A Theoretical Analysis of the Influence of Money Injections on Risk Taking in Football Clubs

Egon Franck and Markus Lang

Scottish Journal of Political Economy, 2014, vol. 61, issue 4, 430-454

Abstract: type="main" xml:id="sjpe12052-abs-0001">

This paper analyzes the adverse incentive effects produced by money injections of benefactors [sugar daddies (SD)]. We show that the existence of a SD induces the club to choose a riskier investment strategy and the more the SD commits to bailout the club, the more the clubs’ optimal level of riskiness increases. Moreover, a private SD bails out the club less often than a public SD. Our model further shows that a ‘too-big-to-fail’ phenomenon exists because it is optimal to always bailout a club if its market size is sufficiently large.

Date: 2014
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Working Paper: A Theoretical Analysis of the Influence of Money Injections on Risk Taking in Football Clubs (2013)
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