It’s a debate that every English football fan will have a hot take on. Three Premier League clubs are relegated each season to the Championship; at which point, they receive so-called ‘parachute payments’ from the EPL to ease the transition. In short, that trio of clubs will be making less money in the second-tier of English football – the loss of Premier League TV revenue, as just one example, ultimately seeing millions wiped off their balance sheet.
Those parachute payments can be in the region of £40 million; a very lucrative consolation prize for being relegated. The other clubs in the Championship will argue that parachute payments are unfair, creating a competitive advantage for the teams that get them – particularly when you consider that their playing squads are already likely to be stronger anyway.
Which side of the fence do you sit on: are parachute payments a fair way to help relegated teams adjust to life at the lower level, or do they unfairly alter the competitive integrity of the Championship? Well, such discussions may ultimately count for very little, with English football’s proposed independent regulator set to have the power to abolish parachute payments altogether.
Free Falling
“Parachute payments need dealing with thoughtfully. In a way which doesn’t stress Premier League clubs too much but also deals with inequality in the rest of the pyramid”@gnev2 speaks with @lisanandy about how the Independent Football Regulator could affect parachute payments pic.twitter.com/iIe12E2PUS
— Department for Culture, Media and Sport (@DCMS) October 25, 2024
If the House of Commons, and House of Lords, pass the proposed Football Governance Bill, a new independent regulator for the beautiful game will be created. That organisation will operate according to a host of new rules, with – although this isn’t explicitly decreed, it’s the unwritten objective – the ability to remove power and self-governance away from the Premier League. And so the Independent Football Regulator (IFR) will ultimately decide on the future of parachute payments, amongst other things.
The current system won’t be abolished altogether – the culture secretary, Lisa Nandy, has promised Premier League clubs that the new regulation won’t prohibit parachute payments being made. But then, politicians have promised plenty in the past. More likely, certainly in the short term, is that the amount paid to relegated teams will be reduced considerably.
Under the current scheme, clubs that have been relegated from the Premier League receive parachute payments for three seasons following their demotion – a length of time that, according to some, threatens the sustainability of the Championship.
There is little incentive for sides dreaming of promotion back to the EPL to not spend beyond their means, knowing that another payment will be due next season anyway. The regulator will be given backstop powers to intervene when it believes the Championship has become irrevocably unbalanced, which will be music to the ears of those opposed to the payments. Rick Parry, the chairman of the EFL, once described them as an ‘evil that must be eradicated.’
“We have six clubs in the Championship in receipt of parachute payments giving them an average of £40million a club. The other 18 [clubs] get £4.5m each, so they are struggling to keep up,” Parry said back in 2020.
In Solidarity
All EFL clubs, regardless of whether they were relegated from the Premier League recently or not, receive a ‘solidarity payment’ from the top flight. The issue is that the amount – as Parry alluded to back in 2020 – is not of a sufficient size to compete with those receiving parachute payments.
At the time of writing, 16% of the Premier League’s annual revenue is shared with lower league clubs, but that is shared amongst the 72 teams outside of the top-flight; parachute payments may be paid to a small handful.
The sum of cash is wildly different: in 2020/21, parachute payments totalled £233 million, whereas a solidarity payment of £79 million was shared by the remaining 69 clubs – at a relatively paltry average rate of £1.1 million each.
The Premier League has attempted to justify the imbalance. They claim that parachute payments are ‘….a vital mechanism to give relegated clubs financial support while adjusting to significantly lower revenues and having a higher cost base related to their playing squads.’
“We see no evidence that parachute payments distort performance at that level and are an essential part of this highly competitive environment,” a spokesperson for the EPL argued. Well, maybe those analysing whether Championship performance is ‘distorted’ by the sizable parachute payments haven’t been looking closely enough.
Up and Down
The Premier League first introduced parachute payments during the 2006/07 season. So have they created a competitive imbalance in the Championship since? The answer, you might be tempted to argue, is a solid yes, although it took a while for that to be the case.
The inaugural recipients of parachute payments were Charlton Athletic, Sheffield United and Watford, who succumbed to relegation from the Premier League in 2006/07. None of the trio were promoted back to the promised land within two seasons, which – at the time – was the span in which the payments were received.
Really, we should fast forward to the 2015/16 season. Here, parachute payment rules were changed: now, relegated clubs received a percentage of the Premier League TV rights payout that they would have got had they had stayed up.
Under the new system, relegated teams received 55% of their TV sum in the first year after their demotion, 45% in the second and 20% in the third. It’s a revenue stream that changed the face of English football. In 2015/16, Aston Villa, Newcastle United and Norwich City were all relegated from the Premier League; each was promoted back to the EPL within the three-year parachute payment window.
And that pattern has, by and large, continued ever since. Here’s a look at how many teams relegated from the Premier League bounced back within the three-year cycle:
- 2016/17 – Sunderland (No), Middlesbrough (No), Hull City (No)
- 2017/18 – Swansea City (No), Stoke City (No), West Brom (Yes)
- 2018/19 – Cardiff City (No), Fulham (Yes), Huddersfield Town (No)
- 2019/20 – Bournemouth (Yes), Watford (Yes), Norwich City (Yes)
- 2020/21 – Fulham (Yes), West Brom (No), Sheffield United (Yes)
It has taken a while for the ball to get rolling, but from the 2019/20 and 2020/21 seasons, five of the six teams relegated gained promotion back to the Premier League during their three-year parachute payment window.
And Burnley, Leicester City and Southampton have since all been immediately promoted in their first year of parachute payments following relegation. Do parachute payments create a competitive imbalance in the Championship? The recent evidence certainly suggests as much – let’s hope the new football regulator has been doing their homework.