Tottenham Hotspur F.C.

FI414 Case Study #2

(1/23/2012)
Prof. Rocco Huang
Getting to know an industry
Learn the necessary basics
Know what info you are looking for.
And stop when youve found them.
Dont be distracted by unnecessary details.
You goal is not to become a walking encyclopedia
Learn the economics of a business
How does the business make money?
Hotspurs 2010 annual report
90 pages. 30 pages of pictures. 5 pages of financial
statements. 35 pages of notes to financial statements.
Ignore the pictures
Pay attention to the small print footnotes!
Chase the money, not the soccer ball
Tottenham Hotspur F.C.
Chase the money Suttons Law
Willie Suttons answer for why he robbed banks
because thats where the money is.
The most obvious answer is usually the right one.
Its a business
Participate in the English Premier League
4
th
most lucrative sports league in the world.
After NFL, MLB and NBA, but ahead of NHL.
Publicly traded on London Stock Exchange since 1983
U.S. examples: Boston Celtics, Green Bay Packers
High financial stakes
Some of the most valuable sports franchises in the world.
Manchester United is worth $1.87 billion.
Some of the highest paid athletes
David Beckhams $250 million 5-year contract with LA Galaxy.
The economics
Soccer and English Premier League basics
3 points for win, 1 point for tie, 0 for loss.
Teams ranked by season total points.
Top four teams to play in UEFA Champions League (similar to playoffs).
Bottom three teams relegated to lower league.
Better performance leads to more revenues!
Thats ALL you need to know about soccer.
Revenue sources:
Attendance (~25%)
Sponsorship rights (~25%)
Merchandise sales (10%)
Broadcast rights (~40%)
Operating costs
Staff (~50%)
Trading players (~30%)
Main investments: Stadium, and Players
The decisions
Build a new stadium
Tickets sold out for every game.
Waiting list of 20,000 fans.
A new stadium can host 60,000 fans.
v.s. 36,500 in White Hart Lane
Increase seats by 64%
Cost $250 million. Takes two years to build.
Buy a better player
To improve team performance and revenues
Costs:
Transfer fees (20 million) and salary (2.6 million/year, 10%
increase per year)
Do both
Synergy between the two decisions
IF: seats are already sold out,
THEN: can reap only of the full benefits of adding a better player.
Finance 101
It takes money to make money
Remember the denominator IC (invested capital) in ROIC?
How can we invest fewer of our own capital?
Make someone loan money to you for free.
Collecting money before providing service to your customers
Cafeteria dining plan, Spartan Cash
Season tickets, Newspaper subscriptions, Insurance companies, gift
cards, Amazon.com, Dell Computers, etc
Customers lend money to you for free!
Never the opposite!
Customers get to use the cars before the car companies receive
full payments.
Car companies lend money to customers for free!
Thats how GM went bankrupt!
Good vs. poor working capital management
As % of sales Tottenham
Hotspur
(2010)
Amazon, Inc.
(2009)
Expedia.com
(2009)
New York
Times (2009)
Ford Motor
Co. (2009)
Toyota Motor
Co. (2010)
Accounts
Receivable
30.0% 4.0% 10.4% 15.1% 72.5% 34.1%
Inventory
0.9% 8.9% 0% 0.7% 4.3% 7.5%
Accounts
Payable
57.6% 22.9% 27.5% 5.2% 12.3% 10.3%
Accrued
Expenses
30.5% 5.1% 11.0% 13.3% 18.3% 9.2%
Net working
capital
-58.0% -16.0% -43.9% -1.6% 43.5% 20.2%
The obvious but sometimes forgotten
A new stadium is not built in one day
Two years is more like it
Bigger stadiums require more maintenance
costs
Cant sell more tickets if the stadium is full