Analyzing the effectiveness of UEFA's financial fair play regulations: A comparative study of the French Ligue 1 and the English Premier League

This article assesses the effectiveness of the UEFA Financial Fair Play (FFP) regulations, one of the few financial regulatory tools for open leagues in Europe in two top divisions in Europe. The objective of FFP borrows from the theoretical concept of ‘soft budget constraint’ in sport finance and regulation literature. Introduced by UEFA in 2011 and fully implemented from 2013, FFP requires clubs qualifying for European competitions to comply with the financial concept of “break-even”, where football expenses should not exceed football revenues. This study uses the French Ligue 1 (L1) and the English Premier League (PL) as a case study for analysing the effectiveness of FFP and includes thirteen clubs (seven French and six English) in total. The selection of clubs was guided firstly by data access but was also restricted to clubs regularly participating in European competitions between 2011, when FFP came into effect, and 2018. The scope of the study enabled us to measure the effect of FFP with regard to the break-even rule and the payroll ratios before and after its full application by comparing the periods 2008-2013 and 2013-2018 using descriptive statistics and tests of comparisons. The results are contrasted according to the national context of the clubs studied and the indicators analysed. First, they show a general improvement in the profitability of the clubs in the sample, although the results are statistically significant only in the case of the PL. Concerning the payroll ratios, the first measure (payroll/operating expenses) decreased significantly for all clubs, with significant differences found comparatively in the case of the L1. The second measure (payroll/operating income) also decreased, but the decrease was only significant at the sample level when the trading activity was included in operating income. From a theoretical perspective, this contribution makes it possible to compare the conclusions obtained with existing works, be it predictive or empirical in nature. From a managerial point of view, it calls for UEFA to remain vigilant in respect of FFP. While the results appear to suggest that FFP has been effective in improving the financial equilibrium of clubs and their payroll ratios, the link between better financial health and good governance remains a key challenge for the industry moving forward. Cet article ambitionne d’évaluer l’efficacité du système de Fair-play financier (FPF), un des rares outils de régulation des ligues ouvertes en Europe. Elle s’inscrit dans le cadre de la régulation financière des ligues de sports collectifs en empruntant des éléments théoriques au concept de « contrainte budgétaire lâche ». Instauré par l’UEFA en 2011 et pleinement appliqué à partir de 2013, le FPF impose aux clubs qualifiés en coupes d’Europe de respecter une règle d’équilibre financier limitant leurs montants de dépenses issues de l’activité football à ceux de leurs recettes, sans l’aide d’apports extérieurs. Pour parvenir à cet objectif, nous avons retenu sept clubs évoluant en Ligue 1 française (L1) et six en Premier League anglaise (PL). Cette sélection a d’abord été guidée par l’accès aux données et a été restreinte aux clubs participant régulièrement aux compétitions européennes entre 2011, année d’entrée en vigueur du FPF, et 2018. Le périmètre ainsi constitué nous a permis de mesurer l’effet du FPF au regard de la règle d’équilibre et des ratios de masse salariale avant et après sa pleine application en comparant les périodes 2008-2013 et 2013-2018 à partir de statistiques descriptives et de tests de comparaisons. Les résultats sont contrastés en fonction du contexte national des clubs étudiés et des indicateurs analysés. Ils montrent d’abord une amélioration générale de la profitabilité des clubs sur l’ensemble de l’échantillon même si, au niveau national, les résultats ne sont statistiquement significatifs que dans le cas de la PL. Concernant les ratios de masse salariale, le premier étudié (masse salariale/charges d’exploitation) a diminué de façon significative sur l’ensemble des clubs même si la significativité des tests de comparaison n’a été constatée, cette fois-ci, que dans le cas de la L1. Le second (masse salariale/revenus d’exploitation) a également diminué mais la baisse n’est significative à l’échelle de l’échantillon que lorsque l’activité de transfert est intégrée aux revenus d’exploitation. D’un point de vue théorique, cette contribution permet de confronter les conclusions obtenues aux travaux existants qu’ils soient de nature prédictive ou empirique. D’un point de vue managérial, elle invite l’UEFA à rester vigilante car, si les résultats sont plutôt flatteurs laissant à penser que le FPF a été efficace dans l’amélioration de l’équilibre financier des clubs et de leurs ratios de masse salariale, le lien entre meilleure santé financière et bonne gouvernance est toutefois interrogé en fin d’article.

