Governing the League: Credible Threats, Intervention Rights, and Social Ties in Football Competition Licensing

Abstract

We examine the comparative effectiveness of three alternative licensing systems in professional football. The three systems’ main concern is with the promulgation of responsible financial behaviour among football clubs. To that effect, all three systems rely on entry control and ex ante budget approval rights. However, the three structures also differ, especially with regard to the way in which they seek to impose ex post budgetary discipline. We analyse these differences, using Transaction Cost Economics as our basic frame of reference. Both theoretically and empirically, we demonstrate that the effectiveness of the licensing arrangements depends on the credibility of the punitive measures available to the governing body. We also find evidence to suggest that social ties may partly substitute for formal intervention rights.

Keywords: Licensing, Governance structure effectiveness, Credible threats, Transaction Cost Economics

JEL Classification: D23, D45, L14