Managing the European football industry: UEFA’s regulatory intervention and the impact on accounting quality

Abstract

Research question: European football clubs are known for an institutionalized management culture which prioritizes on-field success over financial performance. This creates an extremely competitive context within which most clubs operate, producing debts and deficits. However, in order to secure clubs' long-term financial viability, Union of European Football Association (UEFA) has introduced regulatory and monitoring processes tied to accounting data in order to assess clubs' financial performance. This study aims to determine whether UEFA's framework has an impact on clubs' management policies with regard to accounting quality. Research methods:The study employs a sample of 109 European football clubs for a seven-year period, 2008-2014 (three years before and four years after the regulatory intervention), to investigate the impact of the reform upon management practices related to accounting. Following prior literature, we employ the three most commonly used proxies of accounting quality: earnings management, conditional accounting conservatism and auditor switching. Results and findings: This study demonstrates that, at the expense of accounting quality, club management seeks to promote the image of a financially robust organization in order to secure licensing and, consequently, much needed funding from UEFA. In this manner, the dominance of a management culture which impairs financial performance is further cemented. Implications: UEFA should take into consideration that, in a financially distressed industry focused on achieving success on the field of play, the imposition of regulatory monitoring tied to accounting data inevitably leads to a loss of organizational credibility and transparency. Hence, UEFA's intervention should be accompanied by the imposition of a corporate governance framework which would aim to rearrange club management priorities by facilitating a change in institutionalized mentalities. ARTICLE HISTORY

Earnings Persistence of European Football Clubs under UEFA’s FFP

“…In addition, average return on assets is negative and covers 10 percent of total assets. This result is relevant to previous studies on European football regarding the clubs' financial performance (Dimitropoulos et al 2016). Average ROA does not present any significant change before and after the implementation of FFP regulation, while, on the contrary, TACC have been reduced after FFP initiation from −0.18 to −0.16, indicating the tendency of clubs to report accounting earnings that are more associated with operating cash flows.…”

“…Although is more difficult to make bad decisions under stricter financial regulation (due to enhanced control and strict sanctions), stricter regulation cannot prevent fraud or manipulation. Most times, regulation may lead human behavior in the opposite direction and efforts to circumvent regulation (Dimitropoulos et al 2016). Thus, future research can extend current evidence by examining clubs' ownership and corporate governance structure as additional determinants of earnings persistence and how FFP regulation impacted that relation.…”

“…The fact that Big-4 leagues constituted the majority of our sample observations warranted the examination of earnings persistence between Big-4 and Non-Big-4 leagues, as discussed in Section 4. 7 58 Finland 2 1 1 2 2 1 2 2 2 15 France 11 11 11 11 11 11 10 11 11 98 Greece 10 10 9 10 10 10 10 10 10 89 Italy 20 19 18 20 20 20 20 20 20 177 Netherlands 3 3 3 3 3 3 3 3 3 27 Norway 2 2 2 2 2 2 1 1 1 15 Spain 6 7 7 7 7 7 7 7 7 62 United Kingdom 37 37 37 37 37 37 29 43 43 328 Total 98 97 92 97 96 94 87 104 104 869 The final sample exclusively included football clubs that participate in the top division of their country's official league (as in Dimitropoulos et al 2016) for two main reasons: those clubs competing in the top division of the national league are more likely to participate in UEFA championships and therefore are more inclined to conform to the criteria set by the FFP regulation. Thus, we expect that they are more motivated to report more persistent earnings figure to improve their chances to adhere to the new regulation's financial criteria.…”

“…These are the symptoms of clubs' financial instability yet the actual culprit lies within the operational framework of the clubs and their relation to their fans and other stakeholders. Dimitropoulos et al (2016) argud that clubs establish close relationship with their fans and in several instances fans affect managers' decisions. Fans cannot be considered as customers since they are emotionally attached to the club and even intervene to assist clubs when financial troubles knock at their door.…”

Potential agency problems in European club football? The case of UEFA Financial Fair Play

“…Conflicts of interest could be identified for a number of other settings on national and European level (e.g. clubs leagues, leagues associations) [1].…”