Totten ham Hotspur Plc Case Study Solution
Build the New Stadium along with Sign a New Striker
The club will make a contract with the new striker along with the plan to develop a new building for the betterment of the club team. The thorough detailed analysis had been done to predict the equity value for the club. The new striker will cost the club about 50,000 per week and the development of the building will require huge investment. The project resulted in negative NPV, showing that the project is not profitable. The club cannot recover its invested amount along with the increased revenues. The NPV is negative 60.70 million, indicating that the project is not profitable. (See appendix 7 for equity calculations).
Conclusion
The detailed DCF analysis had been done by considering the all three options to the hotspur club. On the basis of above analysis, it is recommended that the only new striker option shows the positive NPV while other options shows negative NPV, showing the un-profitability of the two projects. The new striker involve a risk factor also but despite of knowing this, the club should opt the second option because it will helps in generating the revenues. This project will resulted in huge earnings along with the speedy recovery of its invested amount with in shorter Spain of time. All other options require huge investment and will not be able to generate revenues for the hotspur club.
Appendices
Appendix: 1
Working Capital Calculations
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Average | ||
| Working Capital as a % of revenue | -22.02% | |||||||||||||||
| Working Capital | (16.32) | (17.79) | (19.39) | (21.13) | (23.04) | (25.11) | (27.37) | (29.83) | (32.52) | (35.45) | (38.64) | (42.11) | (45.90) | (47.74) | ||
| EBITDA Margin | 6.75% | 7.24% | 7.68% | 8.06% | 8.38% | 8.67% | 8.90% | 9.08% | 9.22% | 9.31% | 9.37% | 9.38% | 9.35% | 9.35% | 8.77% | |
| Net Profit Margin | 0.47% | 0.88% | 1.25% | 1.58% | 1.87% | 2.12% | 2.34% | 2.53% | 2.68% | 2.81% | 2.90% | 2.96% | 3.00% | 3.00% | 2.30% | |
| Interest Cover | 1.24 | 1.45 | 1.63 | 1.80 | 1.94 | 2.07 | 2.18 | 2.28 | 2.36 | 2.42 | 2.46 | 2.50 | 2.51 | 2.51 | 2.16 | |
| Increase in revenue over last year | 9.0% | 9.0% | 9.0% | 9.0% | 9.0% | 9.0% | 9.0% | 9.0% | 9.0% | 9.0% | 9.0% | 9.0% | 4.0% | 8.62% | ||
| Increase in Operating Cost | 8.42% | 8.49% | 8.55% | 8.60% | 8.67% | 8.73% | 8.78% | 8.83% | 8.89% | 8.93% | 8.99% | 9.03% | 4.00% | 8.38% | ||
| ROCE | 0.39% | |||||||||||||||
| Current assets | 0.75 |
Appendix: 2
DCF using current player strategy
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | |||
| EBIT (1-Tax Rate) | – | 2.31 | 2.85 | 3.42 | 4.03 | 4.69 | 5.38 | 6.12 | 6.89 | 7.71 | 8.56 | 9.46 | 10.38 | 10.80 | |
| Add: | Depreciation & Amortization | – | 2.29 | 2.38 | 2.47 | 2.57 | 2.68 | 2.78 | 2.90 | 3.01 | 3.13 | 3.26 | 3.39 | 3.52 | 3.66 |
| Less: | Capital Expenditure | (3.43) | (3.57) | (3.71) | (3.86) | (4.01) | (4.18) | (4.34) | (4.52) | (4.70) | (4.88) | (5.08) | (5.28) | (5.49) | |
| Less: | Changes in working capital | (1.47) | (1.60) | (1.74) | (1.90) | (2.07) | (2.26) | (2.46) | (2.68) | (2.93) | (3.19) | (3.48) | (3.79) | (1.84) | |
