For the last few years I have been researching insolvency in football. My first Soccernomics blog post back in 2012 was about a paper I wrote on the causes of insolvency in English football. I found 67 recorded cases of legal insolvency proceedings in England between 1982 and 2010, which represents a frequency of 2.5%, i.e. on average a club can expect to go into insolvency proceedings once every forty seasons in the top four divisions.
Of course, not all clubs are equally likely to become insolvent, and generally insolvency affects the clubs in the lower divisions. The paper also showed that clubs becoming insolvent were likely to have experienced a number of random “shocks”, either to productivity (underperformance relative to wage spending) or demand (lower revenues than league position would predict). In this sense, insolvent clubs are “unlucky”. They might be badly managed, but what they were trying to do before becoming insolvent did not look very different from anyone else.
So now, together with Nadine Dermit-Richard and Nicolas Scelles, I have looked at insolvencies in the top three divisions of French football between 1970 and 2014. In the paper we discuss the differences between France and England in terms of insolvency laws, league structure and football regulation. Here are some of the highlights:
- We found 72 cases of legal insolvency proceedings in the top three divisions, representing a frequency of 2.7% – almost exactly the same as the English case
- We found a similar pattern of demand shocks leading up to insolvency – attendance tended to be lower than one would have expected given league performance in the three or four seasons prior to insolvency (we did not have wage data).
- Like the English clubs, insolvent clubs almost always survived
- Unlike the English clubs, most insolvent clubs struggled to recover to a similar level of competition afterwards
- We found that the regulatory scheme established at the beginning of the 1990s had no effect on the frequency of insolvencies.
The last point is important. The top two divisions in France are regulated by the Direction Nationale du Contrôle de Gestion (DNCG), a body which has extensive powers to limit club spending and player acquisition if a club appears to be living beyond its means. There is a roughly equivalent body for amateur clubs in the third tier.
When UEFA adopted Financial Fair Play as means to regulate the finances of clubs, they referred approvingly to the DNCG as an example of successful regulation maintaining financial stability. Insofar as regulation was intended to prevent insolvency, the evidence does not support this claim.
Of course, it could be argued that regulation achieved other objectives, or that without it things would have been even worse. But on the face of it the English and French experiences do not seem to be very different, which raises questions about the effectiveness of regulation (given that it has been very limited in England).
I am currently working with Daniel Weimar on a paper reviewing insolvency in the German leagues, whose model of financial regulation has been much admired. As with France, the data suggests that the frequency of insolvency in Germany is rather similar to the English case.