Predicting Financial Distress - A Model for the European Football Industry

Abstract: The present study successfully develops a probit model that predicts financial distress for European football clubs. The model consists of both financial variables that are common in accounting-based bankruptcy prediction models as well as financial and non-financial variables that capture the distinct characteristics of the football industry. While it significantly outperforms naïve decision rules in classifying clubs as distressed or surviving, it achieves a lower accuracy compared to those attained in many prominent bankruptcy prediction studies. The lower predictive accuracy can be explained by the unique conditions under which football clubs operate. The model is based on a sample of 208 European clubs in the 2006-2016 period that mostly are private or public limited companies and that play in UEFA's top divisions. Using the model at hand, stakeholders of football clubs can make better-informed and more timely decisions in their interactions with clubs.