Threshold Sports, LLC Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Problem Diagnosis

Threshold Sports, LLC is basically a small and a growing sports promotion company, which has been lately considering the financing implications of a range of the financing options for the growth plans of the company. The professional cycling races are usually organized by Threshold Sports Company and many major race franchises are also held by the company in the major cities of US.

However, now in order to build up the level of the cycling in US equal to the level of the cycling in Europe, the management of the company wants to expand the total number of the events which are organized and managed by the company. Therefore a financing need of about $ 500,000 has been created from this growth prospect of the company. It has just passed around 3 months to the company that it had been found by Gerard Jerry Casale Jr. and David Chauner.

Now the owners of the company were unsure as to which financing method would be the most suitable for the company given the initial stage of the company and the strategic objectives of the company. Three financing alternatives were being considered by the company which were the issuance of common stock, convertible preferred stock or raise the financing through debt financing. A final recommendation needs to be made by the management of the company based on a detailed analysis and the pros and cons of each method along with their individual impact upon the value of the firm.

Management Goals & Strategy

The goals of the management of the company are quite straightforward. The management of Threshold Sports Company expects to double its revenues over the period of the next three years. The company wants to establish and expand the cycling market in United States which would be equal to the level of the market as currently in Europe. The company wants to expand the market in all the core areas such as through the management of the events and the partnership of the events including the marketing for the sport. Another goal of the company is to create a niche market in United States for the cycling sport. The company also expects to grown its assets solely from the leasing of the core assets of the company.

The strategic objective of the company is to expand in its current market by partnering with the new contracts with the cycling event sponsors currently operating in the US. Furthermore, the management of the company wants to create a total of 6 new races for the cycling events in the next three years time. This is the reason that the management is looking for additional financing to meet these strategic goals of the company and a total of about $ 500, 000 of financing is required in order to meet the above strategic goals of the company.

FRICTO Analysis of Financing Methods

Common Stock Issuance

Flexibility: The issuance of common stock has more flexibility and it is highly liquid as the ownership could be changed easily.

Risk: The risk for the investors is quite high because if the company goes bankrupt then the common stock holders would gain a share of the company assets after all the bond holders are paid completely.

Income: The income for the common stock holders from a purchase of common stock is the dividend payment which is made annually or semi-annually and the capital appreciation of the stock price to gain capital gain benefits.

Control:The investors become the owners of the company and have the voting rights. If the owners don’t want to lose the control then they need to sell no more than 49% of the stocks of the company.

Timing:The best time to issue common stock is when the company has a positive outlook and that it has strong financials so that they can easily raise maximum capital.

Other: According to the financial implications for the company, this alternative looks better than debt.

Convertible Preferred Stock Issuance

Flexibility: The pre-stated terms for the preferred stocks state that at a later stage these could be converted to common stocks of the company which would be 1.5 units common stock would be awarded for each preferred stock at the executable exercise price at that time.

Risk: The interest rate would be higher for the company and so the investors would face a higher risk if the company fails. As a result they might lose some of their initial investment.

Income: A dividend o 10% would be paid on the par value which would be payable on a cumulative and a non-compounding basis............................

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