levy, Chairman Tottenham Hotspurs Football Club
Davion Bramwell, Consultant, Solutech Innovation
January 30, 2013
New Stadium and Player Acquisition

As requested, the report outlines the analysis of the options available to Tottenham Hotspur Football Club (THFC) for generating more revenue in order to gain a comparative advantage amongst key competitors. The options available to the club are as follows: 1. Operating the existing current stadium with 36,500 seats while keeping a single goalscorer (Pavlyuchenko) 2. Add a new top scorer to the team

3. Building a new 60,000 seat stadium with external financing 4. Building a new stadium while acquiring a new top scorer.
Discount cash flow (DCF) analysis
In order determine the suitable option; a discounted cash flow method was used to project THFC free cash flow for the next 13 years. The following assumptions have been made in the estimation of cash flow:











Market Rate of 11% was assumed
Discount Rate is 10.02, method used is WACC
Interest payments are not included.
Net Investment is based on maintenance capital expenditure minus the depreciation related to Capex.
Working Capital is based on the difference between current assets minus current liabilities.
Working capital increases as sales revenues, in the calculation it is assumed that working capital is proportional to Revenue growth of 9%.
Long term growth is 4%
Company Tax Rate 35%
Salary Growth is 10%

Discount Rate Calculation
WACC = E/V*Re + D\V*Rd*(1-Tc)
Where:
E = Market Value of Equity, D =Market value of Debt, V = Market Value of Equity + Market value of Debt, Re = Cost of Equity, Rd = Cost of Debt, Tc = Coporate Tax WACC = 128.2/182.2*.1281+ 43.08/182.2*0.0525* (1-0.35) = 10.02%

Option 1
Under the first option, the Net Present Value for THFC, during the 13 years’ forecasted period, is calculated at £67.70M. The positive NPV suggests that the decision to keep the current operation will be welcomed by shareholders. See Exhibit 1 below that supports this claim. Exhibit 1 - DCF analysis for Current Operations

Revenues
Costs
Maintenance Captial Expenditure
Depreciation
Net Investments
Stadium operationg costs
Total Operating costs
Taxes
Working Capital
Change in Working Capital
Net Cash Flow
Cash Flow
Free Cash Flow
Discounted back to 2007

Net Present Value

2007
74.10

2008
80.77

2009
88.04

2010
95.96

3.30
2.20
-1.10
-69.10
-68.00
-0.19
16.33
3.71

3.43
2.29
-1.14
-74.92
-73.78
-0.38
17.80
-1.47
2.86

3.57
2.38
-1.19
-81.28
-80.09
-0.59
19.40
-1.60
3.38

3.71
2.47
-1.24
-88.22
-86.99
-0.82
21.15
-1.75
3.93

26.29
26.29

2.86
2.60

3.38
2.79

2011
104.60

3.93
2.95

2012
114.01

2013
124.27

2014
135.46

2015
147.65

3.86
4.01
4.18
4.34
4.52
2.57
2.68
2.78
2.90
3.01
-1.29
-1.34
-1.39
-1.45
-1.51
-95.82 -104.13 -113.21 -123.15 -134.03
-94.53 -102.79 -111.82 -121.70 -132.53
-1.05
-1.30
-1.57
-1.85
-2.13
23.05
25.13
27.39
29.85
32.54
-1.90
-2.07
-2.26
-2.46
-2.69
4.54
5.17
5.84
6.54
7.29
4.54
3.10

5.17
3.21

5.84
3.29

6.54
3.35

7.29
3.40

2016
160.94

2017
175.42

2018
191.21

2019
208.42

2020
216.76

4.70
4.88
5.08
5.28
5.49
3.13
3.26
3.39
3.52
3.66
-1.57
-1.63
-1.69
-1.76
-1.83
-145.94 -158.98 -173.27 -188.92 -196.47
-144.38 -157.36 -171.57 -187.15 -194.64
-2.43
-2.74
-3.05
-3.37
-3.50
35.47
38.66
42.14
45.93
50.06
-2.93
-3.19
-3.48
-3.79
-4.13
8.07
8.88
9.72
10.58
10.82
8.07
3.42

8.88
3.42

9.72
3.40

10.58
3.36

10.82
3.13

£67.70

Option 2
The...
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