The Parachute Payments of the Premier League relegated clubs has been no stranger to massive criticism from the fans of the game since the very beginning of its implementation back in the 2006/07 season. And with the club finance facing a sharp hit due to the pandemic, what does it mean for the Championship outfits deprived of its privileges?
This season's Championship Football has seen last season's relegated club Norwich and Watford climb back into the promised land of the Premier League, with Bournemouth missing out on the opportunity because of a play-offs defeat against Brentford. This pattern of the previously relegated clubs achieving promotions in the very next seasons or the following seasons has been a common pattern for a while in the second-tier of English football. And voices are being raised for the potential culprit to be scrapped off completely from the competition as a measure for a more balanced and equal approach to the league.
Parachute payments are funds provided by the Premier League to clubs relegated from the Premier League to the Championship football. A system implemented for the relegated clubs to survive the drop to the Championship and avoid administration as we have seen many clubs face before the scheme was executed. Over the years, the rules have been revised and the current payment system sees the clubs in question distributed a hefty amount of money over 3 years.
In the first year, the payment is 55 percent of the amount that each Premier League club receives as part of its equal share of broadcast revenue. Based on the most recent figures, that percentage is roughly £40m. The percentage is reduced to 45% in the second year (roughly £35m) and 20% in the third year (roughly £15m). It is important to note, however, that teams that have been relegated from the Premier League in their first season after promotion only receive two years of parachute payments.
If a relegated team earns a promotion back to the Premier League within that three-year period, they do not continue to receive parachute payments.
Now, in a league where the teams are always losing money owing to compete for the promotion race with a solidarity payment of 30% of that of the 3-year long parachute payment per year(roughly around £4.5 million) according to the new arrangements following the Covid circumstances, a head start of about £40 million is a massive boost to the teams that just got relegated from the Premier League, with about insurance of £50 million more to receive in the following years to come if they don't make it to the Premier League again.
With this much assurance from the top league, the relegated team can keep some of its top players while also avoiding a financial collapse with sufficient room to manage their wage and other expenses. This, in contrast to the other outfits in the Championship, gives them a massive advantage to fight for promotion.
According to the statement from EFL after rights rollover announced by the UK government, The constant pressure to pursue promotion to the Premier League has made clubs face impossible economic pressure, leading the clubs in the league to face around £600 million loss combined over the course of the last couple of years. With the pandemic hitting the football economy and the Championship clubs not gaining anything near the increase in TV broadcasting revenue of that of the Premier League, the situation is more volatile than ever.
“It is our strong view that parachute payments are not a form of solidarity and instead provide a reward for relegation while distorting competition. They should be halted, with the money instead reinvested for the ultimate benefit of the pool and our 72 members.”
According to the Premier League, ''parachute payments give newly-promoted clubs the confidence to invest in their squads in order to be competitive.'' So it is basically more of a rocket boost to the club rather than a means to avoid financial collapse.
Let us look closely at two particular clubs over since the 2018/19 season. Norwich and Fulham.
Norwich gained promotion in the 18/19 season following a brilliant spell from Teemu Pukki. The next year, they finished the Premier League season with a 20th place finish and relegated to the Championship for the 20/21 season. The team sold Ben Godfrey and Jamal Lewis for a sum of around £38 million, only two notable regular starters. On the other hand, they brought in 4 first-team players for around £8 million and on transfer and loaned some from other teams, while keeping hold of the likes of Teemu Pukki, Max Aarons, Cantwell, and many other top-level players. They even managed to keep hold of their 4 most top-earning players that season. Sam Byram, Grant Hanley, Timm Klose and, Mario Vrancic. All of them earning over a million pounds a year.
On the other hand, Fulham gained promotion to The Premier League with play-offs wins in the 17/18 season. The following year, they were relegated from the Premier League with a 19th position finish in the table. Their fall to the bottom of the league followed a massive turnover of individuals in the roster as a few regular starters left the team and were replaced with some more players who had previous experience of playing in the top tier with Ivan Cavaleiro, Anthony Knockaert, Onomah, Arter, and Harrison Reed amongst the notable names who joined in loan transfer with potential future transfer agreements.
Now, Fulham had to offload some of their big names to other clubs in the form of loans. Like the case of Zambo Anguissa and Michael Seri, as their wages were too much for the club to pay even after receiving the Parachute payment. But even without them out of the squad, the Fulham roster had 15 individuals with each of them earning over a million per year, and some even surpassing the £2 million mark. For a club with such a stupendous amount of wage expense as Fulham, you would expect the club to offload a huge number of players earning over a million and look for cheaper players instead. But the loan move of Ivan Cavaleiro from Wolves and Anthony Knockaert from Brighton for a reported £5.9 million and £4.5 million loan fee respectively meant that Fulham had more than enough in their pocket to spend and less likely to be worrying about the financial crisis.
Unsurprisingly, keeping all those high-profile players in the squad paid off as Fulham achieved another promotion.
This yo-yo of promotion and relegation of the two teams is the prime example of Parachute Payment working more as a rocket booster than a parachute for the clubs. Either by keeping their top players in the squad or by signing high-profile players, the clubs are enjoying an unfair privilege over the rest of the clubs in the same tier. Making the league more disjointed financially. Without a number of exceptions, clubs like Norwich, Fulham, and West Brom have been taking full advantage of the system.
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