Parachute payments – A necessary evil?
With the Premier League season close to its return, fans will be eager to see their favourite teams back in action after months of being starved of top-flight football. The title race, however, seems pretty much over at this point; with Liverpool requiring only six points to end their twenty-eight-year wait for a Premier League title. Though we can reasonably infer that Liverpool will finish the job and get the six points they require to lift the trophy, the same cannot be said for the relegation battle at the bottom of the table, the scramble to escape from the drop being as unpredictable as ever, with no team without a chance to survive to fight another season.
Finding themselves in the heart of the relegation battle are newly promoted Aston Villa and Norwich City. These two teams are fighting to avoid repeating their 2015/16 feat – a season where they were both promoted from and sent back to the Championship in the span of a year. When financially weaker clubs like Villa or Norwich get relegated, they suffer from various unwanted setbacks, both emotional and financial, the latter being the more prominent of the two. These financial problems come in various forms – decreasing television revenues, reduction in ticket sales and maintenance costs being some of the major issues faced by smaller clubs facing the drop. All this amount to more than fifty million pounds in losses, which is a harsh price to pay for a single season of underperformance. But that’s the harsh truth of top-flight football. Either you’re there to stay, or you fall tumbling down.
The relegated clubs are almost always forced into a season of rebuilding and taking stock of their position, both financially and on the pitch, which can be crippling for some of them. That’s where the Premier League comes in to provide some relief to them in the form of parachute payments. Introduced in 2006, a parachute payment is a form of payment given by the Premier League to those clubs that have been relegated in order to cushion the financial blow of relegation to the Championship.
Before the inauguration of the Premier League in 1992, television revenue was divided between the leagues depending on their tier. The top tier of football or the first division received half of the broadcasting revenues, the Second division receiving a quarter of it and so on. This structure particularly affected the lower league clubs, who couldn’t handle the costs of playing football with barely any income from broadcasting and crowds. As a result, some lower league teams went into administration, which is one of the biggest nightmares for a football club in England. Football clubs go into administration when they are unable to pay off their outstanding debts, and they pretty much lose control of everything about their club, other than coaching and choosing the players. Bradford City, Middlesborough, Charlton Athletic, Newport County and Tranmere Rovers were some of the clubs who went into administration before the Premier League started in 1992. However, they exited shortly after in the same year.
From the start of the Premier League till 2006, the league didn’t share any of its revenue with the EFL, other than 4 million pounds for youth development and participation in the EFL cup, which added to the broadcasting income. This structure, however, failed to provide sufficient support to the relegated teams, who suffered major problems during their fall to the Championship, with some of them even getting relegated in consecutive seasons.
In 2006, however, parachute payments were introduced. These payments ensured that clubs that get relegated from the Premier League receive a share of the common broadcasting revenue received by each club for four seasons after their relegation. The percentage of the share received drops every year, with the relegated club receiving 55% in year one, 45% in year two and so on for four years. If a club achieves promotion to the Premier League before the expiry of their Parachute payments term, they no longer receive these payments.
The EFL also has a similar system in place, with relegated teams receiving a share of the basic award payments for the clubs in the division they were playing in. This system of parachute payments is unique to the Premier League and isn’t practiced anywhere else across Europe’s top leagues. The three-year program amounts to roughly 90 million pounds in parachute payments to relegated clubs. On the surface, this seems like a blessing in disguise for these clubs; a truly benevolent initiative by the Premier League to provide financial support to them during dire times. But is this effort to restore parity really placing these clubs on equal footing with their championship counterparts in the next season? Or is this a way to give them a welcome advantage over their rivals, more or less ensuring their promotion before their parachute payments expire?
Over the last thirteen years, since the inception of the parachute payments system in 2006, 28 clubs have been relegated from England’s top flight (some even more than once!). Out of these clubs, twelve have been able to achieve promotion during the term of their Parachute payments, with Newcastle, Norwich, Hull and Burnley repeating the feat a couple of times. These number strongly suggest that clubs who receive parachute payments are more likely to get promoted to the Premier League than clubs in the Championship. In the past ten years, this trend has been quite prominent, and it has become a common occurrence to see clubs who have been relegated returning after a season or two in the Championship. The Premier League modified the Parachute payments program in 2016, changing the four-year structure to a shorter three-year structure, but that has had little effect on the relegated clubs. Newcastle, Villa and Norwich were relegated in the 2015-16 season, but they have all found a way back into the Premier League within three years of their relegation.
Derby County are currently the longest-serving club in the Championship and have been playing consecutively in the same division since the 2007-08 season, one year after parachute payments were introduced. During this span, they have produced and aided the development of high calibre players like Jeff Hendrick, Michael Keane, Will Hughes and more recently Harry Wilson, Mason Mount and Fikayo Tomori, who have gone on to become first-team regulars for Premier League powerhouses. Derby have come agonizingly close to promotion on many occasions, finishing in the top six in four seasons, and losing out to a club supported by parachute payments more than once. Many such clubs have lost out on promotion due to smaller budgets and weaker squads, but the Rams have probably been the unluckiest of the lot.
The COVID 19 pandemic has thrown Football clubs across all of England into a realm of uncertainty. The EFL Championship, League One and League Two have been suspended, with no start date confirmed as yet. League Two clubs have voted to cancel their season and should the Championship and League One follow suit, the EFL has proposed a way to end the respective seasons using a projected points system. The Premier League, however, is adamant that the season should end and the government has given them the green light to start sometime between 12th June and 26th June. Should the Championship season end, the clubs will be badly affected, especially due to lack of broadcasting revenue and ticket sales.
The same cant be said for the Premier League clubs, with television viewership likely to be at it’s highest whenever it resumes, fans all over the world in isolation will be tuning in to watch their favourite clubs back in action. As a bonus, the relegated clubs will receive their parachute payments, ensuring a soft landing to the Championship next season, but the clubs they will be competing against are falling without any protection and will be glad to land safe. These payments are a good initiative by the Premier League, but they are destroying the parity between clubs that football in England is famous for.
Parachute payments are a necessary evil, but one which cannot be abolished completely. Maybe this crisis will allow the Premier League to reassess and strengthen their parachute payments system. For now, let’s hope that the beautiful game survives these dark days and comes back stronger than ever.
Written by Hrishikesh Chaudhuri | Photo by Jamie McDonald/Getty Images
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