In Croatia, if you exclude maybe 5 top football clubs and maybe another 5 best clubs in all other sports, most sport clubs are always on brink of bankrupcy. For example, in highest basketball league, it is perfectly normal for salaries to be late, players to leave because they are not paid on time etc.
Most clubs in all sports and on all levels are financed mostly by public money from local government funds (cities, towns, counties). This includes both funding for team budgets and facilities. Sponsors are usually very minor part, as well as private donors. Even for the most popular clubs, ticket sales and other merch usually covers pretty much nothing. For bigger and professional clubs financing is almost exclusively based on selling players each season and potential rewards for participating in european competitions (for football in particular).
This all results in a state where even in large cities there is maybe one more or less successful club, and the rest (especially less popular sports, ie. anything aside from football and maybe basketball or handball) are always dancing on the edge of amateurism. It is not rare for athletes to pay for their buses or to travel by their own cars to matches because there simply isn't any money. Even in the highest, professional leagues of football, most popular sport, every year there is a club that can't survive a season and they fold, go bankrupt in the middle of the season and get relegated to the lowest, amateur level or permanently disbanded. Most clubs in less popular sports are semiprofessional and have players that are playing and training along with working or going to school/college so as soon as someone shows potential, clubs have no way to keep them and they leave, often abroad.
What is the situation like in other countries? How is 2nd and 3rd tier of popularity financed?