Bankruptcy Trends Among European Football Clubs: New Study Reveals Key Insights

21.08.2024

Wittenborg Professor Co-Authors Study on Bankruptcy Trends in European Football Clubs

A recent study published in the Journal of Physical Education and Sport (JPES) explores the complex interplay between financial stability and on-field performance in European football clubs. Conducted by Associate Professor of Applied Sciences at Wittenborg, Bojan Georgievski, along with Kristina Velickovska, Vladimir Dzenopoljac, Nikita Pahwa and Aleksandra Dzenopljac, this research provides interesting insights into the economic challenges faced by some of the continent's most prominent football teams.

The study analyses seven notable football clubs: Celtic, Dortmund, Olympic Lyon, Porto, Manchester United, Arsenal and Juventus. By examining financial data from 2008 to 2020, the researchers aimed to determine whether UEFA Financial Fair Play (FFP) regulations impacted the financial performance and on-field success of these clubs. The data was sourced from officially published financial statements, ensuring accuracy and reliability.

Three bankruptcy prediction models—developed by Altman (1968), Springate (1978), and Zmijewski (1984)—were employed to assess the financial health of the clubs. Each model provides a unique perspective on bankruptcy risk, using different financial ratios and criteria.

Key Findings

Altman Model: The study found that except for Borussia Dortmund and Celtic, the clubs showed negative tendencies in financial health according to the Altman Z-score.

Springate Model: This model indicated that all clubs faced financial troubles in 2020, with Dortmund and Celtic being financially stable in previous years.

Zmijewski Model: According to this model, all clubs except Porto showed financial stability, though this stability was marginal.

The research further explored the impact of financial stability on football success. Interestingly, the analysis revealed that bankruptcy scores did not significantly affect domestic win percentages. This finding was attributed to the dominant position of these clubs in their respective leagues, where competition might be less intense.

However, the relationship between financial health and international competition success was more pronounced. Two models were used to analyse international performance: one considering all international games and the other focusing on group stages and beyond in European competitions. Both models demonstrated a positive correlation between wages and international wins, suggesting that higher wages could lead to better international performance.

The empirical analysis utilised fixed and random effect models to ensure consistency and efficiency of results. Diagnostic tests confirmed the presence of heteroskedasticity, which was corrected using robust standard errors. The final regression results highlighted a significant relationship between wages and international wins. Specifically:

Model 1: A one percent increase in wages could increase international wins by 0.03 percentage points.

Model 2: A one percent increase in wages could increase international wins by 0.09 percentage points, with an R-square value of 13%.

Discussion and Implications

The study concludes that while UEFA's FFP regulations aimed to improve the financial health of football clubs, they have not been entirely successful. Most clubs are still primarily focused on achieving sporting success rather than financial stability. Despite this, financially stable clubs tend to perform better internationally, underscoring the importance of sound financial management.

"I believe that a deeper understanding of the relationship between financial stability and on-field success is crucial for the long-term sustainability of these clubs and the enjoyment of the fans," Georgievski explained. "Additionally, I would also like to explore the role of financial management and governance in mitigating bankruptcy risks and enhancing the competitiveness of these clubs in the European football landscape."