Has UEFA’s financial fair play regulation increased football clubs’ profitability?

Abstract

Research question: In response to the low profitability of European football clubs, in 2010, UEFA established its Financial Fair Play regulation (FFP) to encourage clubs not to spend more than they earn. We examine whether FFP's break-even rule has increased the profitability of football clubs. Research methods: : We use data from the top five European football leagues (those of England, France, Germany, Italy, and Spain) over the period 2008-2016. Our sample includes 1,094 club-year observations (139 different clubs). Earnings before interest and taxes (EBIT) and profit before tax (PBT) margins are used as profitability measures. The impact of FFP is estimated using the Generalized Estimation Equations (GEE), logistic regressions, and fixed effects OLS models. We control for both domestic and European competition success, leverage, club size, and country/club fixed effects. Results and Findings: In the pre-FFP period, roughly 70 percent of observations are losses, whereas in the post-FFP period, roughly 60 percent of observations are losses. However, the estimated positive effect is significant only in Spain, while for England and Germany we find weak evidence. We cannot rule out that the observed improvement in performance is simply caused by the recovery from the financial crisis. The effect of FFP is insignificant in France and Italy. Implications: The effect of FFP on clubs' profitability has been at best modest. We call upon UEFA and its member associations and leagues to expand their efforts to enforce the break-even rule or to reassess the efficiency of current FFP requirements.

The effectiveness of UEFA Financial Fair Play: evidence from England and France, 2008–2018

“…This study seeks to test the consequences of the FFP enforcement with regard to the break-even requirement. In line with previous studies (Ahtiainen and Jarva, 2020), we present two main hypotheses assuming the effectiveness of UEFA FFP both in terms of profitability and cost efficiency. From a 'profitability' perspective and considering the high financial distress in football (Plumley et al, 2021), we hypothesise that FFP has reduced clubs' losses.…”

“…Franck (2018) also provided an economic analysis of FFP by providing plausible reasons about its contribution to the financial recovery observed in the first tiers of European football. Recently, Ahtiainen and Jarva (2020) conducted a study on the top five European football leagues to evaluate the impact of FFP on football clubs' profitability. A positive effect was found in Spain and there was weak evidence of such an improvement in England and Germany.…”

“…Based on recent empirical studies (e.g. Ahtiainen and Jarva, 2020), we assumed that FFP is likely to restore sustainabilty to football club finance in Europe.…”

Impact and Efficiency Ranking of Football Managers in the Italian Serie A: Sport and Financial Performance

“…As mentioned, the revenues from player trading could be particularly relevant both for those teams with a smaller fan base and for those with a larger pool of supporters when the other sources of revenues are not sufficient to cover operating costs. Furthermore, clubs competing in the richest tournaments at the European level are subject to the UEFA financial fair play, which aims to make sure that the operating costs of professional football clubs are in line with their earnings (Ghio et al, 2018), although the benefits of its introduction are still debated (Ahtiainen & Jarva, 2020;Franck, 2018). In this framework, the ability to recognize and hire managers that are able to increase players' value may be the best choice in line with a profit-maximization strategy.…”

The game behind the game: UEFA's Financial Fair Play Regulations and the need to field a substitute

“…A 2020 study on FFP's impact on club profitably found that "club revenues are 20% to 26% higher when the club reaches the quarterfinals or better [of the Champions League] after controlling for other factors". 114 This means that Real Madrid, along with other elite clubs who hold a financial advantage over their competitors, will continually find success in the Champions League and earn significantly greater revenue as a result.…”