Spending money is like water soaking into the sand: Anticipating financial distress in Japanese professional football clubs

Purpose: This paper analyses J1 League and J2 League clubs during the period 2011-2020 to anticipate financial distress. Design/Methodology: Data was collected for 29 professional football clubs competing in the J1 and J2 League for the financial years ending 2011-2020. Analysis was conducted using the Altman's Z-score methodology and additional statistical tests were conducted to measure differences between groups. Findings: The results show significant cases of financial distress amongst clubs in both divisions and that clubs that have played predominantly in the J1 League are in significantly poorer financial health than clubs that have played predominantly in the J2 League. Overall, the financial situation in Japanese professional football needs to be monitored, a position that could be exacerbated by the economic crisis, caused by COVID-19. Originality: The paper extends the evidence base of measuring financial distress in professional team sports and is also the first paper of its kind to examine this in relation to Asian professional football. Practical Implications: The paper recommends J-League to visit the existing club licensing criteria and implement equitable cost-control measures, such as implementing a cap on acceptable losses over a specified period or restricting overall expenditures as a percentage of the club's revenue.