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 rig
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