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

Daniel Plumley (Sheffield Business School, Sheffield Hallam University, Sheffield, UK)
Jean-Philippe Serbera (Sheffield Business School, Sheffield Hallam University, Sheffield, UK)
Rob Wilson (Sheffield Business School, Sheffield Hallam University, Sheffield, UK)

Journal of Applied Accounting Research

ISSN: 0967-5426

Article publication date: 10 November 2020

Issue publication date: 25 January 2021

2603

Abstract

Purpose

This 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/approach

Data 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.

Findings

The 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/implications

The findings are not generalisable outside of the English football industry and the data is susceptible to usual accounting techniques and treatments.

Practical implications

The 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/value

The 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.

Keywords

Citation

Plumley, D., Serbera, J.-P. and Wilson, R. (2021), "Too big to fail? Accounting for predictions of financial distress in English professional football clubs", Journal of Applied Accounting Research, Vol. 22 No. 1, pp. 93-113. https://doi.org/10.1108/JAAR-05-2020-0095

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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