The sky is the limit?! Evaluating the existence of a speculative bubble in European football
- PDF / 1,273,784 Bytes
- 32 Pages / 439.37 x 666.142 pts Page_size
- 64 Downloads / 185 Views
The sky is the limit?! Evaluating the existence of a speculative bubble in European football Lukas Richau1 · Florian Follert2 · Monika Frenger3 · Eike Emrich3 Accepted: 30 September 2020 © Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract In light of increasing salaries and transfer fees, the present study investigates the existence of a speculative bubble in European football. By applying the Kindleberger–Minsky model to football, we show that developments in recent years do not meet the criteria of a classic bubble. Although transfer fee spending in recent years does meet the typical pattern seen in historical bubbles, the case of football rather resembles an atypical bubble. This is because the rise in transfer fees for most clubs is largely backed by cash inflows, prompting an elevator effect for transfer fees. Typical bubbles, on the other hand, contain heavy debt-financing in the absence of respective and sustainable cash inflows. Nevertheless, despite the absence of a speculative bubble on the aggregated league level, some individual clubs seem to “live in a bubble”. Furthermore, the French and especially Italian leagues should be cautious about overspending. We further discuss the main risk factors that can lead to a turning point in European football’s constant revenue growth, including potential implications of a financial downturn. Keywords Speculative bubbles · Kindleberger-Minsky model · Football · Transfer market · Financial investors · Football TV broadcasting JEL Classification G40 · Z22 · Z23 · Z29
* Lukas Richau [email protected] 1
Faculty of Economics and Social Sciences, Helmut-Schmidt-University, Hamburg, Germany
2
Faculty of Management, Seeburg Castle University, Seekirchen, Austria
3
Faculty of Human and Business Sciences, Saarland University, Saarbrücken, Germany
13
Vol.:(0123456789)
L. Richau et al.
1 Introduction Speculative bubbles are not a new phenomenon despite the New Economy and housing bubbles being two prominent examples in recent years. Indeed, cases such as the Tulip mania indicate that market bubbles have existed in the markets hundreds of years ago. Historical examples further illustrate that speculative bubbles are not limited to a few industries but can occur in all markets that feature floating prices (Kindleberger and Aliber 2005). In such cases, markets show a stable pattern of prices rising sharply to a high, followed by a subsequent turnover and a collapse to the extent of a bubble-and-crash pattern. This price movement pattern is of interest to economists since such (extreme) price movements are problematic for economies as a whole. Market prices influence the investment decisions of market participants and have a direct impact on companies’ financing costs. As a result, extreme price movements in financial markets such as those observed in bubble-and-crash patterns can (negatively) affect the so-called “real economy” through spillover effects (for an evaluation of whether it is possible to design markets that preclude such bu
Data Loading...
