Too big to fail? Accounting for predictions of financial distress in English professional football clubs

Abstract

PurposeThis paper analyses English Premier League (EPL) and English Football League (EFL) championship clubs during the period 2002–2019 to anticipate financial distress with specific reference to footballs' Financial Fair Play (FFP) regulations.Design/methodology/approachData was collected for 43 professional football clubs competing in the EPL and Championship for the financial year ends 2002–2019. Analysis was conducted using the Z-score methodology and additional statistical tests were conducted to measure differences between groups. Data was split into two distinct periods to analyse club finances pre- and post-FFP.FindingsThe results show significant cases of financial distress amongst clubs in both divisions and that Championship clubs are in significantly poorer financial health than EPL clubs. In some cases, financially sustainability has worsened post-FFP. The “big 6” clubs – due to their size – seem to be more financially sound than the rest of the EPL, thus preventing a “too big to fail” effect. Overall, the financial situation in English football remains poor, a position that could be exacerbated by the economic crisis, caused by COVID-19.Research limitations/implicationsThe findings are not generalisable outside of the English football industry and the data is susceptible to usual accounting techniques and treatments.Practical implicationsThe paper recommends a re-distribution of broadcasting rights, on a more equal basis and incentivised with cost-reduction targets. The implementation of a hard salary cap at league level is also recommended to control costs. Furthermore, FFP regulations should be re-visited to deliver the original objectives of bringing about financial sustainability in European football.Originality/valueThe paper extends the evidence base of measuring financial distress in professional team sports and is also the first paper of its kind to examine this in relation to Championship clubs.

The effectiveness of UEFA Financial Fair Play: evidence from England and France, 2008–2018

“…In English football, Plumley, Serbera and Wilson (2020) did state that some EPL clubs were performing poorly against bankruptcy measures with a notable excpetion being the 'big 6' clubs in the league. Our findings do not show evidence to support a financial problem in the EPL based on our aggregate data.…”

“…a situation where, by due legal process, control of an organisation has passed from its directors to an outside independent party acting in the interests of the creditors) in the first four top divisions have occurred. More recently, Plumley, Serbera and Wilson (2020) found that the majority of clubs in the EPL and English Football Championship (tier 2 of English football) were in significant financial distress when measured against bankruptcy indicators and that in some cases this situation had worsend post-FFP. In France, Scelles et al (2018) had identified 79 cases of insolvency between 1970 and 2014 in the top French divisions but only seven within the first tier.…”

Bankruptcy Risk Prediction in Ensuring the Sustainable Operation of Agriculture Companies

“…If a company determines that its current debt payment obligations exceed its current cash flow, it may choose the option to consider bankruptcy claims to reduce its debt obligations. Financial distress in business is not a new phenomenon, but it has become an issue of special attention during the last decade since the global recession of 2018 [61]. Many unexpected situations, such as the COVID-19 pandemic, have led to the declaration of bankruptcy by many companies [62].…”

Liabilities and contingencies of Brazilian football clubs

“…Additionally, it was found that the big clubs, those insolvent and those located in the Southeast region have a higher debt. The sports literature points out that in soccer clubs, those considered large tend to have higher indebtedness, although the risk of insolvency is greater for small clubs (Baroncelli & Lago, 2006;Dantas et al, 2015;Ferri et al, 2017;Hagen & Cunha, 2019;Plumley et al, 2021). Table 6 presents the results of the Two-sample Wilcoxon rank-sum (Mann-Whitney) test to verify if there are significant differences in the debts of clubs with these characteristics.…”

“…Second, the establishment of a salary cap, which in Brazil could be related to the division, as it tends to help clubs maintain costs. Finally, those responsible for organizing football should review the financial regulations to provide greater consistency to help clubs achieve long-term financial sustainability (Plumley et al, 2021).…”