The financial impact of financial fair play regulation: Evidence from the English premier league

Abstract

In response to the ailing financial situation of European football clubs, UEFA introduced Financial Fair Play (FFP) regulation in 2011 to guide clubs towards profitability and sustainability. In this study, we empirically test whether the break-even requirement (BER) of FFP has improved the financial performance of English Premier League (EPL) clubs exposed to the regulation. We find strong evidence that FFP has positively impacted the profitability of clubs exposed to the regulation as they are less loss-making than those not exposed to FFP. The improvement is attributed to better management of the income and expenses ratio rather than a fall in expenses. However we do not find evidence of an improvement in the clubs' sustainability. The results suggest that FFP has so far improved the profitability of EPL clubs exposed to the regulation by encouraging better financial management and business model modification for clubs. Therefore, club owners should maintain a financially prudent wage-to-revenue ratio and look to be more efficient in player trading.