Question
Sport Revenue A European soccer team is considering purchasing a star player in the transfer market. To buy the player, the team would have to
Sport Revenue
A European soccer team is considering purchasing a star player in the transfer market. To buy the player, the team would have to pay a transfer fee to the players current team of $9M. The team is also contractually obligated to pay the player a salary of $2M per year for the next 6 years. However, the player is expected to increase the teams performance by 4 wins per year. Historical data shows each additional win is worth approximately $1.5M in revenues from ticket sales. Assume the transfer fee can be depreciated in a straight line manner over the life of the contract, but that the yearly salary cannot be depreciated. The teams tax rate is 30% and relevant discount rate is 4%. Should the team purchase the player?
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