Parachute payments and ‘yo-yo’ club phenomenon between Premier League and Championship

Stefan Johansen and Tom Cairney scored in Fulham’s last game against Norwich in 2018

Friday, March 30, 2018. In the pouring rain in Norfolk, goals from Stefan Johansen and Tom Cairney secure a 2-0 win for the visitors at Carrow Road.

Current Premier League players Ryan Sessegnon, now at Tottenham, and James Maddison, from Leicester, played that day but, since then, Fulham have gone on a journey of five consecutive promotions and relegationswhile Norwich have spent the past four seasons alternating between the top two leagues.

As one slid through the country’s second tier, the other struggled, toiled, beat and failed in the top flight – as they alternately “yo-yoed” between the two leagues.

To change. Repeat.

It’s part of a wider trend that has become apparent since the introduction of parachute payments in 2006, a series of solidarity payments made by the Premier League to stabilize clubs in the first three years after relegation while ‘they’re adapting to falling incomes.

It is a system used in all of Europe’s top five leagues, except in Germany, where the Bundesliga and 2 Bundesliga clubs share a common television broadcasting agreement.

“The phenomenon of yo-yo clubs is very real,” says football finance expert Dan Jones.

“The phenomenon of a huge cliff edge between the Premier League and the Football League is very real.

Steve Kavanagh
Millwall chief executive Steve Kavanagh says the club cannot financially compete with those receiving parachute money

“And then the question becomes – if a team comes down off a cliff, is giving them a parachute the right thing to do? And if you do, does that double the trampoline and take them straight back up? The proof is: sometimes, but not always.”

Payments are calculated as a percentage of money earned by the Premier League and are currently around £41m in the first season following relegation, £34m in the second season and £16m in the third, according to the football finance lecturer and author. of football prize winner Kieran Maguire.

In the first seven seasons of parachute payments – until 2012-13 – Birmingham City were the only club to be relegated from the top tier twice.

Some clubs “take a holiday in the championship”

Subsequently so far, that number has risen to 12 teams and Norwich have been relegated four times – including in their last three Premier League seasons – while Watford, West Bromwich Albion, Burnley, Hull City and Fulham have all suffered three relegations since the parachute payments. began.

Since 2013, nine of the 27 relegated clubs have bounced back with immediate promotions, while 12 of the 27 teams promoted in that period have dropped in their first year.

Maguire, who is also co-host of The Price of Football podcast, says “you could say we have a Premier League of 24 or 25 clubs and some of them are just taking holidays in the Championship”, and that may be partly down to his “rule of three”.

“It’s partly because of the way the money is distributed in the Premier League itself. Promoted clubs are going to start on a negative note compared to the big six clubs. [but the rest of the teams in the league],” he says.

“The Premier League’s ‘big six’ earn an average of three times the income of the other 14.

“The other 14 clubs in the Premier League earn around three times the revenue of clubs receiving parachute payments. Clubs receiving parachute payments receive an average of three times the revenue of other clubs in the Championship. Other clubs in the Championship get about three times the revenue of League One clubs.”

Maguire thinks the parachute payments are currently too high and could be reduced by up to a third in value.

Brentford begin their second Premier League season at Leicester on Saturday August 6, having finished their first top-flight campaign in 13th position.

The west London club beat Swansea at Wembley to earn promotion to 2020-21 and have yet to benefit from a parachute payment.

During the Championship, the Bees were “at a big financial disadvantage” to former top-flight sides such as Aston Villa and Newcastle, said director of football Phil Giles.

Championship clubs generate around £7m a year in TV money, according to Maguire, which is £34m less than the three relegated clubs from the previous season.

Teemu Pukki reacts to relegation with Norwich City
No team has been relegated more times from the Premier League than Norwich City [four] since the introduction of parachute payments in 2006

“On the one hand I understand it [having parachute payments] because what you don’t want to see are clubs going bankrupt and having their money cut so drastically that they’re struggling to exist and nobody wants to see football clubs closing their doors,” says Giles. .

“What you don’t want to see is clubs then having an artificial advantage, where it’s not really being used for what it was intended for. But in fact it allows clubs to go and spend a lot more money in transfer fees and new players to help them bounce back in the Premier League.

“It’s that element of unfair competition, I think, that is potentially the problem.”

Giles, who has been at the club for seven years, says Brentford are halfway through a two-year strategy to cement themselves as a mid-table Premier League club, but admits provisions such as release clauses relegation in player contracts have been put in place.

He believes parachute payments could be phased out over a long period of time if established Premier League clubs have enough time to prepare for the eventuality.

“Another way is to allow parachute money, but only for certain purposes, to ensure that they genuinely prevent clubs from struggling, instead of spending more than their competitors,” he adds.

“There’s a certain pattern of teams going down and up quite quickly, so there seems to be a bit of unfair competition there and that’s tough for Championship teams.”

“Some clubs try to work between their means – many don’t”

Another proposal that has been put forward by the EFL is to do away with parachute payments altogether and pool the money with the Premier League which would see 75 per cent of the funds go to the top tier and the rest 25% to be distributed in the EFL.external link

It bears similarities to the one the EFL rejected when the Premier League was created 30 years ago, Maguire says.

It has the backing of Millwall chief executive Steve Kavanagh, who believes the scheme would ‘make the league much stronger, fairer and more competitive’.

Millwall finished ninth in the Championship last season, leading their push from the play-offs on the final day of the season.

“Research suggests that over the past five years, clubs that receive parachute payments are three times more likely to win a promotion than those that don’t, which tells you all you need to know about the impact on competitiveness and fairness in the division,” said Kavanagh, who was recently elected to the EFL board.

“Millwall, as an example, will receive £40m less than a parachute club. How can we adequately compete with that?

“Some clubs – like us – will always seek to operate within their means, but many don’t, which is a result of the climate in which they try to succeed.”

In a letter to Culture Secretary Nadine Dorriesexternal link in April, Premier League chief executive Richard Masters said the organization needed to review the parachute payments system.

“We believe it’s not as simple as more money for the EFL automatically leading to greater sustainability,” he wrote.

“We know from experience that this is not the answer. However, collective reform, coupled with new, rigorously enforced financial controls, is the right way to address today’s challenges.

“We need the EFL Championship to continue to produce competitive teams that thrive when promoted to the Premier League and we need plenty of Premier League teams vying for the top spots and aspiring to European competition.”

Much of the debate around the appropriateness of parachute payments centers on financial viability versus competitive equilibrium.

“I think the more important of those two is financial viability and the reason I think that’s because, if you look at the trauma of a Bury or a Macclesfield, where the club is completely lost for community, it’s a bigger and worse trauma than the playing field being uneven in terms of finishing in the league,” said Jones, formerly of Deloitte.

“Preserving clubs, making sure they’re there for the next generation, is the most important thing to me.

“When it comes to the risk of the Championship becoming too predictable, the competition is strong enough to deal with that. Whether it’s Brentford’s promotion or, this season, Luton’s performance in getting to the play-offs, you always have to drama until the last day of the season, you still have drama through the play-offs.

“Once again in the Premier League you have the relegation battle [Everton, Burnley and Leeds]Champions League battle [Tottenham and Arsenal] and a battle for the title [Manchester City and Liverpool]excitement, uncertainty, danger – it’s neither boring nor predictable.”

English football may never be boring, but if the same teams keep getting relegated and promoted every year, it could become predictable.

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