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Welfare Economics of “Financial Fair Play†in a Sports League With Benefactor Owners

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  • Paul Madden

Abstract

With European soccer leagues in mind, a novel model of club owner objectives nests standard profit (and win) maximization, but adds benefactor behavior where owners inject personal funds to increase their team’s quality. A “generosity†parameter differentiates owners; parameter value zero equates to profit maximizers, with benefactors emerging at sufficiently positive values. The model is used to investigate consequences of Union of European Football Associations’ (UEFA) “Financial Fair Play†regulations (FFP)  for the league, aimed to preclude benefactor injections. Assuming (post-Bosman) a relatively large elasticity of talent supply to the league, FFP is a poor regulatory device, creating welfare losses for fans, owners, and players.

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  • Paul Madden, 2015. "Welfare Economics of “Financial Fair Play†in a Sports League With Benefactor Owners," Journal of Sports Economics, , vol. 16(2), pages 159-184, February.
    • Handle: RePEc:sae:jospec:v:16:y:2015:i:2:p:159-184
    DOI: 10.1177/1527002512465759
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    References listed on IDEAS

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    Cited by:

    1. Roberto Burguet & József Sákovics, 2019. "Bidding For Talent In Sport," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 85-102, January.
    2. Sonin, Konstantin & Grabar, Vsevolod, 2018. "Financial Restrictions and Competitive Balance in Sports Leagues," CEPR Discussion Papers 13154, C.E.P.R. Discussion Papers.
    3. Roberto Burguet & Jozsef Sakovics, 2016. "To the highest bidder: The market for talent in sports leagues," Edinburgh School of Economics Discussion Paper Series 275, Edinburgh School of Economics, University of Edinburgh.
    4. Egon Franck, 2018. "European Club Football after “Five Treatments” with Financial Fair Play—Time for an Assessment," IJFS, MDPI, vol. 6(4), pages 1-19, December.
    5. Paul Madden, 2019. "Collective Bargaining in a Basic North American Sports League Model With Broadcasting Revenue," Journal of Sports Economics, , vol. 20(8), pages 1088-1118, December.
    6. Paul Madden, 2015. "“Walrasian Fixed Supply Conjecture†Versus “Contest-Nash†Solutions to Sports League Models," Journal of Sports Economics, , vol. 16(5), pages 540-551, June.
    7. Budzinski, Oliver, 2017. "Market-internal financial regulation in sports as an anticompetitive institution," Ilmenau Economics Discussion Papers 110, Ilmenau University of Technology, Institute of Economics.
    8. Garcia-del-Barrio, Pedro & Agnese, Pablo, 2021. "Does Compliance with Financial Fair Play Rules Improve the Football Clubs' Sport Performance and Their Chances to Reach UEFA Competitions?," IZA Discussion Papers 14474, Institute of Labor Economics (IZA).
    9. Marc Rohde & Christoph Breuer, 2018. "Competing by investments or efficiency? Exploring financial and sporting efficiency of club ownership structures in European football," Sport Management Review, Taylor & Francis Journals, vol. 21(5), pages 563-581, December.
    10. Stefan Szymanski, 2017. "Entry into exit: insolvency in English professional football," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(4), pages 419-444, September.
    11. Philip L. Hersch & Jodi E. Pelkowski, 2019. "The Consequences (and Nonconsequences) of Ownership Change: The Case of Major League Baseball," Journal of Sports Economics, , vol. 20(1), pages 72-90, January.
    12. Egon Franck, 2014. "Financial Fair Play in European Club Football: What Is It All About?," International Journal of Sport Finance, Fitness Information Technology, vol. 9(3), pages 193-217, August.
    13. Egon Franck, 2016. "A comment on the newly revised “2015 version” of the UEFA Club Licensing and Financial Fair Play Regulations," Working Papers 362, University of Zurich, Department of Business Administration (IBW).
    14. Rodney Fort, 2015. "Managerial Objectives: A Retrospective on Utility Maximization in Pro Team Sports," Scottish Journal of Political Economy, Scottish Economic Society, vol. 62(1), pages 75-89, February.
    15. David Alaminos & Manuel Ángel Fernández, 2019. "Why do football clubs fail financially? A financial distress prediction model for European professional football industry," PLOS ONE, Public Library of Science, vol. 14(12), pages 1-15, December.
    16. Girish Ramchandani & Daniel Plumley & Adam Davis & Rob Wilson, 2023. "A Review of Competitive Balance in European Football Leagues before and after Financial Fair Play Regulations," Sustainability, MDPI, vol. 15(5), pages 1-15, February.

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