Finance & Economics
Case Study
Scenario: You are the Vice President of Finance for Cleveland Soccer Club (Cleveland SC), a professional women’s soccer team based in Cleveland, OH. The club joined the National Women’s Soccer League (NWSL), the top division of professional women’s soccer in the United States, in 2018. The organization recently wrapped up a successful 2023 season, making it to the playoffs and falling just short of reaching the championship game.
Since its inaugural season, Cleveland SC has played its home games at Don Shula Stadium (capacity of 5,416), a multi-purpose stadium owned and operated by John Carroll University, a D-III university located east of Cleveland. The club has witnessed relatively successful attendance at home games, averaging just under 5,000 fans per game between 2018 – 2023 (excluding games with restricted attendance due to Covid). A financial audit at the end of the 2023 season revealed the organization generated $12.5 million in total revenue for the year and had an operating income (revenue – expense) of $900,000.
Cleveland SC’s ownership group has prioritized the need to construct its own soccer-specific stadium as soon as possible. Their current stadium situation is not sustainable given its limited capacity, far distance from large portions of the organization’s fanbase, and an unfavorable leasing arrangement with John Carroll University. A new stadium, located on the shores of Lake Erie in downtown Cleveland, will provide the club with access to new and increasing revenue sources through growth in sponsorship, ticket, and merchandise sales.
Of course, in addition to increased revenues, the organization will incur increased costs due to the construction of a new stadium. A state-of-the-art, 11,000-seat facility in downtown Cleveland will cost the organization $100 million according to estimates provided by HNTB, a leading engineering and architecture design firm for sport stadiums. Therefore, it is important for Cleveland SC’s ownership group to have a solid understanding of the financial components surrounding this capital project.
Directions: The President of Business Operations for the organization has tasked you with producing a professional report that provides sound financial analysis and solutions/recommendations for each item listed below. Your report should include full insight into the methods and analyses used to provide an objective, fact-based assessment for each item. Clearly indicate and justify your rationale for any conclusion or recommendation made within your report.
1) As mentioned above, current estimates place the total construction cost for this new soccer stadium project at $100 million. Prior analysis from your department indicates that a new stadium would generate $3 million in incremental cash flow during Year 1 of new stadium operations due to net increases in ticket, merchandise, and sponsorship sales.
Your report should contain a sensitivity analysis of the financial feasibility for this capital project under three different cost of capital scenarios (low, medium, high) and three different incremental cash flow growth scenarios (low, medium, high) for a total of 9 capital project scenario analyses. The specific cost of capital and incremental cash flow growth scenarios to consider are:
Incremental Cash Flow Year-over-Year Growth (after Year 1)
Low
Medium
High
Cost of Capital
Low
ICF Growth = 3.00%
Cost of Capital = 2.75%
ICF Growth = 4.50%
Cost of Capital = 2.75%
ICF Growth = 6.00%
Cost of Capital = 2.75%
Medium
ICF Growth = 3.00%
Cost of Capital = 4.50%
ICF Growth = 4.50%
Cost of Capital = 4.50%
ICF Growth = 6.00%
Cost of Capital = 4.50%
High
ICF Growth = 3.00%
Cost of Capital = 6.25%
ICF Growth = 4.50%
Cost of Capital = 6.25%
ICF Growth = 6.00%
Cost of Capital = 6.25%
For each of these scenarios, calculate the discounted cumulative cash over a 30-year period for the capital project and report on the net present value (NPV) and internal rate of return (IRR) of the project assuming a 30-year expected useful life for the stadium.
Using NPV/IRR capital budgeting methodology, under which scenario(s) would you recommend accepting this capital project? Make sure to provide strong reasoning and evidence for your recommendations.
