⚽️ The Problem with Parachute Payments

The financial disparity between the Premier League and the Championship is bigger than I knew it to be. Have a look at these numbers from the 2022/23 season:

• Average Championship Club Revenue (2022): £31.12 million

• Revenue of the Bottom Premier League Club (2022): £141 million (552% more!)

This chasm is why football clubs are desperate to reach the Premier League.

Promotion can transform a club, but it also demands significant spending to compete. For those relegated, the return to the Championship is tough, as they often bring Premier League wage bills back to a league with much smaller revenues.

Enter Parachute Payments.

To soften the financial blow of relegation, the Premier League introduced a scheme in 2006 where support would be provided to relegated clubs. Money would be distributed to the three clubs that were relegated for the immediate three seasons after suffering relegation.

The sums given are a derivative of the broadcast revenue that would have been received had the clubs stayed in the Premier League. They work like this:

• Year 1: 55% of the Premier League’s equal share of broadcast revenue

• Year 2: 45% of the Premier League’s equal share of broadcast revenue

• Year 3: 20% of the Premier League’s equal share of broadcast revenue

For clubs like Norwich City, these payments have been a lifeline. After relegation in 2015/16, Norwich received over £75 million in parachute payments over two seasons. This money helped them maintain a high wage bill, allowing them to win the Championship and bounce back to the Premier League in 2018/19.

But herein lies the issue.

Clubs receiving parachute payments have a significant financial advantage over other Championship clubs.

Over the last eight seasons, 15 of 24 clubs promoted to the Premier League were recipients of parachute payments.

The system, whilst noble in nature, creates an uneven playing field, leaving non-parachute clubs struggling to compete.

While parachute payments are meant to protect relegated clubs, their current structure really highlights the inequality within the Championship. It forces clubs not receiving these payments to do one of two things:

1. Run a tight ship and hoping for sustained improvement over many years

2. Overspend to chase promotion, risking financial ruin

Derby County are a cautionary tale of Number 2.

In 2017 they signed players like Tom Lawrence (£5m), Jack Marriott (£5m), and Martyn Waghorn (£5m).

This helped them reach the 2019 Championship Play-Off Final at Wembley.

Unfortunately, they lost to Aston Villa.

Since that final, Aston Villa stayed in the Premier League and are now competing in Europe. Derby County were relegated to League One and went into administration.

Derby felt compelled to gamble due to the financial power of parachute clubs, but the penalties for falling short were severe. Very severe!

Derby’s woes are not the fault of the Premier League entirely. There were several instances of financial mismanagement in the Derby structure that caused their demise. There are also several clubs that manage to get promoted to the Premier League without the need for parachute payments.

Brentford for example, offer an inspiring counter example.

From 2016 to 2020, Brentford rose from 10th to promotion. They achieved this by leveraging smart recruitment and data-driven decision-making.

Now, Brentford have spent four consecutive seasons in the Premier League.

While Brentford’s success is admirable, it’s not easily replicable. I will close this newsletter by linking you to my video on their remarkable journey.

Here are my three ideas to fix this conundrum:

1. The Premier League gives money to non-Parachute clubs

This one is simple, the Premier League should give money to clubs not receiving parachute payments to even things out somewhat.

Yeah, you might have already noticed that this is happening already! Solidarity Payments (currently ~£5.19m per Championship club) are paid to those Championship clubs not receiving Parachute Payments by the Premier League.

It’s already happening so we can scratch this from the list.

2. Centralised Financial Support Fund

This is an interesting idea that is harder to execute in practice. Consider a fund managed by an independent regulator. Clubs would apply for financial support based on an in-the-moment need rather than automatic payments from the Premier League.

Any applications would need to be ratified and sanctioned by the independent party and all applications would be public and open to shareholder scrutiny.

Any unused funds would be put back into the football ecosystem. Grassroots endeavours. Community projects. That type of thing.

Even though on paper this makes sense, this idea introduces logistical challenges and political hurdles which are difficult to overcome.

Hence why my final idea is the best idea.

3. The Imposition of Stricter Spending Rules

In short, relegated clubs should:

• Spend parachute money only on operating costs, not new transfers or inflated wages

• Provide monthly financial reports to ensure compliance.

Any unspent money should again fund community initiatives like subsidising tickets or improving facilities for minors.

One of the biggest challenges non-Parachute clubs face is that Parachute clubs are able to buy players (sometimes above market value) and give players new contracts on higher wages than usual as a result of receiving parachute money.

With this model, that advantage is removed. Relegated clubs get the support they need but it’s constrained somewhat.

Parachute payments are needed but they haven’t evolved with the game. So some refining is needed and this is the simplest method in which all things can be achieved.

This is a nuanced topic with a lot of different angles to approach it from!

The one club that debunks the parachute payment debate is Brentford. As promised, below to see how they defied the odds to make it to the Premier League.

See you next week.