What Are Football Parachute Payments? (Full Explanation)
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Parachute payments in football seem like a term that everyone has heard of, but nobody really knows what they actually are. In this guide to parachute payments, we will go over what they are, who gets them, how much a club could receive, and why.
What are parachute payments?
Parachute payments aim to soften the blow of leaving the footballing financial gold mine that is the Premier League.
There is a number of worrying repercussions for teams who suffer relegation. They must sustain sizeable wage bills to falling gate receipts and adapt to the tiny TV revenue Championship teams earn compared to Premier League clubs.
Banks are more likely to be receptive to Premier League clubs in terms of financing. And the shock of relegation has contributed to crises at the likes of Portsmouth and Bolton.
The parachute money is provided as part of solidarity payments worth a total of £100 million ($124.9 million) each season, distributed throughout the football league. The solidarity cash is aimed at remedying competitive imbalances caused by parachute payments.
The idea behind a parachute payment was to ensure that if a team was relegated from the top league, they would be less likely to go into administration following relegation. The reason behind this was that clubs are more likely to splash the cash on transfers and player wagers in order to try to secure their place in England’s top league.
It is also worth knowing that parachute payments were overhauled in 2016/17. They go from payments spread over four years to being spread over three years or two years in the case of a side that had only spent one season in England’s top league.
How long do parachute payments last?
The payments were initially distributed over the course of four years when they were introduced during the 2006/07 season. However, a change 10 seasons later reduced the timescale to three years. Teams that only spend one season in the Premier League before being relegated receive the money over just two years.
📅 2018/19 📈 Norwich promoted to PL 📉 Fulham relegated from PL 📅 2019/20 📈 Fulham promoted to PL 📉 Norwich relegated from PL 📅 2020/21 📈 Norwich promoted to PL 📉 Fulham relegated from PL 📅 2021/22 📈 Fulham promoted to PL ⏳ Norwich relegated from PL pic.twitter.com/HOQ7VJ0FHA
Clubs that return to the Premier League within three years of being relegated do not receive parachute payments. That proved to be good news for existing Premier League clubs when Norwich and Watford were promoted during the 2020/21 season.
The Canaries and Hornets had been due to receive parachute payments the following season because of previous relegations. However, their promotions meant around £83m ($103.6m) and ended up being distributed between all 20 top-flight clubs.
What Are Clubs Paid in Parachute Payments?
This has been changing in recent years, with the amounts increasing year on year. The biggest payment will be in the first year after a team is relegated. The payments shrink with each year that passes up to three years.
55% of the equally shared broadcasting rights each Premier League club can receive is awarded in the first year. This drops to 45% in the second year. And if the club was in the Premier League for more than a season before they were relegated, then they will receive one final installment of 20% in the third year. This means that yo-yo teams like Norwich or Fulham would only receive two payments if they continued their trend of gaining promotion to the Premier League before immediately being relegated.
The current system was introduced in the 2015/16 season, with the previous iteration seeing a similar structure that was spread over a total of four years. If a side regains their Premier League place during the period they should be receiving parachute payments, then those payments stop.
How much money would Leeds or Burnley get from parachute payments?
Each club receives 55 percent of the amount that each Premier League team would collect under an equal share of broadcast revenue, reduced to 45 percent in the second year and 20 percent the year after that.
Based on the recent figures, that is said to be worth around £40m ($50m) in the first year, £35m ($43.7m) in the second, and £15m ($18.7m) in the third.
Everton is routinely a big spender and has not been relegated since 1951. They would probably have been hardest hit by going down and would have needed to sell players and reduce their salary obligations.
Financial requirements are tighter in the Championship, which would not allow the Toffees to continue with a current wage bill representing 89 percent of their revenue. Thankfully for them, a dramatic comeback win over Crystal Palace on May 19 ensured they will be playing Premier League football next season.
What impact have parachute payments had?
The payments have increasingly resulted in relegated clubs making immediate returns to the Premier League. For example, Fulham and Bournemouth did with something to spare during the 2021/22 season.
Although there are rare exceptions – Luton made the Championship playoffs this season despite having a relatively tiny budget. And playoff finalists Nottingham Forest have not been in the Premier League since 1999. Most of the clubs prospering in the second tier are strengthened by parachute money.
A trend of “yo-yo teams” has emerged, sending clubs with squads and resources superior to most Championship teams bouncing between promotion and Premier League relegation.
Critics of parachute payments have reacted wearily to Fulham and Bournemouth breezing back into the Premier League for 2022/23 when they are likely to be among the relegation favorites.
The Cottagers were also able to make the most expensive transfer in the summer Championship window despite that relegation. They signed Liverpool’s Harry Wilson for £12m ($15m).
Mitrovic and Wilson are yet to prove themselves at the top and will be desperate to show their Premier League credentials in 2022/23. Fulham will hope that there is no need for parachute payment talk as they bid to avoid changing between the two divisions for a fifth successive season.
Do Other English Leagues Provide Parachute Payments?
Yes, the Championship, League One, and League Two all provide some form of parachute payment to the sides that are relegated. The Championship will provide teams that are relegated from England’s second league. 11.1% of the Basic Award payment is given to the Championship club for a single season.
League One provides clubs that are relegated from England’s third league with 12.6% of the Basic Award to League One sides for a single season. League Two provides 100% of the Basic Award for the first year following relegation and 50% in the second year.
Conclusion: Are Parachute Payments a Good Idea?
For the clubs that are at risk of relegation or are relegated, yes. Those sides will have likely bought players when they were promoted to try to swell their ranks. They look to preserve their place in England’s top league. If transfer sums and players’ wages have gotten too high, these payments can help to alleviate some of the financial hardship a club might come under.
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