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Economists advise the football clubs! The failure of UEFA's Financial Fair Play regulations

Jonny Clark

9th September 2016

Here's an article that got my interest, not least because it shows how economists may use their skills to investigate and advise about football!

Economists from the Technical University of Munich (TUM) in Germany have researched the impact of the UEFA's Financial Fair Play regulations and discovered that they are achieving the opposite of their initial objectives. The FFP regulations (brief from UEFA explanation here) are an attempt to ensure that those clubs wishing to participate in UEFA competitions meet a series of criteria and prove that they are not spending (on players, their wages or their infrastructure) beyond their means. Clubs may still accrus some debt but this must be no more than 5m euros (equivalent in value to Paul Pogba's left elbow) over a 3 year period. The idea is that, if all clubs are existing within their means, success can only be achieved by careful management of finances and good coaching and tactics - not by speculating on the purchase of some really good players in the hope that the subsequent success of the team brings in an adequate return.

It's an attempt to bring some 'equality' to the football market in the same way that the Government may try and bring income equality. Why is this level of equality important in football? I guess that this is an attempt to make sure that the market does not become an oligopoly dominated by a few very rich clubs. What is following football all about if it isn't the tribal urge to support your local team and hope that they can achieve fame and glory? If your local team has no chance of ever winning anything because the established clubs are using 'barriers to entry' to dominate the market then football support may well diminish.

The problem, it would seem, is that the regulations work in favour of the big clubs at the expense of smaller ones. TUM's research suggests that investors are less likely to pump money into smaller clubs as the FFP regulations means that the potential return on that investment is much lower than it used to be.

So, that's why Coventry City are doing so badly this season (and last season, and the season before....)

For a little more explanation of the regulations and how they work, here's a good explanation.

Jonny Clark

Jon Clark has been teaching economics and business studies for over 25 years primarily in the Further Education sector. Before joining tutor2u, he was a senior manager at South Cheshire College in Crewe.

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