Tottenham Hotspur Case Study Solution
Build The New Stadium:
If the club would build the new stadium then the capacity would be increased to 60,000 seats. Furthermore, the new stadium would increase the attendance revenue by 40%, sponsorship revenue by 20% and operating expense of the stadium by 14%. The initial investment for the new stadium would be 250 million which would equally divide in the first two years. The initial revenues and the cost that is expected to grow from the investment would be taken as a calculation to identify whether the project is feasible or not. By adding the revenues and subtracting the cost, we get EBIT. By deducting the tax rate which is 35% from the EBIT we get the NOPAT. By deducting the depreciation expense as given in income statement, the change in working capital according to the percentage of revenue and maintenance cost we get the cash flows. The NPV of the new stadium shows a positive 269.57 which indicates that the project is feasible and can recover its invested amount along with the increased revenues. It is strongly suggested that this project is profitable, as it has a long implementing period and shows a positive NPV.(see calculation in appendix-4).
Sign A New Striker:
The club is singing new strikers in order to improve the reputation of the club. The new strikers would allow the club to maintain its current performance. The young players would be considered as highly talented. However, the young are not available at cheap prices. In order to hire the new striker, the club would pay a transfer fee ofroughly 20 million. These fees would be paid directly to theplayers’ current club. The club would pay 50000 per year, therefore, the striker salary would be 2.6 million and would increase by 10% each year. The contract option has a bigger risk associated with it, which is that if the strikers get injuries then there are high possibilities of this option not contributing anything valuable to the revenues. The NPV by hiring new players would be 89.91. This project has shown a positive NPV, highlighting the profitability of the project. The club can recover its invested amount with increased revenues.(see calculation in appendix-5).
Build The New Stadium And Sign A New Striker:
Another option is that the club would build a new stadium along with signing new strikersfor the better training of the club’s team. A detailed analysis has been carried out in order to understand the synergies of both projects. The revenues and cost of both the projects are added in order to analyze that either the club could perform both things at the same time. After performing DCF valuation, it is concluded that the club should perform both the things at the same time because the project shows a positive NPV. Furthermore, ion comparison the NPV of this project is higher than all the projects. (see calculation in appendix-6).
Recommendation
On the basis of the above analysis, it is concluded that the club should perform both the activities i.e. build the new stadium and sign a new striker. By hiring the new talent for the club would enable it to maintain its competitive position in its industry, which impacts the reputation of the club as well as allow the club to earn additional revenues. In addition to this, building the new stadium and signing a new striker has a higher NPV among all the options.
Conclusion
Despite the club have a long history of success but in order to maintain its competitive position, the club should build a new stadium for its players as well as to hire new talent for the club. This would help the club to improve its goodwill in the market as well as improve the revenue of the club which is essential to gain footholds in the competitive market............................
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