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Insolvency in English professional football: Irrational Exuberance or Negative Shocks?

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  • Stefan Szymanski

    (University of Michigan)

Abstract

Insolvency is an endemic problem in the world of European football. This paper uses a unique database of financial accounts for English football clubs between 1974 and 2010 to examine the causes of insolvency. Two alternative hypotheses are considered- “irrational exuberance”, meaning that owners attempt to achieve a significant improvement in league position which is not affordable, leading to financial crisis. This view seems widely espoused and seems to lie behind initiatives such as UEFA’s Financial Fair Play. An alternative is that club finances are subject to negative shocks – either to productivity or to demand- and that a series of such shocks can lead to insolvency. The empirical model provides evidence in support of this alternative hypothesis.

Suggested Citation

  • Stefan Szymanski, 2012. "Insolvency in English professional football: Irrational Exuberance or Negative Shocks?," Working Papers 1202, International Association of Sports Economists;North American Association of Sports Economists.
    • Handle: RePEc:spe:wpaper:1202
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    References listed on IDEAS

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    1. Stefan Szymanski & Ron Smith, 2010. "The English Football Industry: Profit, Performance and Industrial Structure," Palgrave Macmillan Books, in: Football Economics and Policy, chapter 1, pages 1-26, Palgrave Macmillan.
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    Cited by:

    1. R. Todd Jewell & Rob Simmons & Stefan Szymanski, 2014. "Bad for Business? The Effects of Hooliganism on English Professional Football Clubs," Journal of Sports Economics, , vol. 15(5), pages 429-450, October.
    2. Thomas Peeters & Stefan Szymanski, 2014. "Financial fair play in European football [v. National Football League, 560 (The Supreme Court May 24, 2010)]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 29(78), pages 343-390.
    3. Nicolas Scelles & Stefan Szymanski & Nadine Dermit-Richard, 2018. "Insolvency in French Soccer," Journal of Sports Economics, , vol. 19(5), pages 603-624, June.
    4. Perechuda Igor, 2020. "Intellectual Capital Determinants of Football Clubs in Europe," Polish Journal of Sport and Tourism, Sciendo, vol. 27(2), pages 8-13, June.
    5. Artur Wyszyński, 2021. "Niewypłacalność zawodowych klubów piłki nożnej," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 1, pages 142-166.
    6. Stephen Morrow, 2014. "Football finances," Chapters, in: John Goddard & Peter Sloane (ed.), Handbook on the Economics of Professional Football, chapter 6, pages 80-99, Edward Elgar Publishing.
    7. Artur Wyszyński, 2021. "Niewypłacalność zawodowych klubów piłki nożnej," Ekonomista, Polskie Towarzystwo Ekonomiczne, vol. 1, pages 142-166, January.
    8. PEETERS, Thomas & SZYMANSKI, Stefan, 2012. "Vertical restraints in soccer: Financial fair play and the English Premier League," Working Papers 2012028, University of Antwerp, Faculty of Business and Economics.
    9. Wladimir Andreff, 2018. "Financial and Sporting Performance in French Football Ligue 1: Influence on the Players’ Market," Post-Print hal-03206972, HAL.
    10. Aurélien François & Nadine Dermit-Richard & Daniel Plumley & Robert Wilson, 2021. "Analyzing the effectiveness of UEFA's financial fair play regulations: A comparative study of the French Ligue 1 and the English Premier League [L'analyse du fair-play financier au prisme de son ef," Post-Print hal-03167685, HAL.
    11. Budzinski, Oliver, 2014. "The competition economics of financial fair play," Ilmenau Economics Discussion Papers 85, Ilmenau University of Technology, Institute of Economics.
    12. Saldsieder, Nina, 2016. "Gestaltungspotentiale der Ordnung zweiseitiger Märkte am Beispiel der ersten deutschen Bundesliga," Working Papers for Marketing & Management 4, Offenburg University, Department of Media and Information.
    13. Wladimir Andreff, 2018. "Financial and Sporting Performance in French Football Ligue 1: Influence on the Players’ Market," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03206972, HAL.
    14. Wladimir Andreff, 2018. "Financial and Sporting Performance in French Football Ligue 1: Influence on the Players’ Market," IJFS, MDPI, vol. 6(4), pages 1-17, November.
    15. Andrew Adams & Stephen Morrow & Ian Thomson, 2016. "The 'Typical' Club? A Configuration Analysis of Scottish Football Clubs," CFI Discussion Papers 1601, Centre for Finance and Investment, Heriot Watt University.

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    More about this item

    Keywords

    Insolvency; football;

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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