Reference no: EM133682466

Assignment:

A city with a large and growing Hispanic population hosts a soccer team which they have provided for a yearly payment of $2.6m for the rent of the leased facility. They do not have a clause in the contract forbidding the team to sell venue rights to create additional revenues.

Telemundo, a large Hispanic media firm, has approached the team owners with an offer to purchase naming rights to the stadium. Telemundo currently has a 21% market penetration rate in the city which generates $7m/year in revenues. It has been estimated that Telemundo can increase its revenues by an additional 6%/ year if the stadium is named Telemundo Soccer Center. Based on this information, Telemundo has offered the stadium $3.6m for a 10-year naming contract. Assume that the appropriate discount rate for Telemundo's transaction is 12.5% based on the opportunity cost of their invested funds.

A) What are the risks to Telemundo from this business deal?

B) The team is also entertaining a competing offer from a local RSN. If Telemundo is aware of these negotiations between the team and the RSN, should they delay or expedite their own negotiations with the team?

C) The team has also offered Telemundo naming rights on the backs of the players' uniforms for $2.1m for a 10-year deal. This sponsorship will allow for 3.2% growth in Telemundo's local market each year because of the uniform sponsorship. Write a memo to Telemundo with a recommendation to consider moving forward with either the stadium sponsorship or the uniform sponsorship or neither one.