Capital Expansion Financial Model for 3 Options – 5 Year Projections

Financial Consultant for a Major US sports team / Arena

Overview

Tasked with making a recommendation for  a major US sports arena. The choices were refresh a luxury club, expand it, or make it into an ultra-premium space. The following instructions were given



A current space is ending its useful life and needs to be addressed. The CLUB is currently evaluating 3 possible business models for a luxury amenity. The potential scenarios are below along with some assumptions. Do a financial model and analysis, include any clarifying questions, and make an executive recommendation presentation on which concept would be best for the arena to invest in.

Full Financial Model for 5 years for all 3 options (with additional assumptions from the company and my own) using financial valuation methods such as;

Recommendation

We recommended refreshing the current club space, with a total projected cash flow of $2.4 M and payback period in 2 years & 4 months, 44% IRR and $1.4m @10%.

Executive Summary

Objective:

To Assess the financial impact of three (3) Capital investments on a current space. We will take you through the financial model over a 5-year period for each option with construction beginning in year 1 for each option

Capital Investment Options

  1. Current Club Concept – $1.0m
  2. Expansion of Premium space – $2.0m
  3. Ultra Premium All-inclusive space – $5.0m

The financial valuation methods used were:

  • Cash flows
  • Net Present Value
  • Internal Rate of Return
  • Payback Period

Option 1:Current Club refreshed - $1.0m

Assumes naming rights income, financials are not significantly impacted without it.

Option 2:Expansion- $2.0m

Assumes naming rights income, financials are not significantly impacted without it

Option 3:Ultra Premium ALL-INCLUSIVE SPACE $5.0m

Assumes naming rights income, financials are not significantly impacted without it

Financial Comparison & Recommendation

ADDITIONAL considerations

  • Construction start date may be delayed due to supply chain issues. A contingency plan SHOULD BE PUT IN PLACE.
  • Based on the current spike in covid THERE IS THE POSSIBILITY THAT games may be postponed/cancelled impacting revenue?
  • Depending on the investment appetite and the need for a more premium space (option 3), TICKET PRICES WILL HAVE TO BE SIGNIFICANTLY increased or the revenue share WILL HAVE TO INCREASE.
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