You are on page 1of 78

Daniel Serra Lopes – Felipe Martins Brand da Costa –Hugo Miguel Sismeiro Reis – Joana Filipe Santana – Joana

Dias Serrano
Tottenham Hotspur plc
Case Study Analysis


MscBA – Master in Science of Business Administration
Advanced Corporate Finance – Professor Helena Pinto de Sousa

April 2012
Agenda
2
 Case Study Introduction
 Valuation for the Base Scenario
 Discounted Cash Flow (DCF) Valuation
 Adjusted Present Value (APV) Valuation
 Is Tottenham Hotspur PLC fairly valued? The Rationale.
 DCF Valuation for the new likely scenarios
 To build the new stadium
 To sign a new striker
 To build the new stadium and sign a new striker
 Final wrap-up

Tottenham Hotspur PLC Case Study
Agenda
3
 Case Study Introduction
 Valuation for the Base Scenario
 Discounted Cash Flow (DCF) Valuation
 Adjusted Present Value (APV) Valuation
 Is Tottenham Hotspur PLC fairly valued? The Rationale.
 DCF Valuation for the new likely scenarios
 To build the new stadium
 To sign a new striker
 To build the new stadium and sign a new striker
 Final wrap-up

Tottenham Hotspur PLC Case Study
Case Study Introduction
Tottenham Hotspur PLC Case Study
4
—As it is described throughout the case, Tottenham Hotspur Football Club is contemplating a bold move for the organization and
this requires a significant investment in physical assets. They want to gain competitive advantage, as some of their key
competitors have achieved, and they want to strengthen their financial stability and long-run success.

—The organization believes that one way to acquire it is through the construction of a new stadium. They want to accommodate
more people and they believe that they will be able to increase the club expected attendance revenue and sponsorship revenues.
Besides, these added revenues would allow the club to compete more competitively in the acquisition market for superstar
international players. The club’s success does not only depend on financial resources and the team’s expected improvement
would also contribute to their success, both cultural and financial. Therefore, besides constructing a new stadium they are
considering strengthening their position in the player acquisition market.

—The main goal of the case is to evaluate these assets, in order to understand the relevance of the stadium’s construction and how
the club can proceed in the player acquisition market to be able to benefit from it. This implies to understand the impact of these
decisions in the value of the company, to compare it with the initial scenario, to determine the impact in terms of the company
stock valuation and also to study the market reaction when one or both of them are pursued. Only through this analysis it is
possible to determine if these strategies are rational and reliable.
Agenda
5
 Case Study Introduction
 Valuation for the Base Scenario
 Discounted Cash Flow (DCF) Valuation
 Adjusted Present Value (APV) Valuation
 Is Tottenham Hotspur PLC fairly valued? The Rationale.
 DCF Valuation for the new likely scenarios
 To build the new stadium
 To sign a new striker
 To build the new stadium and sign a new striker
 Final wrap-up

Tottenham Hotspur PLC Case Study
Valuation for the Base Scenario
Main assumptions considered (I)
Tottenham Hotspur PLC Case Study
6
I
n
f
o

f
r
o
m

F
O
R
B
E
S

A
N
A
L
Y
S
I
S

3
1
/
1
2
/
2
0
1
2
(
E
x
h
i
b
i
t

2
)

1

EV - Forbes 156



2

Net Debt/EV 0,12



3

Revenue - Forbes 75



4

Operating Income 5



5

Avg. Points (98-07) 51



6

Avg. Net Goals (98-2007) -1,9



7

Net Debt (Market Value) 18,72



8

Debt (Market Value) - Estimated 45,01



9

Equity (Market Value) - Estimated 137,28



10 Operating Income 5
A
C
C
O
U
N
T
I
N
G

a
n
d

M
A
R
K
E
T

D
A
T
A

3
1
/
1
2
/
2
0
0
7

(
E
x
h
i
b
i
t

1

a
n
d

4
)

11 Excess Cash (Accounting) 26,29

12 Company Tax Rate (t) 35%

13 Interest (£M) 2,26

14 Tottenham Equity (Levered) Beta 1,29

15 Tax free rate - Rf 4,57%

16 (1 - t) 65%

17 Market Capitalization (Accounting) 128,2

18 Taxes (£M) 0,19

19 Long-term Debt (Accounting) 43,08

20 Leverage Ratio (L) 0,25
Valuation for the Base Scenario
Main assumptions considered (II)
Tottenham Hotspur PLC Case Study
7
(1) Enterprise Value (EV)
Measure of the company's value and it is often used for evaluating
the entire firm. It is the market cap of the firm, minus the cash, plus
the debt – EV = Equity + Debt - Excess Cash. This value can be found
in the case, Exhibit 2.
(3) Revenue
Amount of money that is brought into a company throughout its
business activities, during a specific period. It can be define as the
gross income figure from which costs are subtracted to determine
net income. This value can be found in the case, Exhibit 2.
(4) Operating income
Amount of profit realized from a business's operations after taking
out operating expenses and depreciation. This value can be found
in the case, Exhibit 2.
(7) Net debt
Measure of a company's ability to repay all its debt if it was called
immediately. Since we know the value of the Net Debt/EV ratio (2)
and EV (1), we computed Net Debt by multiplying (2)x(1).
Main assumptions
(8) Debt (Market Value)
We estimated the value of the debt adding the value of the Net Debt
and the value of the Excess Cash since we know that Net Debt (7) =
Debt (8) – Excess Cash (11) and both (7) and (11) are known. For
this type of analysis we have to use the market value of the debt.
(9) Equity (Market Value)
We computed the value of the Equity by subtracting the value of the
EV and the Net Debt. Using the formula EV(1)=Equity(9)+Debt (8)–
Excess Cash (11) we can deduct (9) as we know all the other values.
(10) Operating income
This value can also be found in the case’s financial reports - Exhibit
5, Tottenham Pro Forma Income Statement – as it matches the value
of the EBITDA for the current year.
(11) Excess Cash
The value of excess cash can be found in Tottenham Balance Sheet -
Exhibit 4 – under the item Cash and Equivalents. It can be defined as
the income derived from mortgages or other assets backing a bond
that is in excess of what is needed to retire the bond.
Valuation for the Base Scenario
Main assumptions considered (III)
Tottenham Hotspur PLC Case Study
8
(12) Tax rate (t)
The value of the company tax rate can be found in the case, Exhibit
1. This is the rate at which the business is taxed on income.
(13) Interest
This value can be found in the case – Exhibit 5, Income Statement –
and it is related to the current year. It is the fee that is paid for the
use of borrowed assets as a form of compensation to the owner.
(14) Equity (levered) Beta (Bl)
It measures the total corporate risk that is the sum of the business
and financial risks. Tottenham equity beta, also known as levered
beta, can be found in Exhibit 1.
(15) Tax free rate (Rf)
The value of the 20-year risk free rate is given in the case, Exhibit 1.
This is the tax associated with the long-term obligations.
(16) (1-t)
Since we already know the value of the tax rate (12), we only need
to deduct it from one.
Main assumptions
(17) Market Capitalization
Market capitalization is calculated by multiplying a company's
shares outstanding by the current market price of one share. The
investment community uses this figure to determine a company's
size. The value can be found in the Balance Sheet, under Liabilities
and Stockholder Equity.
(18) Taxes
The value of the taxes paid, during the current year, can be found in
Exhibit 5, Income Statement.
(19) Long-term debt
Long term debt is the amount of loans and financial obligations that
last over one year. This value can be found in the Balance Sheet
under the item long-term debt and deferred interest, net of current
portion
(20) Leverage Ratio (L)
The leverage ratio was estimated using the formula: (8)/[(8)+(9)] =
Debt/(Debt + Equity). This measures how much of the organization
is financed by the debt holders.
Valuation for the Base Scenario
Determining company Betas and Discount rates for 2007 (I)
Tottenham Hotspur PLC Case Study
9


Today: 31 of December 2007



21 (D/E) 32,79%

22 Cost of Debt (rd) 5,02%

23 Market Expected Return (rm) 10,49%

24 Market Premium (rm - rf) 5,92%

25 Debt Beta (Bd) 0,08

26 Unlevered Beta (Bu) 1,08

27 Opportunity Cost of Capital (ru) 10,94%

28 Equity Cost (re) - Method 1 12,21%

29 Equity Cost (re) - Method 2 12,21%

30 Adjusted Cost of Capital 10,00%

31 WACC 10,00%
Define assumptions
(21) Debt-to-equity ratio (D/E)
The debt-to-equity ratio indicates the relative proportion of the
shareholders’ equity and debt that is used to finance company's
assets. It was calculated dividing the market value of debt (8) by
the market value of equity (9);
(22) Cost of debt (Rd)
We computed the cost of debt using the market value of the debt
(8), and not the accounting value, because the WACC is computed
using the marginal cost of the debt and its market value. Thus, we
divided the amount of the interest and the market value of the
debt – (13)/(8). 5,02% is the effective rate that the company pays
on its current debt;
(23) Market Expected Return (Rm)
The way we computed the Rm will be explained in slide 11;
(24) Market Premium (Rm-Rf)
Market premium is given by the difference between the expected
return on a market portfolio and the risk-free rate. Therefore, we
computed it using the following formula: (23)-(15).
Valuation for the Base Scenario
Determining company Betas and Discount rates for 2007 (II)
Tottenham Hotspur PLC Case Study
10
(25) Debt Beta (Bd)
The value of the debt beta, that measures the risk of the company’s
defaulting on its debt, was computed by:
Cost of debt – Risk-free rate/ Market Premium = (Rd-Rf)/(Rm-Rf)

(26) Unlevered Beta (Bu)
The value of the unlevered beta, that measures the business risk,
was computed by:
[Bl+Bd*(1-t)*(D/E)]/[1+(1-t)*(D/E)]

(27) Opportunity cost of capital (Ru)
The opportunity cost of capital, that is the expected return that the
company is giving up by investing in the project rather than in a
different investment activity, was computed by:
Rf + Bu*(Rm-Rf)
Main assumptions
(28) Equity cost (Re)
The value of the equity cost, that is the return that the stockholders
require for the company, was computed by:
Ru+(1-t)*(Ru-Rd)*(D/E)

(29) Equity cost (re)
We also computed the equity cost using the formula:
Rf + Bl*(Rm-Rf)

(31) Weight ted Average Cost of Capital (WACC)
In order to compute the company’s cost of capital, in which each
category of capital is proportionately weighted, we used the given
formula:
Re*(1-L)+[(1-t)*Rd*L]
Valuation for the Base Scenario
Assumption for the expected Market Return (rm)
Tottenham Hotspur PLC Case Study
11
We have analysed FTSE historical data in order to estimate a Market Return to be considered
FTSE Historical Data 2003 2004 2005 2006 2007
1st January (Open) value 3940,40 4476,90 4814,30 5681,50 6220,80
31st December (Last) value 4476,90 4814,30 5681,50 6220,80 6456,90
Total Yearly Variation 536,50 337,40 867,20 539,30 236,10
Yearly % of Change 13,62% 7,54% 18,01% 9,49% 3,80%
Average to Year @ 2003 13,62% 10,58% 13,05% 12,16% 10,49%
Average to Year @ 2007 10,49% 9,71% 10,43% 6,64% 3,80%
SOURCE: http://www.forexpros.com/indices/uk-100-historical-data
― We have proceeded as follows:
― Checked for the Index Valuation at the beginning and end of each year from 2003 to 2007;
― Computed the yearly variation and the implicit return (Variation/Open Value);
― Computed averages and decided to consider a full average for the 5 years: 10,49%.
― Note: It is possible to realize, however, that the there is a clear tendency for the market return to decrease overtime. If we compute
the 2008 forecast we can find an expected return of 5,19%. However, for the sake of the analysis and assuming that in 2007 we
could not be able to expect as clearly the consequences of the Financial Crisis, we have chose to assume the plain 5 years average.
Valuation for the Base Scenario
Determining the FCFF – Free Cash Flow for the Firm (I)
Tottenham Hotspur PLC Case Study
12
General Assumptions considered and the outputs that would be computed
General Assumptions:
― All the values considered in the following evidences (1, 2, …) are presented in Million of Pounds (£);
― We have decided to compute the whole analysis (not only for the DCF approach but to the entire case resolution) using current
or nominal prices (yearly prices) instead of constant prices (which we could have preferred as we are given the annual inflation
rate). As we would assume a steady inflation condition, we can conclude that the impact on the Cash Flows would be only
relevant regarding the Depreciation portion of the Free Cash Flow for the Firm (in order to compute the Firm Value with
constant prices we would have to compute both the inflation impact on the EBITDA, CAPEX and Net WC, as well as the constant
(real) Discount Rates – the total impact on the final Firm Value would be equal to zero except for the Depreciation portion, as
these non-monetary expenses wouldn’t be un-inflated). So, to sum up, if we have considered the real prices the Depreciations
impact would have been over-considered.

