Disequilibrium Sports Economics
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Disequilibrium Sports Economics

Competitive Imbalance and Budget Constraints

For decades, sports economics has been set within the framework of equilibrium economics, in particular when modelling team sport leagues. Based on a conviction that this does not reflect real life, this book addresses a gap in the literature and opens up a new research area by applying concepts drawn from disequilibrium economics. It is divided into two parts, the first of which focuses on economic disequilibrium in sports markets and competitive imbalance in sporting contests. The second part concentrates on soft budget constraints and their consequences for club governance and management.
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Chapter 8: Regulation in leagues with clubs’ soft budget constraints: the effect of the new UEFA Club Licensing and Financial Fair Play Regulations on managerial incentives and suspense

Egon Franck


The main pillar of the new Union of European Football Associations’ (UEFA) Club Licensing and Financial Fair Play Regulations (FFP), the ‘break-even requirement’, is defined in Articles 58–63. This new rule requests clubs to live within their own means by and large. More precisely, clubs are in compliance with the break-even requirement if ‘relevant expenses’ do not exceed ‘relevant income’ in the reporting periods combined to one so-called ‘monitoring period’ by more than the ‘acceptable deviation’6 of €5 millon. On top of this ‘normal’ level of €5 million, the ‘acceptable deviation’ can currently7 go up to a level of €45 million, provided that equity participants are willing to inject the respective funds. A closer look at the notions of relevant income and relevant expenses makes clear that ‘football investors’ will be confronted with a cap on payroll injections in the future. They can obviously still spend unlimited sums of money by investing in stadia, youth academies or community projects, since such expenditures do not count as relevant expenses and therefore do not enter the break-even calculation. However, ‘football investors’ are no longer able to rescue a club for licensing purposes if the latter overinvested in salaries and transfers with the result that relevant expenses exceed relevant income by more than the ‘total acceptable deviation’.

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