| Free Cash Flows | – | (0.30) | 0.06 | 0.43 | 0.84 | 1.28 | 1.72 | 2.21 | 2.70 | 3.22 | 3.75 | 4.29 | 4.83 | 7.12 | |
| Terminal Value | 90.56 | ||||||||||||||
| (0.30) | 0.06 | 0.43 | 0.84 | 1.28 | 1.72 | 2.21 | 2.70 | 3.22 | 3.75 | 4.29 | 4.83 | 97.69 | |||
| WACC | 10.56% | 10.56% | 10.56% | 10.56% | 10.56% | 10.56% | 10.56% | 10.56% | 10.56% | 10.56% | 10.56% | 10.56% | 10.56% | ||
| PV of FCF | (0.269) | 0.046 | 0.320 | 0.560 | 0.774 | 0.942 | 1.094 | 1.209 | 1.302 | 1.372 | 1.421 | 1.446 | 26.477 | ||
| Enterprise Value (NPV) | 36.70 | ||||||||||||||
| Less: Net debt (Debts -Cash) | -16.79 | ||||||||||||||
| Equity Value | 19.91 | ||||||||||||||
| Share price | 2.14 |
Appendix: 3
| Team | Enterprise | Net Debt/EV | Revenue | Operating | Avg. Points | Avg. Net Goals | |||
| Value (EV)a | Income | (1998-2007) | (1998-2007) | EV/ REVENUE | EV/EBIT | EV/AVG. POINTS | |||
| Manchester United | 934 | 0.84 | 169 | 50 | 82 | 43. | 5.53 | 18.68 | 11.39 |
| Arsenal | 588 | 0.53 | 134 | 11 | 77 | 38. | 4.39 | 53.45 | 7.64 |
| Chelsea | 345 | 0.28 | 154 | -20 | 74 | 34. | 2.24 | -17.25 | 4.66 |
| Liverpool | 291 | 0.18 | 123 | 20 | 67 | 25. | 2.37 | 14.55 | 4.34 |
| Newcastle United | 167 | 0.46 | 87 | 6 | 53 | 2. | 1.92 | 27.83 | 3.15 |
| Tottenham Hotspur | 156 | 0.12 | 75 | 5 | 51 | 5. | 2.08 | 31.20 | 3.06 |
| Everton | 106 | 0.32 | 58 | -8 | 49 | -5. | 1.83 | -13.25 | 2.16 |
| Aston Villa | 90 | 0.16 | 50 | -11 | 51 | 0.00 | 1.80 | -8.18 | 1.76 |
| Multiples | 2.77 | 13.38 | 4.77 | ||||||
Appendix: 4
Multiple Analysis
| Tottenham Hotspur | MULTIPLES | INDICATED EV | |
| Revenue | 75 | 2.77 | 207.64 |
| EBIT | 5 | 13.38 | 66.90 |
| AVG. POINTS | 51 | 4.77 | 243.33 |
| AVERAGE | 172.62 | ||
| NPV | |||
| EV AVERAGE | 172.62 | ||
| Less: Net debt (Debts -Cash) | -16.79 | ||
| EQUITY VALUE | 155.83 | ||
| PRICE/ SHARE | 16.77 |
Appendix: 5
| New Stadium | ||||||||||||||
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | |
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
| Attendence Revenue | – | 7.6 | 8.3 | 9.0 | 9.8 | 10.7 | 11.7 | 12.7 | 13.9 | 15.1 | 16.5 | 18.0 | 19.6 | 20.4 |
| Sponsorship Revenue | – | 3.4 | 3.7 | 4.1 | 4.4 | 4.8 | 5.3 | 5.7 | 6.3 | 6.8 | 7.4 | 8.1 | 8.8 | 9.2 |
| total revenue | – | 11.0 | 12.0 | 13.1 | 14.3 | 15.5 | 16.9 | 18.5 | 20.1 | 21.9 | 23.9 | 26.1 | 28.4 | 29.5 |
| Operating Costs | ||||||||||||||
| Stadium Operating Expenses | (2.29) | (2.39) | (2.48) | (2.58) | (2.68) | (2.79) | (2.90) | (3.02) | (3.14) | (3.26) | (3.40) | (3.53) | (3.67) | (3.82) |
| Total | (2.3) | 8.6 | 9.5 | 10.5 | 11.6 | 12.7 | 14.0 | 15.4 | 17.0 | 18.7 | 20.5 | 22.5 | 24.7 | 25.7 |
| tax | 0.80 | – 3.02 | – 3.33 | – 3.67 | – 4.05 | – 4.46 | – 4.91 | – 5.41 | – 5.94 | – 6.54 | – 7.18 | – 7.89 | – 8.66 | – 9.00 |
| total income | – 1.49 | 5.61 | 6.19 | 6.82 | 7.52 | 8.29 | 9.12 | 10.04 | 11.04 | 12.14 | 13.33 | 14.65 | 16.08 | 16.72 |
| loan | 125.00 | 125.00 | ||||||||||||
| installment | -22.72727 | -22.7273 | -22.7273 | -22.7273 | -22.7273 | -22.7273 | -22.7273 | -22.7273 | -22.7273 | -22.7273 | -22.7273 | |||
| Depreciation | 2.2 | 2.288 | 2.37952 | 2.474701 | 2.573689 | 2.676636 | 2.783702 | 2.89505 | 3.010852 | 3.131286 | 3.256537 | 3.386799 | 3.522271 | 3.663162 |