3 different ways to determine the Equity Value using the DCF Method:
― METHOD A: Considering a fixed WACC throughout the entire period of analysis;
― METHOD B: Considering a dynamic (floating) WACC with a fixed Cost of Equity (fixed Beta Levered);
― METHOD C: Considering a dynamic (floating) WACC with a dynamic Cost of Equity (floating Beta Levered).

Valuation for the Base Scenario
Determining the FCFF – Free Cash Flow for the Firm (II)
Tottenham Hotspur PLC Case Study
13
Information from the Tottenham Pro Forma Income Statement (millions of pounds) from Exhibit 2, 5 and Case (I)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

1 Revenue
2 Attendance 17,40 18,97 20,67 22,53 24,56 26,77 29,18 31,81 34,67 37,79 41,19 44,90 48,94 50,90
3 Sponsorship 15,70 17,11 18,65 20,33 22,16 24,16 26,33 28,70 31,28 34,10 37,17 40,51 44,16 45,93
4 Broadcast 28,70 31,28 34,10 37,17 40,51 44,16 48,13 52,46 57,19 62,33 67,94 74,06 80,72 83,95
5 Merchandise 5,20 5,67 6,18 6,73 7,34 8,00 8,72 9,51 10,36 11,29 12,31 13,42 14,63 15,21
6 Other 7,10 7,74 8,44 9,19 10,02 10,92 11,91 12,98 14,15 15,42 16,81 18,32 19,97 20,77
7 Total 74,10 80,77 88,04 95,96 104,60 114,01 124,27 135,46 147,65 160,94 175,42 191,21 208,42 216,76
YoY(%) - 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 Operating Costs
9 Payroll 50,92 56,01 61,62 67,78 74,56 82,01 90,21 99,23 109,16 120,07 132,08 145,29 159,82 166,21
YoY(%) - 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 4,0%
10 Stadium Operating Expenses 16,38 17,04 17,72 18,43 19,16 19,93 20,73 21,55 22,42 23,31 24,25 25,22 26,22 27,27
11 Other 1,80 1,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,88 3,00
12 Total 69,10 74,92 81,28 88,23 95,82 104,13 113,22 123,16 134,04 145,95 158,99 173,28 188,92 196,48
YoY(%) - 8,4% 8,5% 8,6% 8,6% 8,7% 8,7% 8,8% 8,8% 8,9% 8,9% 9,0% 9,0% 4,0%
These projections figures are given in the Case
EVIDENCE 1 (A)
Valuation for the Base Scenario
Determining the FCFF – Free Cash Flow for the Firm (III)
Tottenham Hotspur PLC Case Study
14
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

13 EBITDA 5,00 5,85 6,76 7,73 8,77 9,88 11,06 12,30 13,61 14,99 16,43 17,93 19,49 20,27
14 Depreciation 2,20 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
YoY(%) - 4,09% 3,93% 3,78% 4,05% 4,28% 3,73% 4,32% 3,79% 3,99% 4,15% 3,99% 3,83% 3,98%
15 EBIT 2,80 3,56 4,38 5,26 6,20 7,21 8,27 9,41 10,60 11,86 13,17 14,55 15,97 16,61
16 Interest 2,26 2,46 2,69 2,93 3,19 3,48 3,79 4,13 4,50 4,91 5,35 5,83 6,36 6,61
17 Taxes 0,19 0,38 0,59 0,82 1,05 1,30 1,57 1,85 2,13 2,43 2,74 3,05 3,37 3,50
18 Net Income 0,35 0,71 1,10 1,52 1,96 2,42 2,91 3,43 3,96 4,52 5,09 5,66 6,25 6,50

19 Inflation 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50%

20 Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

21 Capital Expenditure (Maintenance) 3,3 3,4 3,6 3,7 3,9 4,0 4,2 4,3 4,5 4,7 4,9 5,1 5,3 5,5
YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%
One should note that the yearly variations for the Total Revenues, Total Costs, Depreciation and Capital Expenditure
(Maintenance) were computed and they are all equal to 4% - this piece of information is useful to make sure that we can
assume a terminal growth rate of 4%, as stated in the case, as we will demonstrate later
Information from the Tottenham Pro Forma Income Statement (millions of pounds) from Exhibit 2, 5 and Case (II)
EVIDENCE 1 (B)
Valuation for the Base Scenario
Determining the FCFF – Free Cash Flow for the Firm (IV)
Tottenham Hotspur PLC Case Study
15
Determining the Free Cash Flow for the Firm (I)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

1 EBIT 2,80 3,56 4,38 5,26 6,20 7,21 8,27 9,41 10,60 11,86 13,17 14,55 15,97 16,61

2 Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

3 EBIT (1-t) 1,82 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

4 Depreciation 2,20 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

5 Operational Cash Flow 4,02 4,60 5,23 5,89 6,60 7,37 8,16 9,02 9,90 10,84 11,82 12,85 13,90 14,46

6 Capital Expenditure 3,30 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
YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

7 Increases in Non-Cash Net WC 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00

8 Free Cash Flow for the Firm 0,72 1,17 1,66 2,18 2,74 3,35 3,98 4,67 5,38 6,14 6,94 7,77 8,62 8,96
YoY(%) - 62,78% 41,44% 31,32% 25,84% 22,34% 18,75% 17,44% 15,19% 14,09% 12,92% 11,99% 10,94% 4,00%
EVIDENCE 2 (A)
The 2020 FCFF has a YoY(%) increase of 4%
Valuation for the Base Scenario
Determining the FCFF – Free Cash Flow for the Firm (V)
Tottenham Hotspur PLC Case Study
16
Determining the Free Cash Flow for the Firm (II)
General Assumptions:
― The FCFF figures will be similar for all the methods that will be demonstrated afterwards and also for the Adjusted Present
Value approach;
― As we cannot find any piece of information stating the opposite, we have assume that in the Base Scenario the Increases in Non-
Cash Net WC are always equal to zero. This is a simplifying assumption, as it likely that this value would increase overtime as
the total EBITDA also increases. For other scenarios, as we would note later, it is possible to estimate an annual increase for
this item;
Rationale and Computing Formulas:
― The Free Cash Flow for the Firm is computed as follows:
FCFF = EBIT (1-t) + Depreciation – Capital Expenditure – Increases in Non-Cash Net WC
― The Operational Cash Flow is computed as follows: OCF = EBIT (1-t) + Depreciation
― We are given the 2007 value for the CAPEX and we have computed the value for the following years assuming a growth rate of
4%, as stated on the Case;

Agenda
17
 Case Study Introduction
 Valuation for the Base Scenario
 Discounted Cash Flow (DCF) Valuation
 Adjusted Present Value (APV) Valuation
 Is Tottenham Hotspur PLC fairly valued? The Rationale.
 DCF Valuation for the new likely scenarios
 To build the new stadium
 To sign a new striker
 To build the new stadium and sign a new striker
 Final wrap-up

Tottenham Hotspur PLC Case Study
Valuation for the Base Scenario
From the FCFF and the Discount Rates to the Target Price for Share (I)
Tottenham Hotspur PLC Case Study
18
Using Method A we have considered a fixed WACC throughout the entire period of analysis
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

9 WACC 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0%

10 Actualization Factor @ WACC 1,000 1,100 1,210 1,331 1,464 1,610 1,771 1,949 2,143 2,358 2,594 2,853 3,138 3,452

11 Terminal Value @ WACC with g = 4% 149,39

12 FCFF @ 2007 Prices @ WACC 0,72 1,07 1,37 1,64 1,87 2,08 2,25 2,40 2,51 2,61 2,67 2,72 50,35

13 EV - Enterprise Value 74,25

14 Excess Cash 26,29

15 FV - Firm Value 100,54

16 Financial Debt (Market Value) 45,01


17 Equity Value 55,53

18 # of Shares (M) 9,29

19 Target price for Share 5,98
Note that both the WACC figure (9) and the FCFF were computed before
EVIDENCE 2 (B)
Valuation for the Base Scenario
From the FCFF and the Discount Rates to the Target Price for Share (II)
Tottenham Hotspur PLC Case Study
19
Estimated price for share using Method A is £5,98
General Assumptions:
― Constant WACC: this implies a constant D/E ratio, a constant Cost of Debt and Cost of Equity and a constant tax rate for the
company. Given the projections that were presented, we can assume that is most likely that this ratio and Discount Rates will
not remain constant throughout the entire period, as we will understand later;
― As all of the portions that determine the value of the FCFF can hold a yearly increase of 4%, we can assume a growing rate (g) of
the same dimension: g = 4%
Rationale and Computing Formulas:
― The actualization factor is computed in order to get all the values in 2007 prices. It is computed as follows:
For 2007: AF = 1; For 2008+: AF(n) = AF(m-1) * WACC (n)
― The Terminal Value is computed as follows: Terminal Value (n) = FCFF (n+1) / [ WACC ( n+1) – g (perpetual) ]
― The Enterprise Value is computed as follows: EV = ∑ FCFF @ 2007 Prices @ WACC
― The Firm Value is computed as follows: FV = EV + Excess Cash (this can be found on Finantial Statements)
― The Equity Value is computed as follows: Equity Value = FV – Finantial Debt (market value, that we got from Exhibit 2)
― The Target price for share is computed as follows: TPS = Equity Value / Shares Outstanding – The target price for share
represents the fair value for each share of the company, according to the assumptions that were defined;
Valuation for the Base Scenario
From the FCFF and the Discount Rates to the Target Price for Share (III)
Tottenham Hotspur PLC Case Study
20
Using Method B we have considered a dynamic (floating) WACC with a fixed Cost of Equity (fixed Beta Levered) (I)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

