There is a common perception that the German football system is financially more stable than other European football league systems. However, we show that the German football pyramid is no more immune to the problem of insolvency than other European football league pyramids. We provide evidence to show that insolvency occurs in German football at a frequency comparable to the English and French leagues. We also show that the pattern of insolvency is consistent with the experience of English and French football identified in Szymanski (2017) and Scelles et al. (2018). Using season-level data from 1994-1995 to 2016-2017 for the first four German divisions (N = 2,626), we show that random shocks, attributable to deviations of actual team performance from expected performance, are the crucial driver of insolvency risk. These shocks frequently result in relegation to a lower tier of competition, which generates lower match attendance and revenues.
JEL classification: D20, G33, H81, K30, Z23