| initial investment | -125 | -125 | ||||||||||||
| Changes in Working Capital | 2.42 | 2.64 | 2.88 | 3.14 | 3.42 | 3.73 | 4.07 | 4.43 | 4.83 | 5.27 | 5.74 | 6.26 | 6.51 | |
| maintainnace cost | (3.3) | -3.432 | -3.56928 | -3.712051 | -3.86053 | -4.01495 | -4.17555 | -4.34257 | -4.51628 | -4.69693 | -4.88481 | -5.0802 | -5.28341 | -5.49474 |
| Cash Flows | (2.59) | 6.89 | 7.64 | (14.26) | (13.35) | (12.36) | (11.27) | (10.07) | (8.76) | (7.32) | (5.75) | (4.04) | (2.15) | (1.33) |
| 6.229 | 6.249 | (10.552) | (8.936) | (7.480) | (6.168) | (4.986) | (3.924) | (2.968) | (2.109) | (1.338) | (0.645) | (0.360) | ||
| Net Present Value @10.56% | ($36.99) |
Appendix: 6
| New Player | |||||||||||
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |
| Additional Revenue | 3.92 | 4.27 | 4.66 | 5.08 | 5.53 | 6.03 | 6.57 | 7.17 | 7.81 | 8.51 | |
| Transfer Fees | (20.00) | ||||||||||
| Less: Striker salary | (2.60) | (2.86) | (3.15) | (3.46) | (3.81) | (4.19) | (4.61) | (5.07) | (5.57) | (6.13) | |
| Add/(Less): Tax | 6.54 | (0.49) | (0.53) | (0.57) | (0.60) | (0.65) | (0.69) | (0.73) | (0.78) | (0.83) | |
| Changes in Working Capital | 0.86 | 0.94 | 1.03 | 1.12 | 1.22 | 1.33 | 1.45 | 1.58 | 1.72 | 1.88 | |
| Cash Flows | (11.28) | 1.86 | 2.01 | 2.17 | 2.34 | 2.53 | 2.73 | 2.94 | 3.17 | 3.42 | |
| NPV | 2.27 |
Appendix: 7
| New Stadium and New Striker | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 |
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
| Initial Investment | -125 | -125 | ||||||||||||
| Synergy | 1 | 1 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | ||||
| Revenue | ||||||||||||||
| Revenue from Stadium | 11.01 | 12.00 | 13.08 | 14.26 | 15.54 | 16.94 | 18.46 | 20.12 | 21.94 | 23.91 | 26.06 | 28.41 | 29.55 | |
| Revenue from player | 3.92 | 4.27 | 18.63 | 20.31 | 22.13 | 24.13 | 26.30 | 28.66 | 31.24 | 34.06 | – | – | – | |
| Total Revenue | 14.93 | 16.27 | 31.71 | 34.56 | 37.67 | 41.06 | 44.76 | 48.79 | 53.18 | 57.97 | 26.06 | 28.41 | 29.55 | |
| Less: Operating Cost | ||||||||||||||
| Transfer Fees | (20.00) | – | – | – | – | – | – | – | – | – | – | – | – | |
| Stadium Operating Expenses | (2.39) | (2.48) | (2.58) | (2.68) | (2.79) | (2.90) | (3.02) | (3.14) | (3.26) | (3.40) | (3.53) | (3.67) | (3.82) | |
| Depreciation | 2.29 | 2.38 | 2.47 | 2.57 | 2.68 | 2.78 | 2.90 | 3.01 | 3.13 | 3.26 | 3.39 | 3.52 | 3.66 | |
| Striker Salary | (2.60) | (2.86) | (3.15) | (3.46) | (3.81) | (4.19) | (4.61) | (5.07) | (5.57) | (6.13) | ||||
| Total Operating Cost | (22.70) | (2.96) | (3.25) | (3.57) | (3.92) | (4.31) | (4.73) | (5.19) | (5.71) | (6.27) | (0.14) | (0.15) | (0.15) | |
| Add/(Less): Tax | 2.72 | (4.66) | (9.96) | (10.85) | (11.81) | (12.87) | (14.01) | (15.26) | (16.62) | (18.09) | (9.07) | (9.89) | (10.29) | |
| Changes in Working Capital | 3.29 | 3.58 | 6.98 | 7.61 | 8.30 | 9.04 | 9.86 | 10.75 | 11.71 | 12.77 | 5.74 | 6.26 | 6.51 | |
| Cash Flows | (129.05) | (115.14) | 23.00 | 25.18 | 27.56 | 30.15 | 32.98 | 36.07 | 39.44 | 43.11 | 19.20 | 21.10 | 21.95 | |
| NPV | (60.97) |
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