The perceived financial situation of nonprofit sports clubs explained by objective financial measures

Abstract

ABSTRACT In surveys across countries, nonprofit sports clubs report their perceived financial situation using some form of Likert scale; however, it is unclear what this subjectively reported rating reflects. The purpose of this study is to examine the link between objective financial measures and club officials’ perceptions of the financial situation. The main research question is: What objective financial measures best reflect the level and changes in the perceived financial situation of nonprofit sports clubs? The study used panel data from four consecutive waves of a German sports club’s panel (n = 2,859). The clubs’ financial situation was assessed on a 6-point scale (1 = no problem; 6 = existential problem). This subjective measure was juxtaposed with several objective financial measures drawn from the literature and financial theories. These measures include general financial measures like interest coverage, margin, and revenue diversification, but also measures specifically developed for the nonprofit sports clubs’ context. The results of regression analyses show that operating margin, revenue diversity, the share of facility expenses relative to total expenses, and administrative expenses relative to total revenue significantly explained the subjectively rated financial situation. The findings suggest that objective financial measures are required to better understand the financial situation of sports clubs and design more targeted support programmes. HIGHLIGHTS Objective financial measures are applied to examine the subjectively measured financial situation of nonprofit sports clubs. Panel data from a sports club panel are used. Operating margin, revenue diversity, and proportions of administrative and facility expenses reflect the perceived financial situation of clubs. Clubs perceive lower financial troubles when revenue exceeds expenses, which is a prerequisite for staying financially stable. Clubs should be supported by sports governing bodies in their financial management.