Professional and ethical dilemmas of economists (In memoriam János Kornai, 1928–2021)

János Kornai, the most distinguished Hungarian economist passed away on 18 October 2021. This short essay, written by a long-time disciple of Kornai tries to prioritize his scientific achievements spreading over six decades. The conclusion is that Kornai's most important contribution to the principles of economics was already presented in his 1971 book, entitled Anti-equilibrium, and without this book his most respected later works and his other original concepts, like the soft budget constraint or the shortage economy, cannot be understood.

Tension in New Zealand's Public Hospitals: Performance Effects of Sharpening Incentives

<p>New Zealand's health sector reforms in the mid-1990s introduced corporate institutions and market disciplines to public hospitals. Yet the reorganisation of New Zealand's public hospitals into Crown Health Enterprises (CHEs) led to severe criticisms. Ultimately the CHEs were replaced with non-profit Hospital and Health Services. This thesis focuses on three major criticisms of the CHEs. We use game theory to provide a formal and novel analysis of interactions that could cause an organisation's performance to differ markedly from the reformers' expectations. The analysis explains how a stylised set of reforms could fail to achieve their objectives. Chapter 2 analyses public hospital throughput data over the reform period. We find that the CHE reforms were independently associated with an increase in hospitals' treatment costs. This chapter motivates the theoretical analyses of the three criticisms of the CHEs. We structure the theoretic analysis using an organisational hierarchy with four actors: a funder, an (hospital) administrator, a (medical) specialist and a (health) consumer. The first criticism was that CHE Boards paid bonuses despite managers failing to achieve performance targets. Chapter 3 examines when a funder may want to revise the budget of an organisation and to pay the administrator a bonus despite failing to meet a target. We introduce three features of the CHE reforms that conventional soft budget constraint models partly or entirely neglect: funder bargaining power, revisable targets and performance bonuses. A flexible budget constraint paired with bonuses can be efficient in the light of uncertainty. The second criticism was that costs escalated despite strong managerial incentives for cost control. Chapter 4 argues that such incentives could disrupt trust in an organisation. We show that sharpening the administrator's incentives for cost control can create a misalignment between the administrator and the specialist and cause costs to escalate. Our result, that incentivising a measurable dimension of performance can worsen performance of that same task, contrasts with the conventional game-theoretic literature. The third criticism was that the reforms let doctors manipulate managers, resulting in inefficiency. The first model of Chapter 5 shows that an administrator might want to encourage a specialist to influence public opinion. We modify the first model to reflect a feature of the reforms: managerial efforts aimed at improving the organisation's operation. The administrator can damage a whistle-blower's credibility, to the detriment of specialists and patients. Both models give original insights into how the reforms could let an administrator take advantage of his role. In this multi-layered model, the administrator may intentionally reduce communication. The CHE reformers expected performance incentives to flow through a corporate structure to improve efficiency. Rather than a cascade of beneficial incentives, incomplete contracts could cause unintentional negative interactions. Tension and perverse incentives could have caused costs to rise, necessitating budget revisions and additional bonus payments, while permitting administrators to silence whistle-blowers. This research shows how complex organisations that rely on soft information can benefit from systems that enhance trust and collaboration, and may be harmed by unhealthy tension.</p>

Tension in New Zealand's Public Hospitals: Performance Effects of Sharpening Incentives