1 Equity 137,28 137,63 138,34 139,44 140,96 142,92 145,34 148,25 151,68 155,64 160,16 165,25 170,91 177,16

2 Debt 45,01 48,993 53,574 58,354 63,532 69,307 75,481 82,253 89,622 97,787 106,55 116,11 126,67 131,64

3 Debt + Equity 182,29 186,62 191,91 197,79 204,49 212,23 220,82 230,5 241,3 253,43 266,71 281,36 297,58 308,8

4 YoY Variation - 4,3332 5,2907 5,8798 6,6981 7,7356 8,5939 9,6814 10,799 12,126 13,283 14,65 16,215 11,229

5 Capital Expenditure 3,30 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

6 Cost of Debt (rd) 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

7 Debt to Equity Ratio 0,3279 0,356 0,3873 0,4185 0,4507 0,4849 0,5193 0,5548 0,5909 0,6283 0,6653 0,7026 0,7411 0,7431

8 Leverage Ratio (L) 0,2469 0,2625 0,2792 0,295 0,3107 0,3266 0,3418 0,3568 0,3714 0,3859 0,3995 0,4127 0,4257 0,4263

9 (1-t) 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65%
EVIDENCE 3 (A)
Valuation for the Base Scenario
From the FCFF and the Discount Rates to the Target Price for Share (IV)
Tottenham Hotspur PLC Case Study
21
Using Method B we have considered a dynamic (floating) WACC with a fixed Cost of Equity (fixed Beta Levered) (II)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

10 Beta Debt 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08

11 Beta Levered (FIXED) 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290

12 Beta Unlevered 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08

13 Rf 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57%

14 Rm 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49%

15 Market Premium 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92%

16 Rd (CAPM) 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

17 Ru (CAPM) 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94%

18 Re (CAPM) 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21%

19 Re (MM) 12,21% 12,32% 12,44% 12,56% 12,68% 12,81% 12,94% 13,08% 13,22% 13,36% 13,51% 13,65% 13,80% 13,81%
EVIDENCE 3 (B)
Valuation for the Base Scenario
From the FCFF and the Discount Rates to the Target Price for Share (V)
Tottenham Hotspur PLC Case Study
22
Using Method B we have considered a dynamic (floating) WACC with a fixed Cost of Equity (fixed Beta Levered) (III)
From the previous computations we got a decreasing WACC as the D/E ratio increases (rd < re)

28 Equity Value 80,86

29 # of Shares (M) 9,29

30 Target price for Share 8,7041
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

20 WACC 10,0% 9,9% 9,7% 9,6% 9,4% 9,3% 9,2% 9,0% 8,9% 8,8% 8,6% 8,5% 8,4% 8,4%

21 Actualization Factor 1,00 1,10 1,21 1,32 1,45 1,58 1,72 1,88 2,05 2,23 2,42 2,62 2,84 3,08

22 Terminal Value @ WACC with g = 4% 203,92

23 FCFF @ 2007 Prices @ WACC 0,72 1,07 1,38 1,65 1,90 2,12 2,31 2,49 2,63 2,76 2,87 2,96 74,74

24 EV - Enterprise Value 99,58

25 Excess Cash 26,29

26 FV - Firm Value 125,87

27 Financial Debt (Market Value) 45,01


28 Equity Value 80,86

29 # of Shares (M) 9,29

30 Target price for Share 8,70
EVIDENCE 3 (C)
Valuation for the Base Scenario
From the FCFF and the Discount Rates to the Target Price for Share (VI)
Tottenham Hotspur PLC Case Study
23
Estimated price for share using Method B is £8,70
General Assumptions and Formulas:
― Using this method, we have assume a floating WACC rate, taking into consideration that we have used a constant cost of Equity
(re). The rational for this decision will be explained later;
― The Beta Unlevered (Bu), Beta Debt (Bd), Cost od Debt (rd) and Cost of Opportunity (Return on Assets, ru) are constant,
according with the CAPM model;
― We are given in the case an estimation for the total Interest until 2020. As we assume the Cost of Debt as being constant, we can
compute an estimation for the total Debt structure in each year (Financial Debt) as follows:
Debt (n) = Forecasted Interest (n) / Cost of Debt
― In order to estimate the Equity structure in each year, we have assume the following formula:
Equity (n) = Equity (n-1) + Net Income (n-1) + Other Explicit Equity Increases
― In order to guarantee that the analysis makes sense, we have checked if the total variation on Equity + Debt was at least as
much as the CAPEX for each year (checked if 4 > 5). This is true for every year;
Valuation for the Base Scenario
From the FCFF and the Discount Rates to the Target Price for Share (VII)
Tottenham Hotspur PLC Case Study
24
Using Method C we have considered a dynamic (floating) WACC with a dynamic Cost of Equity (floating Beta Levered) (I)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

1 Equity 137,28 137,63 138,34 139,44 140,96 142,92 145,34 148,25 151,68 155,64 160,16 165,25 170,91 177,16

2 Debt 45,01 48,993 53,574 58,354 63,532 69,307 75,481 82,253 89,622 97,787 106,55 116,11 126,67 131,64

3 Debt + Equity 182,29 186,62 191,91 197,79 204,49 212,23 220,82 230,5 241,3 253,43 266,71 281,36 297,58 308,8

4 YoY Variation - 4,3332 5,2907 5,8798 6,6981 7,7356 8,5939 9,6814 10,799 12,126 13,283 14,65 16,215 11,229

5 Capital Expenditure 3,30 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

6 Cost of Debt (rd) 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

7 Debt to Equity Ratio 0,3279 0,356 0,3873 0,4185 0,4507 0,4849 0,5193 0,5548 0,5909 0,6283 0,6653 0,7026 0,7411 0,7431

8 Leverage Ratio (L) 0,2469 0,2625 0,2792 0,295 0,3107 0,3266 0,3418 0,3568 0,3714 0,3859 0,3995 0,4127 0,4257 0,4263

9 (1-t) 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65%
EVIDENCE 4 (A)
Valuation for the Base Scenario
From the FCFF and the Discount Rates to the Target Price for Share (VIII)
Tottenham Hotspur PLC Case Study
25
Using Method C we have considered a dynamic (floating) WACC with a dynamic Cost of Equity (floating Beta Levered) (II)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

10 Beta Debt 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08

11 Beta Levered (Dynamic) 1,290 1,308 1,329 1,349 1,370 1,392 1,415 1,438 1,461 1,485 1,509 1,534 1,559 1,560

12 Beta Unlevered 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08

13 Rf 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57%

14 Rm 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49%

15 Market Premium 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92%

16 Rd (CAPM) 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

17 Ru (CAPM) 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94%

18 Re (CAPM) 12,21% 12,32% 12,44% 12,56% 12,68% 12,81% 12,94% 13,08% 13,22% 13,36% 13,51% 13,65% 13,80% 13,81%

19 Re (MM) 12,21% 12,32% 12,44% 12,56% 12,68% 12,81% 12,94% 13,08% 13,22% 13,36% 13,51% 13,65% 13,80% 13,81%
EVIDENCE 4 (B)
Valuation for the Base Scenario
From the FCFF and the Discount Rates to the Target Price for Share (IX)
Tottenham Hotspur PLC Case Study
26
The WACC is also decreasing, even though it is decreasing less than in Method B
Using Method C we have considered a dynamic (floating) WACC with a dynamic Cost of Equity (floating Beta Levered) (III)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

20 WACC 10,0% 9,9% 9,9% 9,8% 9,8% 9,7% 9,6% 9,6% 9,5% 9,5% 9,4% 9,4% 9,3% 9,3%

21 Actualization Factor 1,00 1,10 1,21 1,33 1,46 1,60 1,75 1,92 2,10 2,30 2,52 2,75 3,01 3,29

22 Terminal Value @ WACC with g = 4% 168,71

23 FCFF @ 2007 Prices @ WACC 0,72 1,07 1,37 1,64 1,88 2,10 2,27 2,44 2,56 2,67 2,76 2,82 58,93

24 EV - Enterprise Value 83,23

25 Excess Cash 26,29

26 FV - Firm Value 109,52

27 Financial Debt (Market Value) 45,01

28 Equity Value 64,51

29 # of Shares (M) 9,29

30 Target price for Share 6,94
EVIDENCE 4 (C)
Valuation for the Base Scenario
From the FCFF and the Discount Rates to the Target Price for Share (X)
Tottenham Hotspur PLC Case Study
27
Estimated price for share using Method C is £6,94
General Assumptions:
― In this particular case we have assumed a floating Beta Levered, which means that as the capital structure changes the Beta
Levered will also tend to adjust (the risk profile of the company changes), so we have a double impact on the WACC (the Betas
change and the D/E ratio also changes);
― The Beta Levered was computed according to the CAPM model, as follows:
Bl (CAPM) = Bu + (Bu – Bd) * (1 – t) * (D / E)
― Even though the D/E Ratio is increasing (which leads to a lower WACC) the Beta Levered is also increasing (which tends to
increase the Cost of Equity (re) and has a increasing impact on the WACC). The overall outcome is that the WACC is decreasing,
but not as much as the one we can find on Method 2;
― As the WACC for 2020 will be higher using this method when comparing to Method 2, then the terminal value will be lower;
― Once again, we are able to consider a terminal growth rate of 4% (g = 4%), and we have assumed a constant Cost of
Opportunity for the Capital (ru) and a constant Cost of Debt as the Beta Unlevered and the Beta Debt remain steady;
― All the other assumptions and computing formulas were explained previously.

Valuation for the Base Scenario
Conclusions regarding Tottenham base scenario valuation using the DCF approach
Tottenham Hotspur PLC Case Study
28
Final conclusions on the 3 different values for the company’s equity that were computed
Final Results using the DCF approach:
― According to Method A, the Target price for share is £5,98;
― According to Method B, the Target price for share is £8,70;
― According to Method C, the Target price for share is £6,94;

Rational:
― The FCFF is the same regardless of the method that we choose. So, it all comes down to the Discount rates that are used;
― The same WACC computed with the company’s risk profile of 2007 for the entire period will have the most negative impact on
the Equity Value as, according to our methodology and the company projections, the Debt level is expected to grow in the
future (and the Cost of Debt is lower than the Cost of Equity);
― Furthermore, if we assume that the Beta Levered will remain constant and only the capital structure will change, we can find a
situation where the Target price in least affected.


