Tottenhame Case Study Write Up

Executive Summary

The following analysis explains methods used to determine what decisions are in the best interest of the Tottenham Hotspur Football Club. Traditional discounted cash flows and the method of multiples, both explained in the paragraph below, show that the Tottenham Club is currently overvalued at 156m pounds. This means that the stock price is currently too high and does not represent the team’s actual earning potential, which should soon lead to a drop in price. Determining the value of increased revenue from a new stadium and a new striker, when adding one without the other, results in a loss of money. However, with the decision to add both the new stadium and the new striker together, the team should increase revenues as well as overall value.

Traditional DCF & Method of Multiples

The traditional discounted cash flows method takes all future expected cash flows from revenue, then discounts them back to what they are worth right now. By doing this, I can conclude that the team is worth 115.29m pounds. According to the valuations, Tottenham currently reports that they are worth 156m, which I find to be highly overstated. Their stock price is too high and the earnings potential is misrepresented. After calculating the averages of points and revenue in relation to each of the bottom four teams’ enterprise value, I can support my argument that the Tottenham team is overvalued. I will now use the 115.29m value as a base to compare how much additional revenue the new stadium and striker can bring to the club.

New Stadium

The decision to build a new stadium relies heavily on the question of whether the potential increased attendance and sponsorship revenues outweigh the 250m pounds of construction costs along with increased stadium operation expense. Adding in all additional revenues as well as expenses, I can now value the company at 86.19m pounds. This is a 29.10m pound decrease from the club’s value without the new stadium. This means that building the new stadium without acquiring players will not increase the overall value of the club and is not advised.

New Striker

Obtaining a new striker can greatly benefit the Tottenham Football Club and potentially vault them into the English Premier League, but is very costly. While there is a set 20m player transfer fee along with the player’s salary, there is no easy way to determine the exact value they will bring to the club. To estimate the value a new player will most likely bring, I ran a regression in excel. The regression used each team’s overall points in relation to the revenue they made, and gave an output based on that relationship. From that output, I can estimate that a new player will increase Tottenham’s overall revenue by 19.32%. When I input all variables to produce a new company