Has UEFA’s financial fair play regulation increased football clubs’ profitability?

Abstract

Research question:In response to the low profitability of Europeanfootball clubs, in 2010, UEFA established its Financial Fair Playregulation (FFP) to encourage clubs not to spend more than theyearn. We examine whether FFP’s break-even rule has increasedthe profitability of football clubs.Research methods:: We use data from the topfive Europeanfootball leagues (those of England, France, Germany, Italy, andSpain) over the period 2008–2016. Our sample includes 1,094club-year observations (139 different clubs). Earnings beforeinterest and taxes (EBIT) and profit before tax (PBT) margins areused as profitability measures. The impact of FFP is estimatedusing the Generalized Estimation Equations (GEE), logisticregressions, andfixed effects OLS models. We control for bothdomestic and European competition success, leverage, club size,and country/clubfixed effects.Results and Findings:In the pre-FFP period, roughly 70 percent ofobservations are losses, whereas in the post-FFP period, roughly 60percent of observations are losses. However, the estimated positiveeffect is significant only in Spain, while for England and Germanywefind weak evidence. We cannot rule out that the observedimprovement in performance is simply caused by the recoveryfrom thefinancial crisis. The effect of FFP is insignificant in Franceand Italy.Implications:The effect of FFP on clubs’profitability has been atbest modest. We call upon UEFA and its member associationsand leagues to expand their efforts to enforce the break-evenrule or to reassess the efficiency of current FFP requirements.