Agenda
29
 Case Study Introduction
 Methodology: our approach
 Valuation for the Base Scenario
 Discounted Cash Flow (DCF) Valuation
 Adjusted Present Value (APV) Valuation
 Is Tottenham Hotspur PLC fairly valued? The Rationale.
 DCF Valuation for the new likely scenarios
 To build the new stadium
 To sign a new striker
 To build the new stadium and sign a new striker
 Final wrap-up

Tottenham Hotspur PLC Case Study
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

1 EBIT 2,80 3,56 4,38 5,26 6,20 7,21 8,27 9,41 10,60 11,86 13,17 14,55 15,97 16,61

2 Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

3 EBIT (1-t) 1,82 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

4 Depreciation 2,20 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

5 Operational Cash Flow 4,02 4,60 5,23 5,89 6,60 7,37 8,16 9,02 9,90 10,84 11,82 12,85 13,90 14,46

6 Capital Expenditure 3,30 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
YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

7 Increases in Non-Cash Net WC 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00

8 Free Cash Flow for the Firm 0,72 1,17 1,66 2,18 2,74 3,35 3,98 4,67 5,38 6,14 6,94 7,77 8,62 8,96
YoY(%) - 62,78% 41,44% 31,32% 25,84% 22,34% 18,75% 17,44% 15,19% 14,09% 12,92% 11,99% 10,94% 4,00%
Valuation for the Base Scenario
Determining the Equity Value using the APV Approach (I)
Tottenham Hotspur PLC Case Study
30
When using the APV approach the FCFF figures keep the same
EVIDENCE 5 (A)
Valuation for the Base Scenario
Determining the Equity Value using the APV Approach (II)
Tottenham Hotspur PLC Case Study
31
The required discount rates (Cost of Opportunity and Cost of Debt) for the APV approach were also computed before (I)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

1 Opportunity Cost of Capital (ru) 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94%

2 Actualization Factor for FCFF @ ru 1,00 1,11 1,23 1,37 1,52 1,68 1,86 2,07 2,30 2,55 2,83 3,13 3,48 3,86

3 Terminal Value @ ru with g = 4% 129,04

4 FCFF @ 2007 Prices @ ru 0,72 1,06 1,35 1,59 1,81 1,99 2,13 2,26 2,35 2,41 2,45 2,48 39,58

5 ∑ FCFF @ 2007 Prices @ ru 62,19
When considering the APV approach we can divide the Enterprise Value in two portions: the present value of the FCFF and
the present value of the Tax shields:

- The first portion that comprises the Enterprise Value when using the APV approach is computed considering the FCFF that are
discounted with the Opportunity Cost of Capital (ru). The discount rate was previously computed;
- The second portion of that comprises the Enterprise Value when using the APV approach is computed considering the Tax Shields
that are discounted with the Cost of Debt (rd), as we assume that the Tax Shields are as risky as the Debt itself.
EVIDENCE 5 (B)
Valuation for the Base Scenario
Determining the Equity Value using the APV Approach (III)
Tottenham Hotspur PLC Case Study
32
The required discount rates (Cost of Opportunity and Cost of Debt) for the APV approach were also computed before (II)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

6 Interest (forecast) 2,26 2,46 2,69 2,93 3,19 3,48 3,79 4,13 4,50 4,91 5,35 5,83 6,36 6,61

7 Tax Shield @ Current Year prices 0,79 0,86 0,94 1,03 1,12 1,22 1,33 1,45 1,58 1,72 1,87 2,04 2,23 2,31

8 Cost of Debt (rd) 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

9 Actualization Factor for TS @ rd 1,00 1,05 1,10 1,16 1,22 1,28 1,34 1,41 1,48 1,55 1,63 1,71 1,80 1,89

10 Perpetual Value of Tax Shield @ rd 46,08

11 Tax Shield @ 2007 Prices @ rd 0,79 0,82 0,85 0,89 0,92 0,95 0,99 1,03 1,06 1,11 1,15 1,19 26,83

12 ∑ Tax Shield @ 2007 Prices @ rd 38,57
EVIDENCE 5 (C)
Valuation for the Base Scenario
Determining the Equity Value using the APV Approach (IV)
Tottenham Hotspur PLC Case Study
33
Using the APV approach we get a target price for share that is similar to the one computed for the DCF approach, method B
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 +

13 FCFF + Tax Shield @ 2007 Prices 100,76

14 Enterprise Value 100,76

15 Excess Cash 26,29

16 FV - Firm Value 127,05

17 Financial Debt (Market Value) 45,01

18 Equity Value 82,04

19 # of Shares (M) 9,29

20 Target price for Share 8,83
EVIDENCE 5 (D)
Valuation for the Base Scenario
Determining the Equity Value using the APV Approach (VI)
Tottenham Hotspur PLC Case Study
34
Estimated price for share using the APV approach is £8,83 (I)
Main Conclusions and Formulas:
― Once again, when computing the Enterprise Value considering the APV approach we are assuming that the Beta Unlevered and
the Beta Debt are constant, which means that we can also find a constant Cost of Opportunity (ru) and Cost of Debt (rd);
― As it can be implied from the previous slides, we have computed the EV as follows:
― EV (@ APV) = (∑ FCFF @ 2007 Prices @ ru) + (∑ Tax Shield @ 2007 Prices @ rd), and:
― (∑ FCFF @ 2007 Prices @ ru) = ∑ [ FCFF (n) / ((1+ru) ^ n) ]
― (∑ Tax Shield @ 2007 Prices @ rd) = ∑ [ Tax Shield (n) / ((1+rd) ^ n) ]
― The Tax Shield is computed as follows:
Tax Shield = Forecasted Interest * Tax Rate (35%)
Valuation for the Base Scenario
Determining the Equity Value using the APV Approach (VII)
Tottenham Hotspur PLC Case Study
35
Estimated price for share using the APV approach is £8,83 (II)
Why have we computed Method B on the DCF analysis?
― There is a theoretical background to assume that under certain conditions the DCF approach would yield a similar Enterprise
Value as the APV approach (we do not think that it is appropriated to demonstrate it here);
― In it’s simpler formulation, we understand that this theoretical condition is related with the assumption that we can compute a
WACC for the terminal value considering a constant D/E ratio and a constant value for the Cost of Debt, the Tax Rate and the
Cost of Equity (on the DCF approach);
― In this particular situation the APV was calculated under no assumption of a constant D/E and neglecting the Cost of Equity (re)
as it only considers the Cost of Debt (rd) and the Cost of Opportunity of Capital (ru);
― So, in order to get both the analysis to yield similar outcomes we have simulated a DCF analysis with similar assumptions as the
previous APV approach: a floating D/E ratio and constant Cost of Equity (re), this is, our Method B;
― Indeed, we can conclude that under this conditions both the analysis have similar Target Prices for Share:
― DCF (Method B): £8,70
― APV: £8,83
― As the remaining methods on the DCF analysis have different underlying assumptions, it is understandable that the outcomes
must be also different one another.
Agenda
36
 Case Study Introduction
 Methodology: our approach
 Valuation for the Base Scenario
 Discounted Cash Flow (DCF) Valuation
 Adjusted Present Value (APV) Valuation
 Is Tottenham Hotspur PLC fairly valued? The Rationale.
 DCF Valuation for the new likely scenarios
 To build the new stadium
 To sign a new striker
 To build the new stadium and sign a new striker
 Final wrap-up

Tottenham Hotspur PLC Case Study
Tottenham valuation
Is the company fairly valued?
Tottenham Hotspur PLC Case Study
37
Considering the current stock price of 13,80£ and regardless of the method used – either the Discounted Cash Flow or the Adjusted
Present Value – all the results we computed allow us to infer that the price of Tottenham shares are overvalued:
Using the Discounted Cash Flow, the price of each share was £5,98, £8,70 and £6,94, for method A, B and C, respectively. In the Adjusted Present
Value, the value estimated was £8,83. These values highlight that, in both cases, the market price is too high and it does not reflect the true value
of the Tottenham shares.
Some reasons why Tottenham stock might be overvalued and respective impacts
— Tottenham stock overvaluation may result from an emotional buying spurt, which inflates the stock's market price. This is coherent with the
emotional dimension that this sports entails and, therefore, the emotional connection established, most of the times, between people and the
respective club. This way, a stock may be overvalued due to a surge in demand driven primarily by investor perceptions;

— Another reason for this to happen may come from a recent deterioration in the company's financial strength. As it is stated in the case, some
key competitors were able to leverage their revenues and, this way, gain competitive advantage in some dimensions. Therefore, the stock
may become overvalued if its fundamentals (i.e. revenue, earnings, growth projections, balance sheet, ect.) decline while its market
price remains constant;

— Overvalued companies have better access to both equity and debt capital and they will generate lofty profits for a while but, eventually,
when the company's fundamentals - its true earning potential - surface, investors are likely to experience severe losses.
Agenda
38
 Case Study Introduction
 Methodology: our approach
 Valuation for the Base Scenario
 Discounted Cash Flow (DCF) Valuation
 Adjusted Present Value (APV) Valuation
 Is Tottenham Hotspur PLC fairly valued? The Rationale.
 DCF Valuation for the new likely scenarios
 To build the new stadium
 To sign a new striker
 To build the new stadium and sign a new striker
 Final wrap-up

Tottenham Hotspur PLC Case Study
Tottenham Hotspur PLC Case Study
39
Valuation for other Scenarios
Three Scenarios: Construct a new stadium, purchase a new player and both
Brief Problem Explanation
Introduction for the potential investments
― The club’s directors are analyzing three possible investment scenarios, namely: scenario a) construction of a new stadium, b)
purchase of a new striker, c) both of them. To analyze the market reaction of each announcement and consequently to evaluate
each decision, it is important to observe which factors are affected by such decisions.
Brief explanation of the three scenarios:
― Scenario A: Construct a new stadium. The forecasts suggest that this investment would raise revenues in two main items, which
are attendance and sponsorship rights, and in other hand would raise costs with the normal construction cost and with the
increasing of maintenance ones;
― Scenario B: Purchase a new player. This decision must be well though, as the investment is quite significant and the return
might not correspond to it. So, the costs that should be analyzed are related to the purchase of the new player and its annual
salary. The potential revenues are more subjective and so harder to forecast, nevertheless they might become from factors such
as attendance and merchandise, which are the items more correlated and sensible to the team’s performance. Besides that, this
scenario has two particularities that regards to the possible player’s injury and the limitation of the stadium size;
― Scenario C: Construct a new stadium and purchase the new player. This scenario would allow to avoid the second restriction of
scenario B, and so earn all potential revenues from the player’s purchase plus the construction of the new stadium.
Agenda
40
 Case Study Introduction
 Methodology: our approach
 Valuation for the Base Scenario
 Discounted Cash Flow (DCF) Valuation
 Adjusted Present Value (APV) Valuation
 Is Tottenham Hotspur PLC fairly valued? The Rationale.
 DCF Valuation for the new likely scenarios
 To build the new stadium
 To sign a new striker
 To build the new stadium and sign a new striker
 Final wrap-up

Tottenham Hotspur PLC Case Study
Tottenham Hotspur PLC Case Study
41
Valuation for the Scenario A
Main impacts for this scenario
Particularities of Scenario A
Potential change in revenues:
― Once the stadium will allow to bear approximately 60 thousand people, it is expected to increase the attendance revenues by 40% of
the forecasted values for the existing stadium;
― As the stadium will bear more people that it actually does, it is normal that there should be more companies interested in sponsoring
the team, and so it is expected to increase the sponsorship revenues by 20% relative the forecasts for the next years;
― The other revenues, such as broadcast, merchandise and others, are not expected to be influenced by the construction of a new
stadium.
Potential change in costs:
― The construction of a new stadium will require a place to build it, and so the land’s purchase is expected to be the same value as the
selling of the existing stadium, and so we do not took it into account for this analysis, as the net value would be zero;
― It is known that the stadium will require an investment in Capital Expenditure of £250 million, which will be paid in equal
installments at the end of both years of construction, this is, end of years 2008 and 2009;
― Regarding stadium maintenance costs, those are expected to be 14% higher than the ones that were forecasted to the actual stadium;
― Another important cost, though it does not implies an outflow of money, is the cost that reflects the usage of the stadium, which are
the depreciations. A special tax incentive will allow the team to depreciate the construction value over 10 years following completion.
Valuation for the Scenario A
Determining the FCFF – Free Cash Flow for the Firm (I)
Tottenham Hotspur PLC Case Study
42
Total revenues with the new stadium – Scenario A
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Revenue
Attendance (base scenario) 17,4 18,97 20,67 22,53 24,56 26,77 29,18 31,81 34,67 37,79 41,19 44,9 48,94 50,9
Attendance (aditional) 0,00 0,00 0,00 9,012 9,824 10,71 11,67 12,72 13,87 15,12 16,48 17,96 19,58 20,36
Total Attendance with new stadium 17,4 18,97 20,67 31,54 34,38 37,48 40,85 44,53 48,54 52,91 57,67 62,86 68,52 71,26

