Tottenham Hotspurs, Plc.
This certain case has many different possibilities for evaluation which gives it much complexity and much liberty while evaluating it. The soccer business sure has a certain relation with the performance and their revenues which makes it highly unstable when speaking of forecasted income of the club. We must first value the firm at its current position in order to be able to value as compared to acquiring the new stadium and obtaining a new goal scorer. In order to do so we must evaluate the company by creating a Discounted Cash Flow analysis projecting the expected future revenues in the same current strategy which they are in.
We would then lay out the future expected cash inflows with no initial cash out flow laid out due to the fact that they have already covered their initial expenses. We must take into account the growth rates that are expected for our liabilities such as capital expenditures, player salaries, depreciation, and such. We must then evaluate the growth rates for the cash inflows for the revenues expected due from increased ticket prices, product sales, sponsorship and televising their games. We must then implement these rates and growth in numbers to evaluate the future position a number of years down the line.
We could then evaluate the current capital structure and their cost of capital in order to determine whether they are fairly valued and obtain a second analysis to compare with. We have sufficient data such as their beta and stock returns in the market in order for us to evaluate these numbers. The case also contains the current risk free rate which is needed when using the Capital Asset Pricing Model in order to obtain the cost of equity of the firm. After performing a multiples analysis we can then compare the two analyses and determined whether the firm is fairly valued.
If it is then great, but if not then we have an even greater reason for Tottenham to look into the building of a new stadium. Now that we have their current position we must conduct an analysis regarding the “what if” the company obtained the new stadium and invested in a new striker. In order to do the following we must take into consideration the initial cash out flow of the new stadium and the two years that the company has to pay it given the current financial situation and their cash excess which is mentioned in the case.
Once we have this we can then forecast a pessimistic, a mediocre, and a pessimistic evaluation of their ticket sales and create multiple cash flows which consider the growth rates of all of the costs and revenues that the company will incur given this following move. Once we have this analysis we can then create the same analysis given that we stay in the same stadium, but we invest in a new striker (optimistic, mediocre, pessimistic).
Once we obtain the cash flows from the two options mentioned before, we can then infuse both cash flows and compare the position of the company if they were to take the options which they have available to them. We must also play into consideration that the competition of the league has a huge impact on the results of Tottenham as they can have a huge influence on them. For example, Manchester United invests in the so called next big thing in football or one team is on the rise.