2) One new revenue source stemming from a new stadium that the ownership group is particularly interested in is the ability to sell stadium naming rights. Recent stadium naming rights deals for NWSL organizations have ranged from $1-2 million per year. Current negotiations are underway with KeyBank, a large regional financial institution located in Cleveland, for a stadium naming rights sponsorship agreement. KeyBank is willing to agree to a 10-year, $15 million stadium naming rights deal for Cleveland SC’s new stadium. KeyBank is offering three payment schedule options for this 10-year naming rights deal. These options are:
Year
Option A
Option B
Option C
1
$1,500,000
$2,000,000
$500,000
2
$1,500,000
$2,000,000
$500,000
3
$1,500,000
$2,000,000
$750,000
4
$1,500,000
$2,000,000
$750,000
5
$1,500,000
$2,000,000
$1,000,000
6
$1,500,000
$1,000,000
$1,000,000
7
$1,500,000
$1,000,000
$2,000,000
8
$1,500,000
$1,000,000
$2,000,000
9
$1,500,000
$1,000,000
$3,250,000
10
$1,500,000
$1,000,000
$3,250,000
Provide a recommendation on which payment schedule represents the best value to Cleveland SC. Utilize the following projected annual inflation rates to conduct your analyses:
Year 1 (2025): 4.1%
Year 2-5 (2026-2029): 2.7% per year
Year 6-9 (2030-2033): 3.0% per year
Year 10 (2034): 5.5%
3) The financing package to fund stadium construction costs will come from a variety of sources. Some of it will come from immediate revenue gains related to new sponsorship deals (e.g., stadium naming rights), some of it will come from the ownership group’s private wealth, and the remainder will come from selling corporate bonds through a financial intermediary.
After analyzing all aspects of the stadium construction funding package, you have concluded that the organization will need to sell $80 million worth of corporate bonds to meet stadium construction cost obligations. After consulting with several large banks, it has been determined there is a viable market to sell this $80 million corporate bond package under the following bond terms:
Coupon Rate = 4.25%
Maturity = 30 years
Call Provision 1 = 15-year call with call premium of 110%
Call Provision 2 = 20-year call with call premium of 107%
Call Provision 3 = 25-year call with call premium of 104%
Assuming you are able to sell the entire $80 million in corporate bonds, calculate and report on the following:
I. Annual interest payments required from the organization
II. Total interest expense and total corporate bond expense (interest expense + bond repayment) under the following scenarios:
a. Bonds held until maturity
b. Bonds called back via 15-year call provision
c. Bonds called back via 20-year call provision
d. Bonds called back via 25-year call provision
III. Total cost savings to the organization under each call provision scenario compared to allowing the bonds to reach maturity.
4) The ownership group is interested in understanding the estimated organizational valuation for Cleveland SC. Based on recent reporting from Sportico, the 2023 organizational valuations and revenues generated for other teams in the NWSL are as follows:
Team
Value
Revenue
Angel
City FC
$180,000,000
$31,000,000
San
Diego Wave FC
$90,000,000
$16,300,000
Kansas
City Current
$75,000,000
$10,100,000
Portland
Thorns FC
$65,000,000
$10,500,000
Washington
Spirit
$54,000,000
$6,000,000
North
Carolina Courage
$52,000,000
$6,100,000
Houston
Dash
$50,000,000
$5,000,000
OL
Reign
$49,000,000
$8,000,000
NJ/NY
Gotham FC
$48,000,000
$5,100,000
Racing
Louisville FC
$47,000,000
$5,900,000
Orlando
Pride
$45,000,000
$5,000,000
Chicago
Red Stars
$40,000,000
$3,300,000
Given this information, provide a current organizational valuation estimate for Cleveland SC. Make sure to explain your methodology and reasoning for your valuation estimate.
In addition, provide an organizational valuation estimate for Cleveland SC in 2025, which would be the first year of operations for the proposed new stadium. Make sure to explain your methodology and reasoning for your valuation estimate.
A few reminders/tips regarding case study projects:
Working in Groups: You are allowed to complete these case study projects in small groups (groups of either 1, 2, or 3 individuals). You do not have to work in the same group as the first case study project. It is up to you if you would like to work by yourself or with 1 or 2 other people. If you decide to work in a group of 2 or 3, only 1 person needs to upload the final copy of your project to Blackboard.
All people in a group will receive the same grade on this assignment.
Document Format: Please submit your case study project in a Microsoft Word document using double-spaced, 12-point, Times New Roman font (or something else very basic, like Arial or Calibri) with normal 1” margins.
Professional Report: This document should look like a professional report. That means it should include:
· Cover page
· Table of contents
· Executive summary (1-page max)
· Section Headings and Subsection Headings
· Appropriate grammar, spelling, punctuation, and consistent formatting throughout
o USE SPELL CHECK!!
o Proofread your document 2-3 times before submitting
· Visually appealing formatting for all tables/charts used in the report. This includes:
o Appropriate table/chart titles
o Relevant column headings (for tables)
o Data labels and/or legend (for charts)
o Readable and meaningful color formats
· Proper APA formatting for in-text citations/references (if needed)
o Note: External references are not required for this project. But, if you do include an in-text citation/reference, use correct APA formatting
