The purpose of this paper is to argue for the necessity of regulating European club football financially, in order to create a fair structure of sporting competition.
By deploying the soft budget constraint approach – originally developed by Hungarian Economist János Kornai in order to understand (public) business behavior in socialist and post‐socialist economies – and combining it with empirical analysis, the paper develops an understanding of why the majority of European top league clubs are loss‐makers and why regulation is needed. The paper rests on its application of the soft budget constraint approach to build its argument and uses existing empirical research in order to support it within the field of European professional football.
The paper finds substantial evidence of soft budget constraints in professional football clubs, and argues that softness punishes the few financially well‐managed clubs in sporting terms for balancing their books.
From a theoretical point of view, the new perspective of soft budget constraints takes political, cultural and emotional aspects into account in order to understand economic behavior among professional team sports clubs. This gives promising new insights into the discipline of sports economics and sports management.
The paper's findings demand action to be taken to secure financial fair play in order to deal with issues of equal sporting competition. It argues that this must be done through a central regulation scheme covering all European leagues, thus endorsing the new UEFA financial fair play program. At the same time, however, the paper recognizes the problems in implementing the program efficiently.
The originality and value of the paper is its application of a new theoretical approach that clarifies the problems of European professional football and the reasons why regulatory solutions are necessary to harden the budget constraints.
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