Working Paper: CEPR ID: DP13154
Authors: Konstantin Sonin; Vsevolod Grabar
Abstract: A dramatic surge in revenues from TV broadcasting and brand-selling forced modern football clubs,simultaneously involved in domestic and European competitions, to operate in a new environment. Inresponse, the Union of European Football Associations introduced the Financial Fair Play Regulations, a setof financial regulations that affect all major European clubs. To assess the impact of financial restrictions(e.g., salary caps) on the default risk for individual clubs and competitive balance, we construct a game-theoreticmodel where clubs make decisions on the amounts they borrow and spend on the team. Theimpact of financial restrictions on competitive balance is positive; the total amount of debt also decreases atequilibrium. Finally, we show that financial restrictions create more incentives to invest in second-tier clubscompared to the situation in which there are no financial regulations.
Keywords: UEFA; Financial Fair Play; Financial Regulation; Competitive Balance; Investment; Tournaments
JEL Codes: D63; G28; C72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial restrictions (H60) | Competitive balance (Z28) |
| Financial restrictions (H60) | Total amount of debt across clubs (G32) |
| Financial restrictions (H60) | Investment in second-tier clubs (Z23) |
| Competitive balance (Z28) | Gini coefficient (decrease) (D31) |