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

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.