<p>New Zealand's health sector reforms in the mid-1990s introduced corporate institutions and market disciplines to public hospitals. Yet the reorganisation of New Zealand's public hospitals into Crown Health Enterprises (CHEs) led to severe criticisms. Ultimately the CHEs were replaced with non-profit Hospital and Health Services. This thesis focuses on three major criticisms of the CHEs. We use game theory to provide a formal and novel analysis of interactions that could cause an organisation's performance to differ markedly from the reformers' expectations. The analysis explains how a stylised set of reforms could fail to achieve their objectives. Chapter 2 analyses public hospital throughput data over the reform period. We find that the CHE reforms were independently associated with an increase in hospitals' treatment costs. This chapter motivates the theoretical analyses of the three criticisms of the CHEs. We structure the theoretic analysis using an organisational hierarchy with four actors: a funder, an (hospital) administrator, a (medical) specialist and a (health) consumer. The first criticism was that CHE Boards paid bonuses despite managers failing to achieve performance targets. Chapter 3 examines when a funder may want to revise the budget of an organisation and to pay the administrator a bonus despite failing to meet a target. We introduce three features of the CHE reforms that conventional soft budget constraint models partly or entirely neglect: funder bargaining power, revisable targets and performance bonuses. A flexible budget constraint paired with bonuses can be efficient in the light of uncertainty. The second criticism was that costs escalated despite strong managerial incentives for cost control. Chapter 4 argues that such incentives could disrupt trust in an organisation. We show that sharpening the administrator's incentives for cost control can create a misalignment between the administrator and the specialist and cause costs to escalate. Our result, that incentivising a measurable dimension of performance can worsen performance of that same task, contrasts with the conventional game-theoretic literature. The third criticism was that the reforms let doctors manipulate managers, resulting in inefficiency. The first model of Chapter 5 shows that an administrator might want to encourage a specialist to influence public opinion. We modify the first model to reflect a feature of the reforms: managerial efforts aimed at improving the organisation's operation. The administrator can damage a whistle-blower's credibility, to the detriment of specialists and patients. Both models give original insights into how the reforms could let an administrator take advantage of his role. In this multi-layered model, the administrator may intentionally reduce communication. The CHE reformers expected performance incentives to flow through a corporate structure to improve efficiency. Rather than a cascade of beneficial incentives, incomplete contracts could cause unintentional negative interactions. Tension and perverse incentives could have caused costs to rise, necessitating budget revisions and additional bonus payments, while permitting administrators to silence whistle-blowers. This research shows how complex organisations that rely on soft information can benefit from systems that enhance trust and collaboration, and may be harmed by unhealthy tension.</p>

State ownership and value of cash: new evidence from an emerging market

PurposeThe purpose of this paper is to examine how state ownership influences value of cash in an institutional environment supporting soft-budget constraint.Design/methodology/approachThis study employs an interaction between state ownership and excess cash to examine how state ownership affects value of cash holdings based on Fama and French’s (1998) valuation model.FindingsWith a research data of 3,294 observations from 548 firms over the period 2009–2016, the authors find that state ownership is positively related to market value of cash. Moreover, this relationship is weaker in financially constrained firms.Originality/valueAlthough prior studies document a consistently negative effect of state ownership on market value of cash holdings, the authors argue that this effect may still be opposite. When managers of high state ownership firms rely on soft-budget constraint and save less cash, outside investors with this information disadvantage may focus more on precautionary motive and transaction motive than agency costs of cash holdings. As a result, value of cash holdings in high state ownership firms is higher. This paper contributes to the literature on corporate liquidity policy in emerging markets with new evidence on the role of state ownership in market value of cash holdings.

Hardening the budget constraint: Institutional reform in the financial management of Hungarian local governments

Kornai (2014) described the problems of municipal indebtedness in Hungary and analysed the process of bailout carried out between 2011 and 2014. In the same period, the central government also reformed the local government system, which included serious limitations of their financial independence. This study re-examines the state of the soft budget constraint (SBC) of Hungarian local governments. To start, the general theoretical framework of SBC is introduced. Then, the budget constraint on the Hungarian local governments before the bailout is described briefly, followed by an assessment of the corresponding measures which were expected to offset the negative messages of the completed bailout and to harden the budget constraint. The study concludes that the central government decided to harden the budget constraint through the introduction of new hierarchical mechanisms, while the development of fiscal discipline stopped. On the one hand, this resulted in the consolidation of municipal budgets, but on the other, it was accompanied by a serious limitation of local autonomy, projects and borrowing in general, while the central government employs specific administrative tools to show favour to some settlements according to its (political) interests.

