Essay About New Stadium And Tottenham Hotspur Case Studybackgrounddaniel Levy

Tottenham Hotspur Case Study
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Tottenham Hotspur case studyBackgroundDaniel Levy, the chairman of the Tottenham Hotspur Football Club, needs to decide whether to build a new stadium for his team.  Tottenham is part of the English Premier League, an elite group of football teams that compete at the highest level.  Levy’s decision is critical to the future financial success of his team. Depending on how he chooses to proceed, he can increase on decrease the value of the team substantially.Daniel is evaluating three investment options:Build a new stadium with bigger capacityThe current Tottenham stadium, White Hart Lane, has a limited capacity for fans—only 36,500 seats.  The proposed stadium would have higher capacity at 60,000 seats.  Theoretically, this ~65% increase in capacity would help fill unmet demand for tickets and increase future ticket sales.  Sign on a new strikerLevy estimates that this new player would increase the average goals scored per game and would upgrade the team’s standing within the English Premier League.  The subsequent higher prestige would continue to drive ticket sales and make Tottenham more attractive to other star players.Build a new stadium and sign the new playerLevy believes that since bringing in a new striker would increase the number of fans wanting to attend a game, a very interesting solution would be to build the new stadium while bringing the new player. For him, this would maximize the profit opportunities. AssumptionsIn addition to the raw data provided in the case, the following assumptions were made to help arrive at a conclusion for the case:Our discount (D) rate is 10.25%.The working capital (WC) is 58.4% of total revenue.  The change in WC in year 0 was determined to be 8%.  This percentage was determined by the average percentage of future years.An elite new striker will provide 25%  growth in revenue across the board.The risk of injury to the new player was set at 20%.  Only 80% of the revenue growth will be expected.The new player will be signed immediately and the benefits impact the first year.The new player will play for the club for 10 years.  After 10 years all related expenses and benefits will finish.The revenue growth rate was set at 4% to calculate a perpetuity on year 2020.Current EvaluationAccording to our NPV analysis, the value for Tottenham is £135.61m with an associated stock price of £12.76.  This means the current stock price of £13.80 is overvalued. Decisions & EvaluationsNew stadium onlyTottenham will invest £250mn over two years (2008 and 2009).  Benefits of this option will manifest in 2010.  The resulting NPV analysis is calculated at £93.73mn, with a stock valuation of £8.25.  This option will reduce the value of the Tottenham club by 31% and the value of their stock by 35%.Recruit new striker onlyTottenham will grow their revenue but costs will rise as well.  This option is held back by the old stadium and only 25% of the benefits will be fully realized. The NPV analysis is calculated at £131.35, with a stock valuation of £12.30.  This option will reduce the value of the Tottenham club and the value of their stock by 4%.