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.

KEYWORDS:

• Break-even rule
• financial fair play regulation
• FFP
• football
• profitability

Acknowledgements

We thank Paul Downward (the editor), an anonymous associate editor, two anonymous reviewers, Hannu Ojala, Jukka Sihvonen, and seminar participants at the Aalto University.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Relevant income must be reduced by the value of any non-monetary credits/income, income transaction(s) with related party(ies) above fair value, income from non-football operations not related to the club, income in respect of a player for whom the licensee retains the registration, and credit in respect of a reduction of liabilities arising from procedures providing protection from creditors. (Annex X, UEFA 2018)

2 Relevant expenses must be increased by the value of any expense transaction(s) with related parties below fair value. Relevant expenses must be decreased by expenditure on youth development activities, expenditure on community development activities, expenditure on women’s football activities, non-monetary debits/charges, finance costs directly attributable to the construction and/or substantial modification of tangible fixed assets, costs of leasehold improvement, and expenses of non-football operations not related to the club. (Annex X, UEFA 2018)

3 In retrospect, we know that in March 2012, UEFA and the European Commission signed a joint agreement intended to prevent clubs using the EU legal system to challenge the validity of FFP (e.g., by claiming that it conflicts with the EU’s anti-competition legislation) (https://www.dailymail.co.uk/sport/football/article-2118248/UEFA-Financial-Fair-Play-loophole-closed.html).