SPAD 604 – Sport Finance & Economics
Homework #6 – Debt and Equity Financing
Instructions: This assignment requires you to apply concepts related to debt financing (Part 1) and equity financing (Part 2). As a reminder, you are not required to submit your calculations. You are only required to submit your three discussion question responses. However, it is expected that you strongly build in your financial calculations to your responses. Your responses to discussion questions should be detailed, specific, and defend your stance.
Part 1 – Debt Financing
1) The Durham Bulls are a professional minor league baseball team based in Durham, North Carolina. They have a history of fielding exciting teams full of eccentric personalities, such as former pitcher Nuke LaLoosh and former catcher Crash Davis. They currently play their home games at Durham Bulls Athletic Park. However, the stadium is relatively old (it opened in 1985) and the team’s current owner, Annie Savoy, wants to build a new stadium for the team to help increase operational revenue.
To help fund the construction of a new stadium, the Durham Bulls plan to sell corporate bonds in installments of $50,000 (par value). Bonds will have a coupon rate of 6.25% and a maturity date of 20 years. Additionally, the corporate bond contracts include three types of call provisions: 1) a 5-year call provision with a call premium of 120%; 2) a 10-year call provision with a call premium of 110%; and 3) a 15-year call provision with a call premium of 105%.
Given these corporate bond terms, provide the following information:
a) Calculate the annual interest amount an investor would receive if they purchased one bond at par value.
b) Calculate the total return and rate of return for an investor that purchased one bond at par value and held that bond until maturity.
c) Calculate the total return and rate of return for an investor that purchased one bond at par value and the 5-year call provision was invoked.
d) Calculate the total return and rate of return for an investor that purchased one bond at par value and the 10-year call provision was invoked.
e) Calculate the total return and rate of return for an investor that purchased one bond at par value and the 15-year call provision was invoked.
2) The city of Portland has recently been granted an expansion Women’s National Basketball Association (WNBA) franchise. The new franchise will pay a $50 million expansion fee to join the WNBA. To assist with funding for this expansion fee, the ownership group for Portland’s WNBA franchise is looking to sell $10 million in corporate bonds through a financial intermediary.
After consulting with several large banks, the organization has determined they can sell the $10 million corporate bond package under the following terms:
Coupon Rate = 5.5%
Maturity = 30 years
Call Provision 1 = 10-year call with call premium of 125%
Call Provision 2 = 18-year call with call premium of 115%
Call Provision 3 = 25-year call with call premium of 107%
Assuming the organization sells the entire corporate bond package, provide the following information:
a) Calculate the annual interest payment the organization would be responsible for on this bond package.
b) Calculate the total interest expense and total corporate bond expense (interest expense + bond repayment) under the following scenarios:
a. All bonds are held until maturity
b. All bonds are called back via 10-year call provision
c. All bonds are called back via 18-year call provision
d. All bonds are called back via 25-year call provision
c) Calculate the total cost savings to the organization under each call provision scenario compared to the scenario where all bonds are held until maturity.
Part 2 – Equity Financing
For questions in Part 2, you will need to access information about stocks utilizing Google Finance, Yahoo Finance, or any other financial tool/website you are comfortable using.
For each set of companies listed below, compile the following information:
a) Current stock price
b) 52-week low stock price
c) 52-week high stock price
d) Capital gains if you bought 10 shares of stock at 52-week low and sold at 52-week high
e) Market capitalization
f) Number of outstanding shares offered
g) Dividend yield
h) Annual dividend amount
After collecting the stock information for each set of companies in the industries listed below, create a table outlining your results on the whiteboard. Your table should look something similar to the following:
[Sport Industry Segment]
Company Name Company Name Company Name
Stock Price
52-week High
52-week Low
Max Capital Gains (10 shares)
Market Cap
# of Outstanding Shares
Dividend Yield
Annual Dividend Amount
1) Companies in the sports betting industry:
i. Churchill Downs Incorporated (NASDAQ: CHDN)
ii. Boyd Gaming Corporation (NYSE: BYD)
iii. PENN Entertainment, Inc. (NASDAQ: PENN)
2) Companies in the athletic apparel industry:
i. Nike Inc (NYSE: NKE)
ii. Under Armour Inc Class A (NYSE: UAA)
iii. Lululemon Athletica Inc (NASDAQ: LULU)
3) Companies in the sporting goods retail industry:
i. Dick’s Sporting Goods Inc (NYSE: DKS)
ii. Academy Sports and Outdoors Inc (NASDAQ: ASO)
iii. Hibbett Inc (NASDAQ: HIBB)
4) Companies in the sports media industry:
i. Walt Disney Co (NYSE: DIS)
ii. Madison Square Garden Entertainment Corp (NYSE: MSGE)
iii. Sinclair Broadcast Group Inc (NASDAQ: SBGI)
Discussion Questions
Based on your work completed for this assignment and our in-class discussions, answer the following questions on Blackboard by Sunday, March 3 at 11:59pm EST to receive credit for this assignment.
1) From an investor perspective, is it more advantageous to hold a corporate bond until maturity or to receive bond repayment early via a call provision? Use examples from the first assignment question (corporate bonds for Durham Bulls stadium) to explain your reasoning.
2) From a sport organization perspective, is it more advantageous to call back bonds early via a call provision or to allow the bonds to reach maturity? Use examples from the second assignment question (corporate bonds for WNBA expansion franchise) to explain your reasoning.
3) Provide an assessment of stock market information for companies within each sport industry segment analyzed in Part 2 of this assignment. What company’s stock performance within each sport industry segment is doing the best? What company within each industry segment provides the best value and/or investment potential for investors? Use stock market data to justify your answers. Provide this information for each of the following sport industry segments:
• Companies in the sports betting industry
• Companies in the athletic apparel industry
• Companies in the sporting goods retain industry
• Companies in the sports media industry
