Part 1 TIME VALUE OF A SPONSORSHIP CASE STUDY (Pg.108)

Answer the questions on Case Analysis: Risk and Team Values on p108. in your textbook. (5 points each, 20 points total) ;

The director of marketing of your organization asks for your advice regarding sponsorship deals she is contemplating. She has to choose between the following: a 15-year sponsorship paying $100,000 per year; a 15-year sponsorship initially paying $75,000 per year and increasing 5% each year; and a 15-year sponsorship initially paying $45,000 per year but increasing 12% each year.

1. Determine the present value of each year for each proposal, as well as the total present value of each proposal. For each proposal, compute two different outcomes, one with a discount rate of 5% and one with a discount rate of 10%.

2. Which proposal should the marketing director choose? Why? Explains using the time value of money.

3. What further questions about her firm and about the potential sponsors should she contemplate?

4. How would the decision be affected by the answers the questions posed in #3? Fully explain your answer.

Part 2 CONCEPT CHECK AND PRACTICE PROBLEMS (Pg.107) (10 points each, 60 points total)

1. Describe what mistake did the NBA make in its dealings with the owners of the St. Louis Spirits? Furthermore, explain why the Silna brothers decided to sell a significant portion of their NBA TV perpetuity back to the NBA. Explain why and cite your sources to justify your response.

2. What are some advantages and disadvantages of deferring salaries - If you were an athlete negotiating a contract, would you want a big signing bonus payable immediately and smaller payments in the future, or vice versa? How about looking at it from the perspective of the teams perspective.

3. What concerns should a sport organization contemplate when negotiating future payments from sponsorships or other long-term agreements?

4. Time Value of Money (PV, FV, PVIFA, FVIFA) practice problems
   1. In the next 10 years after graduation, you would like to reward yourself and buy a new Ferrari which costs a $225,000. If you believe your mutual fund can earn you 12% each year, How much would you need invest in the account today to reach the goal over the next 10 years?
   2. You have just made your first $6,000 contribution to your retirement account. Assuming you earn a return of 10 percent per year and make no additional contributions, what will your account be worth when you retire in 25 years? What if you wait 10 years before contributing?
   3. If an investor commits $4,500 to an IRA each year for 30 years and receives 6% interest, what will her total investment be worth at the end of the 30 years?
   4. You want to be able to withdraw $2,200 each month from your bank account to cover your kids college expenses over the next 4 years. If the account pays 4.3% interest per month, how much do you need to invest in your bank account today to meet your expense needs over the next 4 years.

5. A sport organization has a commitment from a sponsor for a $17,000 payment in three years. What is the present value of that money if it is discounted at (a) 3%, (b) 5% (c) 9%?

Use Present Value chart; see Appendix A.3 on pages 458459.

6. An athlete signs a five-year endorsement deal with a prominent sponsor. Under this deal, the athlete will receive $5,000 each year for the first three years and $6,500 each year for the final two years. What is the present value of the total deal if the payments are discounted 6%?

Extra Credit (10 points)

In December 2013, a pair of autographed shoes worn by Michael Jordan in the famous flu game during the 1997 NBA Finals was auctioned off for $104,765. If the flu game shoe was appraised and resold 7 years later in 2020 today at $209,530. What was the Effective Annual Rate of Return on this sneaker memoribilia investment?.