Sponsorship 15,7 17,11 18,65 20,33 22,16 24,16 26,33 28,7 31,28 34,1 37,17 40,51 44,16 45,93
Sponsorship (aditional) 0,00 0,00 0,00 4,066 4,432 4,832 5,266 5,74 6,256 6,82 7,434 8,102 8,832 9,186
Total Sponsorship with new stadium 15,7 17,11 18,65 24,4 26,59 28,99 31,6 34,44 37,54 40,92 44,6 48,61 52,99 55,12

Broadcast 28,7 31,28 34,1 37,17 40,51 44,16 48,13 52,46 57,19 62,33 67,94 74,06 80,72 83,95
Merchandise 5,2 5,67 6,18 6,73 7,34 8 8,72 9,51 10,36 11,29 12,31 13,42 14,63 15,21
Other 7,1 7,74 8,44 9,19 10,02 10,92 11,91 12,98 14,15 15,42 16,81 18,32 19,97 20,77

Total Revenues with new stadium 74,1 80,77 88,04 109 118,8 129,6 141,2 153,9 167,8 182,9 199,3 217,3 236,8 246,3
YoY(%) - 9,00% 9,00% 23,84% 9,01% 9,01% 9,00% 9,01% 9,00% 9,00% 9,00% 9,00% 9,00% 4,00%
EVIDENCE 6 (A)
Valuation for the Scenario A
Determining the FCFF – Free Cash Flow for the Firm (II)
Tottenham Hotspur PLC Case Study
43
Total operating costs with the new stadium – Scenario A
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Operating Costs
Payroll 50,92 56,01 61,62 67,78 74,56 82,01 90,21 99,23 109,2 120,1 132,1 145,3 159,8 166,2
YoY(%) - 10,00% 10,02% 10,00% 10,00% 9,99% 10,00% 10,00% 10,01% 9,99% 10,00% 10,00% 10,00% 4,00%

Stadium Op. Expenses (base scenario) 16,38 17,04 17,72 18,43 19,16 19,93 20,73 21,55 22,42 23,31 24,25 25,22 26,22 27,27
Stadium Op. Expenses (aditional) 0,00 0,00 0,00 2,58 2,682 2,79 2,902 3,017 3,139 3,263 3,395 3,531 3,671 3,818
Total Stad. Op. Exp. with new stadium 16,38 17,04 17,72 21,01 21,84 22,72 23,63 24,57 25,56 26,57 27,65 28,75 29,89 31,09

Other 1,8 1,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,88 3

Total Op. Costs with new stadium 69,10 74,92 81,29 90,81 98,51 106,92 116,12 126,17 137,18 149,20 162,39 176,81 192,59 200,30
YoY(%) - 8,42% 8,50% 11,71% 8,48% 8,53% 8,61% 8,65% 8,73% 8,77% 8,83% 8,88% 8,92% 4,00%
EVIDENCE 6 (B)
Valuation for the Scenario A
Determining the FCFF – Free Cash Flow for the Firm (II)
Tottenham Hotspur PLC Case Study
44
Total financial items with new stadium – Scenario A
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

EBITDA 5,00 5,85 6,75 18,22 20,33 22,63 25,09 27,76 30,60 33,66 36,95 40,46 44,24 46,01

Depreciation (base scenario) 2,2 2,29 2,38 2,47 2,57 2,68 2,78 2,9 3,01 3,13 3,26 3,39 3,52 3,66
Depreciation (aditional) 0 0 25 25 25 25 25 25 25 25 25 25 0 0
Total depreciation with new stadium 2,2 2,29 27,38 27,47 27,57 27,68 27,78 27,9 28,01 28,13 28,26 28,39 3,52 3,66
YoY(%) - 4,09% 1096% 0,33% 0,36% 0,40% 0,36% 0,43% 0,39% 0,43% 0,46% 0,46% -88% 3,98%

EBIT 2,80 3,56 -20,63 -9,25 -7,24 -5,05 -2,69 -0,14 2,59 5,53 8,68 12,07 40,72 42,35

Interest 2,26 2,46 2,69 2,93 3,19 3,48 3,79 4,13 4,5 4,91 5,35 5,83 6,36 6,61

EBT 0,54 1,10 -23,32 -12,18 -10,43 -8,53 -6,48 -4,27 -1,91 0,62 3,33 6,24 34,36 35,74

Taxes 0,19 0,38 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,22 1,17 2,18 12,03 12,51

Net Income 0,35 0,71 -23,32 -12,18 -10,43 -8,53 -6,48 -4,27 -1,91 0,40 2,17 4,06 22,33 23,23

Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%
EVIDENCE 6 (C)
Valuation for the Scenario A
Determining the FCFF – Free Cash Flow for the Firm (IV)
Tottenham Hotspur PLC Case Study
45
CAPEX and increase in Equity with new stadium – Scenario A
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Capital Expenditure (Maintenance) 3,30 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
Capital Expenditure (New Stadium) 0,00 125,00 125,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
Total CAPEX with new stadium 3,30 128,43 128,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,28 5,49
YoY(%) - 3792% 0,11% -97% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

Aditional increase in Equity 0,00 125,00 125,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
EVIDENCE 6 (D)
Valuation for the Scenario A
Determining the FCFF – Free Cash Flow for the Firm (V)
Tottenham Hotspur PLC Case Study
46
Capital Structure with new stadium – Scenario A
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Capital Structure

Debt 45,01 48,99 53,57 58,35 63,53 69,31 75,48 82,25 89,62 97,79 106,55 116,11 126,67 131,64

Equity 137,3 262,63 388,35 365,03 352,84 342,42 333,89 327,40 323,13 321,22 321,62 323,79 327,84 350,18

Debt + Equity 182,29 311,62 441,92 423,38 416,38 411,72 409,37 409,66 412,75 419,00 428,17 439,90 454,51 481,82

Debt + Equity YoY Variation - 129,33 130,30 -18,54 -7,00 -4,65 -2,36 0,29 3,10 6,25 9,17 11,73 14,61 27,31
Accumulated - 129,33 259,63 241,09 234,09 229,43 227,08 227,37 230,46 236,71 245,88 257,61 272,22 299,53

Capital Expenditure 3,30 128,43 128,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,28 5,49
Accumulated - 128,43 257,00 260,71 264,57 268,59 272,76 277,11 281,62 286,32 291,20 296,29 301,57 307,06
EVIDENCE 6 (E)
Valuation for the Scenario A
Determining the FCFF – Free Cash Flow for the Firm (VI)
Tottenham Hotspur PLC Case Study
47
Betas and Discount Rates with new stadium – Scenario A (I)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Rates

Debt to Equity Ratio 32,8% 18,7% 13,8% 16,0% 18,0% 20,2% 22,6% 25,1% 27,7% 30,4% 33,1% 35,9% 38,6% 37,6%

Leverage Ratio (L) 24,7% 15,7% 12,1% 13,8% 15,3% 16,8% 18,4% 20,1% 21,7% 23,3% 24,9% 26,4% 27,9% 27,3%

(1-t) 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65%

Beta Debt 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08

Beta Levered (Dynamic) 1,290 1,198 1,166 1,181 1,194 1,208 1,224 1,240 1,257 1,275 1,292 1,310 1,328 1,321

Beta Unlevered 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08
EVIDENCE 6 (F)
Valuation for the Scenario A
Determining the FCFF – Free Cash Flow for the Firm (VII)
Tottenham Hotspur PLC Case Study
48
Betas and Discount Rates with new stadium – Scenario A (II)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Rf 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57%

Rm 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5%

Market Premium 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92%

Rd 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

Ru 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9%

Re (CAPM) 12,2% 11,7% 11,5% 11,6% 11,6% 11,7% 11,8% 11,9% 12,0% 12,1% 12,2% 12,3% 12,4% 12,4%

Re (MM) 12,2% 11,7% 11,5% 11,6% 11,6% 11,7% 11,8% 11,9% 12,0% 12,1% 12,2% 12,3% 12,4% 12,4%

WACC 10,0% 10,3% 10,5% 10,4% 10,4% 10,3% 10,2% 10,2% 10,1% 10,1% 10,0% 9,9% 9,9% 9,9%
EVIDENCE 6 (G)
Valuation for the Scenario A
Determining the FCFF – Free Cash Flow for the Firm (VIII)
Tottenham Hotspur PLC Case Study
49
FCFF with new stadium – Scenario A
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

EBIT 2,80 3,56 -20,63 -9,25 -7,24 -5,05 -2,69 -0,14 2,59 5,53 8,68 12,07 40,72 42,35

Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

EBIT (1-t) 1,82 2,31 -13,41 -6,01 -4,70 -3,28 -1,75 -0,09 1,68 3,60 5,65 7,85 26,47 27,53

Depreciation 2,2 2,29 27,38 27,47 27,57 27,68 27,78 27,9 28,01 28,13 28,26 28,39 3,52 3,66

Operational Cash Flow 4,02 4,60 13,97 21,46 22,87 24,40 26,03 27,81 29,69 31,73 33,91 36,24 29,99 31,19

Capital Expenditure 3,30 128,43 128,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,28 5,49
YoY(%) - 3792% 0,11% ##### 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

Increases in Non-Cash Net WC 0,00 0,00 -8,16 -4,26 -3,65 -2,99 -2,27 -1,50 -0,67 0,00 0,00 0,00 0,00 0,00

Free Cash Flow for the Firm 0,7 -123,8 -106,4 22,0 22,7 23,4 24,1 25,0 25,8 27,0 29,0 31,2 24,7 25,7
YoY(%) - ##### -14% -121% 2,94% 3,15% 3,23% 3,47% 3,54% 4,59% 7,37% 7,36% -21% 4,00%
EVIDENCE 6 (H)
Valuation for the Scenario A
Determining the FCFF – Free Cash Flow for the Firm (IX)
Tottenham Hotspur PLC Case Study
50
Target price for share with new stadium – Scenario A
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Free Cash Flow for the Firm 0,7 -123,8 -106,4 22,0 22,7 23,4 24,1 25,0 25,8 27,0 29,0 31,2 24,7 25,7
YoY(%) - ##### -14% -121% 2,94% 3,15% 3,23% 3,47% 3,54% 4,59% 7,37% 7,36% -21% 4,00%

Actualization Factor @ WACC 1 1,10 1,22 1,35 1,49 1,64 1,81 1,99 2,19 2,41 2,65 2,92 3,20 3,52

Terminal Value @ WACC with g = 4% 435,58

FCFF @ 2007 Prices @ WACC 0,7 -112,2 -87,3 16,3 15,3 14,3 13,4 12,5 11,8 11,2 10,9 10,7 443,3

