Is financial regulation bad for competitive balance? Club budget constraints and performance in the UEFA men’s Champions League knockout stage before and under Financial Fair Play

Research question While the literature suggests a negative impact of UEFA Financial Fair Play (FFP) on competitive balance (CB) in European men’s football, the effect of FFP has not been convincingly isolated through an associated variable such as soft budget constraint (SBC). The paper addresses this gap by explaining the determinants of SBC and its impact on CB in the knockout stage games of the UEFA men’s Champions League over 1996-2023.Research methods Regressions were conducted to explain SBC and profit/loss by club differences in revenue in successive seasons and FFP for all clubs that took part in the Champions League knockout stage at least once over 1996-2023 (n = 903 observations). Regressions were also undertaken to explain CB (goal and adjusted Elo rating difference) by differential revenue between clubs, home advantage with a crowd or not, differential budget constraint and FFP (n = 502 observations).Results and Findings Differences in revenue and FFP have a negative impact on SBC, suggesting that negative revenue shocks and a lack of incentive for sound financial management pre-FFP explain SBC. While differential revenue and home advantage with (but not without) a crowd have a significant negative impact on CB, SBC has no impact.Implications SBC is not only explained by overspending/investment but also by negative revenue shocks, while it has no effect on CB, implying that FFP does not impact CB by affecting SBC. Differentiated treatment could be considered by UEFA in terms of sanctions and settlement agreements, depending on the reason(s) explaining SBC.