Tottenham Hotspur Football Club
- Pages: 3
- Word count: 700
- Category: Football
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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 value, I found the increased revenue did not exceed the heavy cost of obtaining a new player.
The value was 3. 28m less than before, making it too risky to add a new player without a new stadium. New Stadium with a New Striker The decision to add a stadium or a new player separately resulted in a loss of overall value for the team. However, when the combined revenues of both the new stadium and player complement one another, the team’s overall value is 23. 81m pounds higher than before. In the first two years following the decision to build a stadium and obtain a new striker, the team will incur heavy costs that will need to be financed.
After the initial two years, based on my analysis, the team will prosper and possibly vault themselves into the Premiership, leading to even more increased revenues. To compliment the decision, I can estimate that the new player must only increase revenues by 5. 75% out of the expected 19. 32% to reach a breakeven point. At the breakeven point, the team will have the same value as before, except now Tottenham will have a new stadium as well as a new player. With an added value of 23. 81m pounds, I highly recommend Daniel Levy should move forward with the decision to build the new stadium and acquire a new striker.