The perversity of mild failure: Evidence from the UEFA Champions League

Economic theory dictates that tournaments can be very powerful at incentivising performance. Yet, if tournaments are designed ineffectively and the mechanisms to induce costly effort are flawed, it may lead to undesirable outcomes. A setting that demonstrates this is the Union of European Football Association’s (UEFA) Champions League (UCL). The pre-2024 format had weaknesses in its design, as the evidence from a regression discontinuity approach shows, that teams finishing third in its group stage could increase their chances of reaching a European final by approximately 20 percentage points by forgoing €12.5m in prize money. This finding highlights that financial remuneration alone may be insufficient to induce European football clubs to behave as contest designers intend, given that these teams are often viewed as win rather than profit maximisers.