EV - Enterprise Value 360,86

Excess Cash 26,29

FV - Firm Value 387,15

Financial Debt (Market Value) 45,01
Equity Value 342,14

# of Shares (M) 9,29

Target price for Share 36,83
EVIDENCE 6 (I)
Valuation for the Scenario A
Some assumptions and formulas
Tottenham Hotspur PLC Case Study
51
Target price for share with new stadium is £36,83
General Assumptions and formulas:
― It was assumed that the debt level will remain the same as the one on the Base Scenario (this assumptions is valid for the 3
scenarios that will be analyzed);
― The new stadium investment is considered to be entirely financed by equity. This means that it would probably demand an
increase in the number of the existing shares or that the actual shareholders would invest mote money. Consequently, the
capital structure will be affected, as we saw in the previous tables;
― As it is known that the club already paid sufficiently high taxes in previous years, it can capture tax refunds if EBT is negative,
reducing the club’s obligations with the government, and so reducing the net working capital, as it can be considered an
“account receivable”;
― As for the analysis on the Base Scenario, we can assume a terminal growth rate of 4% as all of the items used to compute the
FCFF are expected to grow at a similar rate on the terminal year (g=4%);
― All of the presented figures were calculated taking into consideration the methodology that was previously explained (for the
DCF approach, particularly for the Method A).
Agenda
52
 Case Study Introduction
 Methodology: our approach
 Valuation for the Base Scenario
 Discounted Cash Flow (DCF) Valuation
 Adjusted Present Value (APV) Valuation
 Is Tottenham Hotspur PLC fairly valued? The Rationale.
 DCF Valuation for the new likely scenarios
 To build the new stadium
 To sign a new striker
 To build the new stadium and sign a new striker
 Final wrap-up

Tottenham Hotspur PLC Case Study
Tottenham Hotspur PLC Case Study
53
Valuation for the Scenario B
Main impacts for this scenario
Particularities of Scenario B
Potential change in revenues:
― Based on the past 10 years of Premiership revenue and point total data, Tottenham might expect to boost its revenues by
1,52% of each 1% increasing in the team’s total point. If we do not consider the first restriction that will be explained below,
the acquisition of a new player may increase the net number of goals by 12. These additional revenues might become from
factors such as attendance and merchandise, which are the ones more correlated and sensible to the team’s performance. How
might we correlate the increase in the net number of goals with the potential increase in the revenues? Is the question that we
will explain in the next slide.
Potential change in costs:
― The team will have as first cost the initial fee that has to be paid directly to the player’s current club, which is forecasted to be
roughly £20 million. This fee is considered to be an expense;
― The team has to negotiate a contract with the player which is expected to be 10 years extended, and involves a £50 thousand
payment per week as player’s salary, which is scheduled to increase 10% each year. This contract is expected to start in 2008,
and we assume that the player will be “contributing” for the same period as the contract (not that realistic).
Particular restrictions:
― There is a high average injury rate in the Premiership league -20%, - which might affect the player’s performance;
― The actual stadium capacity allows to earn only 25% of all potential revenues that might become from the player’s purchase.
Valuation for the Scenario B
How much worth an increasing of 12 in the net number of goals?
Tottenham Hotspur PLC Case Study
54
Knowing that the increase in the Net Goals will allow to increase Revenues by an increasing of the Total Points of the Team, we might
identify two links that have to be known to compute the potential increase in revenues by an increase of 12 in the net number of goals
Net Goals ?
Total
Points
1,52
%
Revenues
Linking Net Goals with Total Number of Points The linear regression
Based on the information provided about the average total points and
revenues of 8 Premiership League’s teams between 1998 and 2007, we were
able to compute a linear regression between both factors, defining the Average
Net Goals as the independent and the average total points as the dependent
variable. The correlation between both is very significant (99,56%).
– We have achieved that an unit increased in the average net goals will have a
positive impact of 0,6752 on the average total points.
– As the expected value of a player to be healthy is 80%, the expected increase
on net goals should be 12 x 0,8 = 9,6, and so adding to the actual number of net
goals (-1,4), we should substitute the x for 7,7 in the equation, which give us an
approximate Y value of 58,1, which reflects the expected total number of points
for Tottenham if they acquire the new player. To sum up, it will allow a
increasing in Total Points of 11,42%, taking into account that the actual
average total points is 51.


y = 0,6752x + 51,623
R² = 0,9956
0
10
20
30
40
50
60
70
80
90
-020 000 020 040 060
T
o
t
a
l

p
o
i
n
t
s

a
v
e
r
a
g
e

Average net goals
Valuation for the Scenario B
Tottenham Hotspur PLC Case Study
55
Knowing that the increase in the Net Goals will allow to increase Revenues by an increasing of the Total Points of the Team, we might
identify two links that have to be known to compute the potential increase in revenues by an increase of 12 in the net number of goals
Net Goals ?
Total
Points
1,52
%
Revenues
Linking Total Number of Points with Revenues
As we are dealing with percentages in both cases, that is, an
increasing by x% in total points will lead to an increasing by y%
in revenues, we cannot assume that the same linear regression
model that we used before applies.
So, to achieve this value (1,52%) it had to be used a log-log
regression model, similar to the following one:

Log(y) = 1,52 log(x) + Constant

Note: Once we do not have all of the data that is needed, it was not
possible to represent the tendency line of the equation, and so we
only know the given slope (1,52).
Knowing that:
– the purchase of a new player will allow an increase by 11,42%
in the Total Points
– 1% variation in a team’s point total leads to an improvement in
revenues by 1,52%


The club might expect to increase its revenues by 17,35% of
the forecasted revenues

Due to the stadium capacity’s restriction, if the stadium remains
with the same size, the club will only can capture 25% of the
potential revenues, what means that they will only can increase
them by 4,34%, approximately.
1% variation in Total points leads to 1,52% in Revenues…
How much worth an increasing of 12 in the net number of goals?
Valuation for the Scenario B
Determining the FCFF – Free Cash Flow for the Firm (I)
Tottenham Hotspur PLC Case Study
56
Total revenues with the new striker – Scenario B
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Revenue
Attendance 17,4 18,97 20,67 22,53 24,56 26,77 29,18 31,81 34,67 37,79 41,19 44,9 48,94 50,9
Sponsorship 15,7 17,11 18,65 20,33 22,16 24,16 26,33 28,7 31,28 34,1 37,17 40,51 44,16 45,93
Broadcast 28,7 31,28 34,1 37,17 40,51 44,16 48,13 52,46 57,19 62,33 67,94 74,06 80,72 83,95
Merchandise 5,2 5,67 6,18 6,73 7,34 8 8,72 9,51 10,36 11,29 12,31 13,42 14,63 15,21
Other 7,1 7,74 8,44 9,19 10,02 10,92 11,91 12,98 14,15 15,42 16,81 18,32 19,97 20,77

Total revenue on base scenario 74,1 80,77 88,04 95,95 104,6 114 124,3 135,5 147,7 160,9 175,4 191,2 208,4 216,8
Aditional revenue 0,00 3,50 3,82 4,16 4,54 4,95 5,39 5,88 6,40 6,98 7,61 0,00 0,00 0,00
Total revenue with new player 74,10 84,27 91,86 100,11 109,13 118,96 129,66 141,34 154,05 167,91 183,03 191,21 208,42 216,76
YoY(%) - 13,73% 9,00% 8,98% 9,00% 9,01% 9,00% 9,00% 9,00% 8,99% 9,00% 4,47% 9,00% 4,00%
EVIDENCE 7 (A)
Valuation for the Scenario B
Determining the FCFF – Free Cash Flow for the Firm (II)
Tottenham Hotspur PLC Case Study
57
Total operating costs with the new striker – Scenario B
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Operating Costs
Payroll (base scenario) 50,92 56,01 61,62 67,78 74,56 82,01 90,21 99,23 109,2 120,1 132,1 145,3 159,8 166,2
Payroll (aditional) 0,00 2,60 2,86 3,15 3,46 3,81 4,19 4,61 5,07 5,57 6,13 0,00 0,00 0,00
Total payroll with new player 50,92 58,61 64,48 70,93 78,02 85,82 94,40 103,84 114,23 125,64 138,21 145,29 159,82 166,21
YoY(%) - 15,10% 10,02% 10,00% 10,00% 9,99% 10,00% 10,00% 10,01% 9,99% 10,00% 5,12% 10,00% 4,00%

Stadium Operating Expenses 16,38 17,04 17,72 18,43 19,16 19,93 20,73 21,55 22,42 23,31 24,25 25,22 26,22 27,27

Other (base scenario) 1,8 1,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,88 3
Other (transfer fee of new player) 0,00 20,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
Total Other costs with new player 1,80 21,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,88 3,00

Total Operating Costs with new player 69,10 97,52 84,15 91,38 99,29 107,94 117,41 127,76 139,11 151,51 165,12 173,28 188,92 196,48
YoY(%) - 41,13% -14% 8,59% 8,66% 8,71% 8,77% 8,81% 8,88% 8,92% 8,98% 4,94% 9,03% 4,00%
EVIDENCE 7 (B)
Valuation for the Scenario B
Determining the FCFF – Free Cash Flow for the Firm (III)
Tottenham Hotspur PLC Case Study
58
Total financial items with new striker – Scenario B
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

EBITDA 5,00 -13,25 7,71 8,74 9,84 11,02 12,25 13,58 14,95 16,40 17,91 17,93 19,50 20,28

Depreciation 2,2 2,29 2,38 2,47 2,57 2,68 2,78 2,9 3,01 3,13 3,26 3,39 3,52 3,66
YoY(%) - 4,09% 3,93% 3,78% 4,05% 4,28% 3,73% 4,32% 3,79% 3,99% 4,15% 3,99% 3,83% 3,98%

EBIT 2,80 -15,54 5,33 6,27 7,27 8,34 9,47 10,68 11,94 13,27 14,65 14,54 15,98 16,62

Interest 2,26 2,46 2,69 2,93 3,19 3,48 3,79 4,13 4,5 4,91 5,35 5,83 6,36 6,61

EBT 0,54 -18,00 2,64 3,34 4,08 4,86 5,68 6,55 7,44 8,36 9,30 8,71 9,62 10,01

Taxes 0,19 0,00 0,92 1,17 1,43 1,70 1,99 2,29 2,60 2,93 3,25 3,05 3,37 3,50

Net Income 0,35 -18,00 1,72 2,17 2,65 3,16 3,69 4,26 4,83 5,43 6,04 5,66 6,25 6,51

Capital Expenditure (Maintenance) 3,30 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
YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%
EVIDENCE 7 (C)
Valuation for the Scenario B
Determining the FCFF – Free Cash Flow for the Firm (IV)
Tottenham Hotspur PLC Case Study
59
Capital Structure, CAPEX and increase in Equity with new striker – Scenario B
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Capital Structure

Debt 45,01 48,99 53,57 58,35 63,53 69,31 75,48 82,25 89,62 97,79 106,6 116,1 126,7 131,6

Equity 137,3 137,63 119,63 121,35 123,52 126,17 129,33 133,02 137,28 142,11 147,54 153,59 159,25 165,50

Debt + Equity 182,3 186,6 173,2 179,7 187,1 195,5 204,8 215,3 226,9 239,9 254,1 269,7 285,9 297,1

Debt + Equity YoY Variation - 4,33 -13,42 6,50 7,35 8,43 9,33 10,47 11,63 13,00 14,20 15,60 16,22 11,23
Accumulated - 4,33 -9,08 -2,59 4,76 13,19 22,52 32,98 44,61 57,61 71,81 87,41 103,63 114,86

