Case Study: Threshold Sports, LLC

 Questions

1.     Discuss the sports promotion industry in general. What is it like? 

a.     Discuss professional cycling and the promotion of professional cycling races. What factors make for a successful promotion?

2.     What is Threshold's business strategy? 

a.     What is it that creates the financing need in this case?

3.     Does Threshold already have high financial leverage? 

a.     Although we often use book values to calculate leverage ratios, the modern theory of finance argues that financial decisions should be driven by market values, rather than book values.

b.     Therefore, whether Threshold is already highly levered depends on your assessment of the firm's market value of equity. The problem is that the firm is privately owned and does not have publicly traded stock.

c.     At this stage in the course, we have not yet formally discussed valuation models. Therefore, let' keep the treatment of valuation relatively simple and consider valuation multiples. Case Exhibit 14 lists, among other items, three commonly used valuation multiples:

                                                   i.    Price to book (Price divided by Book value of equity)

                                                  ii.    Price to earnings (Price divided by Earnings per share)

d.     Based on these multiples and using comparable firms, what would be your estimate of Threshold Sports market value?

e.     Is the estimate of Threshold's market value consistent with or not consistent with Threshold's growth strategy?

f.      Therefore, what are the major key bets in this situation? 

g.     Now, how does Threshold's debt-to-equity (at market value) appear? High? Low?

                                                   i.    Note: Debt includes the First Union Title Series lease. How would you put a value on this lease?

4.     Comparing Financing Alternatives

a.     One of the novelties of this case is the convertible preferred stock. Discuss the features of this kind of security. In what situations has it more commonly been used? Ultimately, should it be used by Threshold?

b.     Use Higgins' Five-Factor Model for Financing Decisions to discuss the merits of different financing instruments (basically, debt vs. equity and preferred stock).

5.     The Decision

a.     So, what do you decide? How should Threshold raise capital?

b.     Additionally, who should they target as investors?

Answer rating: 100% (QA)

Case Study Analysis Threshold Sports LLC 1 Sports Promotion Industry and Professional Cycling a General Sports Promotion The sports promotion industry is highly competitive and fragmented with numerou... View the full answer