Budget, motives and strategies for financial independence of undergraduates

Introduction. The problems of scientific analysis, where the subject of study is the financial independence of undergraduates, mainly focuses on two directories: the study of the academic performance of undergraduate and the factors affecting it; financial condition of undergraduate depending on tuition fees. In modern studies, the issues of financial independence of students, their budget are not given due attention. The employment of students is often seen as one of the factors that negatively affect their academic performance, or in the context of forced work caused by high tuition fees. In today's pandemic realities, the aspect of the financial independence of students is actualized, while the problem of students' labor activity during training is of scientific and practical interest as a forced measure to maintain their well-being in order to gain financial independence. Materials and methods. The survey was attended by: 2-4-year students of the Bachelor's degree program "Applied Economics and Finance" (38.03.01 Economics) of the Institute of Economics and Management of Ural Federal University was carried out. The total number of students in 2-4 courses on the program is 284. Results and discussion. As a result of the study, the key motives for obtaining financial independence have been identified, which boil down either to the forced need to find finances, or to the desire to obtain financial independence and the formation of labor and financial competencies; formulated the basic financial strategies of students in relation to budget planning, budget optimization - passive as an orientation towards transfers from parents and the state, active as a search for grant support or going to work; it was found that the problem of choosing between work and study as an additional criterion included opportunity costs, measured as deterioration in academic performance; it was found that significant financial support from parents (family) and its increase with an increase in student spending forms a "soft budget constraint" for a student, reducing the motivation to gain financial independence. It was founded that more than 20% of 2-4-year students have part-time gob, while 2/3 of the working students do not “sacrifice” their studies for work. This is due to the fact that the motivation for choosing a job is voluntary. The survey data allowed to conclude that students are focused both on the improving of labor and financial competencies. It was revealed that the main source of income for their budget is transfers from parents (more than 90%) but own earns are less than 6% of the student budget. It should be noted that there was a large range in the students’ income: from 2,500 to 36,000 rubles. This may be due to both the income of the family in which the student lives and the model of financial support of the parents: they admit the independence of students according to their budget or the autonomy of their student children is practically absent. Conclusion. The results of this study are aimed at comprehending the educational, scientific, labor activity of a student, taking into account the motives for obtaining financial independence, which can be taken into account in the design of individual educational trajectories of students, the development of grant projects and offers of internship, educational loans, which together ensure the strengthening of the financial independence of students.

The issue of sustainability in a highly centrally regulated fiscal model of local governments: an empirical study

Purpose This study aims to assess the sustainability of local governments in a highly centrally regulated fiscal model. Design/methodology/approach This paper uses a novel approach, a broad data set of almost 3,200 local governments and network methods. This paper analyses financial data from annual reports and other socio-economic sources using cluster analysis. Findings Even in this model, local governments show significant differences in terms of long-term sustainability. Investments do not compensate for the depreciation of tangible assets at a significant part of local governments. A specific type of soft budget constraint can be noticed. Heads of local governments do not “play” for subsequent ad hoc bailouts by the central government, but rather engage themselves in political competition for development subsidies. A further finding of this study is that shrinking populations itself does not explain the differences in local governments’ financial management. Research limitations/implications Further directions of research include the application of an extended approach to sustainability that gives an account of the availability and quality of local services, as well as aims to identify the qualitative social characteristics (success criteria) of the local government financial management. Practical implications The findings can be useful for policymakers, state audit offices, auditors, voters, users of public services and other stakeholders. Social implications The paper argues in favour of moving away from the financial balance in its narrow sense to a long-term and broader term of financial sustainability. Originality/value The findings provide new empirical evidence about the accounting-based measurement of financial sustainability in local governments.