Capital Expenditure 3,30 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
Accumulated - 3,43 7,00 10,71 14,57 18,59 22,76 27,11 31,62 36,32 41,20 46,29 51,57 57,06

Difference - 0,90 -16,98 2,78 3,49 4,41 5,16 6,12 7,11 8,30 9,31 10,52 10,93 5,74

Aditional Cash 26,29 27,19 10,21 12,99 16,48 20,89 26,04 32,17 39,28 47,58 56,89 67,41 78,35 84,08
EVIDENCE 7 (D)
Valuation for the Scenario B
Determining the FCFF – Free Cash Flow for the Firm (V)
Tottenham Hotspur PLC Case Study
60
Betas and Discount Rates with new striker – Scenario B (I)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Rates

Debt to Equity Ratio 32,8% 35,6% 44,8% 48,1% 51,4% 54,9% 58,4% 61,8% 65,3% 68,8% 72,2% 75,6% 79,5% 79,5%

Leverage Ratio (L) 24,7% 26,3% 30,9% 32,5% 34,0% 35,5% 36,9% 38,2% 39,5% 40,8% 41,9% 43,1% 44,3% 44,3%

(1-t) 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65%

Beta Debt 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08

Beta Levered (Dynamic) 1,290 1,308 1,368 1,390 1,411 1,434 1,456 1,479 1,501 1,524 1,546 1,568 1,594 1,594

Beta Unlevered 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08
EVIDENCE 7 (E)
Valuation for the Scenario B
Determining the FCFF – Free Cash Flow for the Firm (VI)
Tottenham Hotspur PLC Case Study
61
Betas and Discount Rates with new striker – Scenario B (II)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Rf 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57%

Rm 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5%

Market Premium 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92%

Rd 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

Ru 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9%

Re (CAPM) 12,2% 12,3% 12,7% 12,8% 12,9% 13,1% 13,2% 13,3% 13,5% 13,6% 13,7% 13,9% 14,0% 14,0%

Re (MM) 12,2% 12,3% 12,7% 12,8% 12,9% 13,1% 13,2% 13,3% 13,5% 13,6% 13,7% 13,9% 14,0% 14,0%

WACC 10,0% 9,9% 9,8% 9,7% 9,6% 9,6% 9,5% 9,5% 9,4% 9,4% 9,3% 9,3% 9,2% 9,2%
EVIDENCE 7 (F)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

EBIT 2,80 -15,54 5,33 6,27 7,27 8,34 9,47 10,68 11,94 13,27 14,65 14,54 15,98 16,62

Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

EBIT (1-t) 1,82 -10,10 3,46 4,07 4,72 5,42 6,16 6,94 7,76 8,62 9,52 9,45 10,39 10,80

Depreciation 2,2 2,29 2,38 2,47 2,57 2,68 2,78 2,9 3,01 3,13 3,26 3,39 3,52 3,66

Operational Cash Flow 4,02 -7,81 5,84 6,54 7,29 8,10 8,94 9,84 10,77 11,75 12,78 12,84 13,91 14,46

Capital Expenditure 3,30 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
YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

Increases in Non-Cash Net WC 0,00 -6,30 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00

Free Cash Flow for the Firm 0,72 -4,94 2,27 2,83 3,43 4,09 4,76 5,50 6,25 7,06 7,90 7,76 8,62 8,97
YoY(%) - -786% -146% 24,46% 21,25% 19,02% 16,57% 15,48% 13,71% 12,85% 11,90% -1,72% 11,12% 4,00%
Valuation for the Scenario B
Determining the FCFF – Free Cash Flow for the Firm (VII)
Tottenham Hotspur PLC Case Study
62
FCFF with new striker – Scenario B
EVIDENCE 7 (G)
Valuation for the Scenario B
Determining the FCFF – Free Cash Flow for the Firm (VIII)
Tottenham Hotspur PLC Case Study
63
Target price for share with new striker – Scenario B
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Free Cash Flow for the Firm 0,72 -4,94 2,27 2,83 3,43 4,09 4,76 5,50 6,25 7,06 7,90 7,76 8,62 8,97
YoY(%) - -786% -146% 24,46% 21,25% 19,02% 16,57% 15,48% 13,71% 12,85% 11,90% -1,72% 11,12% 4,00%

Actualization Factor @ WACC 1 1,10 1,21 1,32 1,45 1,59 1,74 1,91 2,09 2,28 2,50 2,73 2,98 3,26

Terminal Value @ WACC with g = 4% 170,89

FCFF @ 2007 Prices @ WACC 0,72 -4,50 1,88 2,14 2,36 2,57 2,73 2,88 3,00 3,09 3,16 2,84 173,79

EV - Enterprise Value 196,68

Excess Cash 26,29

FV - Firm Value 222,97

Financial Debt (Market Value) 45,01

Equity Value 177,96

# of Shares (M) 9,29

Target price for Share 19,16
EVIDENCE 7 (H)
Valuation for the Scenario B
Some assumptions and formulas
Tottenham Hotspur PLC Case Study
64
Target price for share with new stadium is £19,16
General Assumptions and Formulas:
― The revenues in scenario B includes the restrictions that were mentioned before, the possibility of the player’s injury and also
the size of the stadium that only allows to capture 25% of the total potential revenues that might become from the acquisition
of the new player;
― Regarding costs, it was assumed 52 weeks in each year to compute the total payroll costs. The salary paid to the new player will
increase 10% in the 10 years of the contract;
― Furthermore, we assumed that the contract will not be renewed at the end of the 10 years, and so the additional revenues and
costs are only to be considered until 2018;
― All of the presented figures were calculated taking into consideration the methodology that was previously explained (for the
DCF approach, particularly for the Method A).

Agenda
65
 Case Study Introduction
 Methodology: our approach
 Valuation for the Base Scenario
 Discounted Cash Flow (DCF) Valuation
 Adjusted Present Value (APV) Valuation
 Is Tottenham Hotspur PLC fairly valued? The Rationale.
 DCF Valuation for the new likely scenarios
 To build the new stadium
 To sign a new striker
 To build the new stadium and sign a new striker
 Final wrap-up

Tottenham Hotspur PLC Case Study
Tottenham Hotspur PLC Case Study
66
Valuation for the Scenario C
Main impacts for this scenario
Particularities of Scenario C
Potential change in revenues:
― Relatively to revenues, besides the ones that we already mentioned in both cases we can consider a leverage factor, as a greater
stadium will allow to obtain the total potential revenues that become from the acquisition of the new player;
― Therefore, the additional revenues if the club decides to invest in both hypothesis, respect to an increasing in attendance of
40% and in sponsorship of 20%, once the stadium will be greater. The increasing in revenues that become from the acquisition
of the new player are approximately 4,34% until the conclusion of the stadium’s construction. This value would be boosted to
17,35%, as soon as the stadium is operational.
Potential change in costs and CAPEX:
― The potential costs and CAPEX in scenario C is only the sum of the costs that we have mentioned in both of the previous
scenarios, namely a Capital Expenditure of £250 million with the construction of the new stadium, and the respective increase
of a greater stadium operating expenses of 14%. Besides that, the club will have a fee of £20 million in the acquisition of the
new player, and an additional payroll cost of £50,000 per week, which means £2,6 million per year, in order to pay for the new
player’s salary.

Valuation for the Scenario C
Determining the FCFF – Free Cash Flow for the Firm (I)
Tottenham Hotspur PLC Case Study
67
Total revenues with the new stadium and the new striker – Scenario C
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Revenues
Attendance (base scenario) 17,4 18,97 20,67 22,53 24,56 26,77 29,18 31,81 34,67 37,79 41,19 44,9 48,94 50,9
Attendance (aditional) 0,00 0,00 0,00 9,012 9,824 10,71 11,67 12,72 13,87 15,12 16,48 17,96 19,58 20,36
Total Attendance with new stadium 17,4 18,97 20,67 31,54 34,38 37,48 40,85 44,53 48,54 52,91 57,67 62,86 68,52 71,26

Sponsorship 15,7 17,11 18,65 20,33 22,16 24,16 26,33 28,7 31,28 34,1 37,17 40,51 44,16 45,93
Sponsorship (aditional) 0,00 0,00 0,00 4,066 4,432 4,832 5,266 5,74 6,256 6,82 7,434 8,102 8,832 9,186
Total Sponsorship with new stadium 15,7 17,11 18,65 24,4 26,59 28,99 31,6 34,44 37,54 40,92 44,6 48,61 52,99 55,12

Broadcast 28,7 31,28 34,1 37,17 40,51 44,16 48,13 52,46 57,19 62,33 67,94 74,06 80,72 83,95
Merchandise 5,2 5,67 6,18 6,73 7,34 8 8,72 9,51 10,36 11,29 12,31 13,42 14,63 15,21
Other 7,1 7,74 8,44 9,19 10,02 10,92 11,91 12,98 14,15 15,42 16,81 18,32 19,97 20,77

Total Revenues with new stadium 74,1 80,77 88,04 109 118,8 129,6 141,2 153,9 167,8 182,9 199,3 217,3 236,8 246,3
Aditional Revenue with new player 0,00 14,01 15,28 18,92 20,62 22,48 24,50 26,71 29,11 31,73 34,59 0,00 0,00 0,00
Total Revenues with both 74,10 94,78 103,32 127,95 139,47 152,03 165,71 180,63 196,88 214,60 233,92 217,27 236,83 246,31
YoY(%) - 27,91% 9,00% 23,84% 9,01% 9,01% 9,00% 9,01% 9,00% 9,00% 9,00% -7,12% 9,00% 4,00%
EVIDENCE 8 (A)
Valuation for the Scenario C
Determining the FCFF – Free Cash Flow for the Firm (II)
Tottenham Hotspur PLC Case Study
68
Total operating costs with the new stadium and the new striker – Scenario C
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Operating Costs
Payroll (base scenario) 50,92 56,01 61,62 67,78 74,56 82,01 90,21 99,23 109,2 120,1 132,1 145,3 159,8 166,2
Payroll (aditional) 0,00 2,60 2,86 3,15 3,46 3,81 4,19 4,61 5,07 5,57 6,13 0,00 0,00 0,00
Total payroll with new player 50,92 58,61 64,48 70,93 78,02 85,82 94,40 103,84 114,23 125,64 138,21 145,29 159,82 166,21
YoY(%) - 15,10% 10,02% 10,00% 10,00% 9,99% 10,00% 10,00% 10,01% 9,99% 10,00% 5,12% 10,00% 4,00%

Stadium Op. Expenses (base scenario) 16,38 17,04 17,72 18,43 19,16 19,93 20,73 21,55 22,42 23,31 24,25 25,22 26,22 27,27
Stadium Op. Expenses (aditional) 0,00 0,00 0,00 2,58 2,682 2,79 2,902 3,017 3,139 3,263 3,395 3,531 3,671 3,818
Total Stad. Op. Exp. with new stadium 16,38 17,04 17,72 21,01 21,84 22,72 23,63 24,57 25,56 26,57 27,65 28,75 29,89 31,09

Other (base scenario) 1,8 1,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,88 3
Other (transfer fee of new player) 0,00 20,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
Total Other costs with new player 1,8 21,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,88 3

