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

type="main" xml:id="sjpe12052-abs-0001"> <title type="main">Abstract</title> <p>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.