Guangzhou Evergrande Taobao FC: Valuing Growth Potential

In 2016, Chinese football club Guangzhou Evergrande Taobao Football Club (Evergrande), which had recently been crowned the most valuable football club in China by Forbes magazine, with a valuation of US$282 million, simultaneously had a market capitalization in China of over US$3.3 billion. The team had yet to earn a profit, so these valuations raised questions regarding how this team in particular was valued and how sports franchises were valued in general. Many sports teams tended to lose money as they built their talent base, and investors often valued such assets in a way that was similar to the valuation of technology stocks. A football fan who was interested in investing in the Evergrande club was concerned about the high price for its shares. He wondered whether the club was really worth this much money and whether its stock price could continue to rise in future. To answer these questions, he needed to understand how the team was valued.

The case is suitable for courses at either the undergraduate or graduate level in advanced corporate finance, international finance, or investment banking. The case discusses the valuation of high-growth, hard-to-value assets and compares valuations in mature and emerging markets by examining how to value a Chinese football club. The valuation exercise can be extended to any high-potential, high-growth asset (e.g., start-ups of any type, including technology companies). Students learn how to value such firms and discuss how to estimate risk premiums for both growing and mature assets and for both mature and emerging markets. After working through the case and assignment questions, students will have developed their ability to do the following:<ul><li>Identify the challenges in valuing high-potential, high-growth assets such as a sports franchise, and explain how these firms generate value.</li><li>Explain how to value a firm such as a sports franchise when it is growing, and explain how this valuation changes as the asset matures.</li><li>Compare various valuations methods, including comparable transactions, market multiples, and discounted cash flow valuation, andetermine the best method for valuing a specific firm.</li><li>Describe the effects on valuation of the type of asset (growth versus mature) and the type of market (developed versus emerging).</li><ul>

• valuation, international finance