Total Operating Costs with both 69,10 97,52 84,15 93,96 101,97 110,73 120,31 130,77 142,25 154,78 168,52 176,81 192,59 200,30
YoY(%) - 41,13% -14% 11,65% 8,53% 8,58% 8,65% 8,70% 8,77% 8,81% 8,88% 4,92% 8,92% 4,00%
EVIDENCE 8 (B)
Valuation for the Scenario C
Determining the FCFF – Free Cash Flow for the Firm (III)
Tottenham Hotspur PLC Case Study
69
Total financial items with new stadium and the new striker – Scenario C
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

EBITDA 5,00 -13,25 7,71 33,99 37,49 41,30 45,40 49,86 54,64 59,82 65,40 40,46 44,24 46,01

Depreciation (base scenario) 2,2 2,29 2,38 2,47 2,57 2,68 2,78 2,9 3,01 3,13 3,26 3,39 3,52 3,66
Depreciation (aditional) 0 0 25 25 25 25 25 25 25 25 25 25 0 0
Total depreciation with new stadium 2,2 2,29 27,38 27,47 27,57 27,68 27,78 27,9 28,01 28,13 28,26 28,39 3,52 3,66
YoY(%) - 4,09% 1096% 0,33% 0,36% 0,40% 0,36% 0,43% 0,39% 0,43% 0,46% 0,46% -88% 3,98%

EBIT 2,80 -15,54 -19,67 6,52 9,92 13,62 17,62 21,96 26,63 31,69 37,14 12,07 40,72 42,35

Interest 2,26 3,26 4,26 5,26 6,26 7,26 8,26 9,26 10,26 11,26 12,26 13,26 14,26 15,26

EBT 0,54 -18,80 -23,93 1,26 3,66 6,36 9,36 12,70 16,37 20,43 24,88 -1,19 26,46 27,09

Taxes 0,19 -6,58 -8,38 0,44 1,28 2,23 3,28 4,44 5,73 7,15 8,71 -0,42 9,26 9,48

Net Income 0,35 -12,22 -15,56 0,82 2,38 4,13 6,08 8,25 10,64 13,28 16,17 -0,77 17,20 17,61
EVIDENCE 8 (C)
Valuation for the Scenario C
Determining the FCFF – Free Cash Flow for the Firm (IV)
Tottenham Hotspur PLC Case Study
70
CAPEX and increase in Equity with new stadium and the new striker – Scenario C
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Capital Expenditure (Maintenance) 3,30 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
Capital Expenditure (New Stadium) 0,00 125,00 125,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
Total CAPEX with new stadium 3,30 128,43 128,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,28 5,49
YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

Aditional increase in Equity 0,00 125,00 125,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00
EVIDENCE 8 (D)
Valuation for the Scenario C
Determining the FCFF – Free Cash Flow for the Firm (V)
Tottenham Hotspur PLC Case Study
71
Capital Structure with new stadium and the new striker – Scenario C
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Capital Structure

Debt 45,01 64,93 84,84 104,76 124,67 144,59 164,51 184,42 204,34 224,25 244,17 264,09 284,00 303,92

Equity 137,3 262,63 375,41 359,86 360,68 363,06 367,19 373,28 381,53 392,17 405,45 421,62 420,85 438,05

Debt + Equity 182,29 327,56 460,26 464,62 485,35 507,65 531,70 557,70 585,87 616,42 649,62 685,71 704,85 741,96

YoY Variation - 145,27 132,70 4,36 20,73 22,30 24,05 26,00 28,17 30,56 33,19 36,09 19,14 37,11
Accumulated - 145,27 277,97 282,33 303,06 325,36 349,41 375,41 403,58 434,13 467,33 503,42 522,56 559,67

Capital Expenditure 3,30 128,43 128,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,28 5,49
Accumulated - 128,43 257,00 260,71 264,57 268,59 272,76 277,11 281,62 286,32 291,20 296,29 301,57 307,06

Difference - 16,83 4,13 0,65 16,87 18,28 19,88 21,66 23,65 25,86 28,31 31,01 13,86 31,62

Aditional Cash 26,29 43,12 47,25 47,90 64,78 83,06 102,93 124,59 148,25 174,10 202,41 233,42 247,28 278,90
EVIDENCE 8 (E)
Valuation for the Scenario C
Determining the FCFF – Free Cash Flow for the Firm (VI)
Tottenham Hotspur PLC Case Study
72
Betas and Discount Rates with new stadium and the new striker – Scenario C (I)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Rates

Debt to Equity Ratio 32,8% 24,7% 22,6% 29,1% 34,6% 39,8% 44,8% 49,4% 53,6% 57,2% 60,2% 62,6% 67,5% 69,4%

Leverage Ratio (L) 24,7% 19,8% 18,4% 22,5% 25,7% 28,5% 30,9% 33,1% 34,9% 36,4% 37,6% 38,5% 40,3% 41,0%

(1-t) 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65%

Beta Debt 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08

Beta Levered (Dynamic) 1,290 1,238 1,224 1,266 1,302 1,336 1,368 1,398 1,425 1,449 1,468 1,484 1,516 1,528

Beta Unlevered 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08
EVIDENCE 8 (F)
Valuation for the Scenario C
Determining the FCFF – Free Cash Flow for the Firm (VII)
Tottenham Hotspur PLC Case Study
73
Betas and Discount Rates with new stadium and the new striker – Scenario C (II)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Rf 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57%

Rm 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5%

Market Premium 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92%

Rd (CAPM) 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

Ru (CAPM) 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9%

Re (CAPM) 12,2% 11,9% 11,8% 12,1% 12,3% 12,5% 12,7% 12,8% 13,0% 13,1% 13,3% 13,4% 13,5% 13,6%

Re (MM) 12,2% 11,9% 11,8% 12,1% 12,3% 12,5% 12,7% 12,8% 13,0% 13,1% 13,3% 13,4% 13,5% 13,6%

WACC 10,0% 10,2% 10,2% 10,1% 10,0% 9,9% 9,8% 9,7% 9,6% 9,6% 9,5% 9,5% 9,4% 9,4%
EVIDENCE 8 (G)
Valuation for the Scenario C
Determining the FCFF – Free Cash Flow for the Firm (VIII)
Tottenham Hotspur PLC Case Study
74
FCFF with new stadium and the new striker – Scenario C
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

EBIT 2,80 -15,54 -19,67 6,52 9,92 13,62 17,62 21,96 26,63 31,69 37,14 12,07 40,72 42,35

Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

EBIT (1-t) 1,82 -10,10 -12,79 4,24 6,45 8,85 11,45 14,27 17,31 20,60 24,14 7,85 26,47 27,53

Depreciation 2,2 2,29 27,38 27,47 27,57 27,68 27,78 27,9 28,01 28,13 28,26 28,39 3,52 3,66

Operational Cash Flow 4,02 -7,81 14,59 31,71 34,02 36,53 39,23 42,17 45,32 48,73 52,40 36,24 29,99 31,19

Capital Expenditure 3,30 128,43 128,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,28 5,49
YoY(%) - 3792% 0,11% ##### 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

Increases in Non-Cash Net WC 0,00 -6,58 -8,38 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 -0,42 0,00 0,00

Free Cash Flow for the Firm 0,7 -129,7 -105,6 28,0 30,2 32,5 35,1 37,8 40,8 44,0 47,5 31,6 24,7 25,7
YoY(%) - ##### -19% -127% 7,73% 7,82% 7,81% 7,91% 7,86% 7,91% 7,92% -34% -22% 4,00%
EVIDENCE 8 (H)
Valuation for the Scenario C
Determining the FCFF – Free Cash Flow for the Firm (IX)
Tottenham Hotspur PLC Case Study
75
Target price for share with new stadium and the new striker – Scenario C
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Free Cash Flow for the Firm 0,7 -129,7 -105,6 28,0 30,2 32,5 35,1 37,8 40,8 44,0 47,5 31,6 24,7 25,7
YoY(%) - ##### -19% -127% 7,73% 7,82% 7,81% 7,91% 7,86% 7,91% 7,92% -34% -22% 4,00%

Actualization Factor @ WACC 1 1,10 1,21 1,34 1,47 1,62 1,77 1,94 2,13 2,33 2,56 2,80 3,06 3,35

Terminal Value @ WACC with g = 4% 477,91

FCFF @ 2007 Prices @ WACC 0,7 -117,7 -86,9 20,9 20,5 20,1 19,8 19,5 19,1 18,9 18,6 11,3 486,0

EV - Enterprise Value 450,77

Excess Cash 26,29

FV - Firm Value 477,06

Financial Debt (Market Value) 45,01

Equity Value 432,05

# of Shares (M) 9,29

Target price for Share 46,51
EVIDENCE 8 (I)
Valuation for the Scenario C
Some assumptions and formulas
Tottenham Hotspur PLC Case Study
76
Target price for share with new stadium is £46,51
General Assumptions and Formulas:
― The additional revenues with the new player acquisition are higher in year 2010, as the construction of a new stadium will
allow to capture 100% of the potential revenues from the player;
― The costs in Scenario C are only the sum of the costs in Scenarios A and B, and the same happens in the capital expenditure that
reflects only the cost of the new stadium’s construction;
― In this Scenario we also assumed that the contract is not renewed after the 10 years;
― All of the presented figures were calculated taking into consideration the methodology that was previously explained (for the
DCF approach, particularly for the Method A).


NOTE: For the Scenario A and C we have mentioned that the stadium would be entirely financed by equity, either from additional
shares issuing or through additional lending from the existing shareholders (investors). Both the situations could mean that the new
Target price for share would most likely be (negatively) affected, as the new shares issuing would introduce the “Dilution Factor” and
shareholders lending could introduce additional dividend payments, reducing the estimated FCFF.

Agenda
77
 Case Study Introduction
 Methodology: our approach
 Valuation for the Base Scenario
 Discounted Cash Flow (DCF) Valuation
 Adjusted Present Value (APV) Valuation
 Is Tottenham Hotspur PLC fairly valued? The Rationale.
 DCF Valuation for the new likely scenarios
 To build the new stadium
 To sign a new striker
 To build the new stadium and sign a new striker
 Final wrap-up

Tottenham Hotspur PLC Case Study
Final wrap-up
Tottenham Hotspur PLC Case Study
78
Likely market reaction to a surprise announcement of each presented Scenario
— If the new stadium is built the target
price per share is £36,83.
— Regardless of the scenario, it is logical to assume that the total value of Tottenham shares will increase. Any of the options above will allow
to increase the Fair Value of the company and, if we assume that the majority of the consumers take rational decisions, this can explain the
raise of the price of Tottenham stocks;

— To perceive the market reaction it is easier if we put ourselves in the investors’ perspective. If we were investors and Tottenham announced
one of these three mentioned scenarios, we would think about the impact that they would have in the clubs financials. As this analysis is
already done, and we verified that all these three scenarios would have a positive impact in the target share price, and perhaps:
— Investors that already own Tottenham shares would not be willing to sell their shares righ away, since they would expect that their
price will raise in the near future;
— Investors that do not own Tottenham shares would be more willing to buy them.

— So, this increase of the fair value of the company would also probably imply the emergence of new investors since their reliance on the
financial strengthen of the company and confidence in stability will increase.
Build the new stadium (A) Sign a new striker (B) Built the stadium and sign a striker (C)
— If a new player is acquired the target
price per share is £19,16.
— If the new stadium is built and a new
player is acquired the target price per
share is £46,51.
Market reaction to the announcement of each of the previous scenarios