Financial Restrictions and Competitive Balance in Sports Leagues

27 Pages Posted: 17 Sep 2018

See all articles by Vsevolod Grabar

Vsevolod Grabar

National Research University Higher School of Economics

Konstantin Sonin

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies; Higher School of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: August 31, 2018

Abstract

A dramatic surge in revenues from TV broadcasting and brand-selling forced modern football clubs, simultaneously involved in domestic and European competitions, to operate in a new environment. In response, the Union of European Football Associations introduced the Financial Fair Play Regulations, a set of fi financial regulations that affect all major European clubs. To assess the impact of financial restrictions (e.g., salary caps) on the default risk for individual clubs and competitive balance, we construct a game-theoretic model where clubs make decisions on the amounts they borrow and spend on the team. The impact of financial restrictions on competitive balance is positive; the total amount of debt also decreases at equilibrium. Finally, we show that financial restrictions create more incentives to invest in second-tier clubs compared to the situation in which there are no financial regulations.

Keywords: UEFA Financial Fair Play, Financial Regulation, Competitive Balance, Investment Tournaments

JEL Classification: C72, D63, G28

Suggested Citation

Grabar, Vsevolod and Sonin, Konstantin, Financial Restrictions and Competitive Balance in Sports Leagues (August 31, 2018). Available at SSRN: https://ssrn.com/abstract=3242351 or http://dx.doi.org/10.2139/ssrn.3242351

Vsevolod Grabar

National Research University Higher School of Economics ( email )

Moscow
Russia

Konstantin Sonin (Contact Author)

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Higher School of Economics ( email )

20 Myasnitskaya street
Moscow, 119017
Russia

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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