The soft budget constraint in action: German third tier professional football during the COVID19 pandemic

ABSTRACT

Rationale

The paper examines whether the concept of the soft budget constraint (SBC) helps understanding how lower tier football coped with the revenue drop during the COVID19.

Design

A qualitative research design relying on expert interviews and document analyses was employed. A sample of five clubs was examined using process-tracing methods.

Findings

Overspending and debt-making are persistent features of German lower tier football. Before the pandemic, clubs benefitted from distinct bail-outs. The revenue drop during the pandemic was primarily compensated by public subsidies; clubs also got money injections from fans, sponsors and investors. Yet, shareholder structure matters for the likelihood that clubs faced hard budget constraints.

Practical implications

The system of promotion and relegation facilitates overspending and debt-making. The specific corporate of German football clubs encourages moral hazard and creates hold-up risks. The public seems to have become more hesitant to grant bail-outs.

Research contribution

The concept of the soft budget constraint is instructive for understanding the specific economics of European football but its limits have to clearer specified.

KEYWORDS:

• Soft budget constraint
• COVID19
• corporate governance
• moral hazard
• hold up risks

Disclosure statement

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

Notes

1 The DFB demands stadiums with a capacity of more than 10,000, at least 2,000 of which must be seated. Furthermore, roofed press and VIP stands, a floodlighting system, a turf heating system and a natural grass pitch must exist.