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

Stefan Johansen and Tom Cairney scored when Fulham last played Norwich in 2018

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

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

While one slid through the country’s second tier, the other struggled, toiled, flapped and failed in the top flight, all the while alternating yo-yoing between the two leagues.

Change. Repeat.

This is part of a broader trend that has become apparent since parachute payments were introduced in 2006, a series of solidarity payments made by the Premier League to stabilize clubs in the first three years after relegation while adjust to lower income.

It is a system used in all of Europe’s top five leagues except Germany, where the Bundesliga and two Bundesliga clubs share a joint television broadcast deal.

“The yo-yo club phenomenon is definitely real,” says football finance expert Dan Jones.

“The phenomenon of there being a huge gap between the Premier League and the Football League is very real.

steve kavanagh
Millwall chief executive Steve Kavanagh says the club cannot compete financially with those who receive money from the parachute.

“And then the question is: if a team goes off the edge of a cliff, is it the right thing to give them a parachute? And if you do, does it fold the trampoline and get them back up again? The evidence is: sometimes, but not always.”

The payments are calculated as a percentage of the money earned by the Premier League and, at the moment, equate to approximately £41m in the first post-relegation season, £34m in the second season and £16m after relegation. Sterling in third, according to the football finance professor and author. from The Price of Football, 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 vacation 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 suffered three relegations since parachute payments. it started.

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

Maguire, who is also a co-host of The Price of Football podcast, says “you could argue we have a 24 or 25 club Premier League and some of them are just taking a Championship holiday”, and this can be put down in part to his “rule of three”.

“Part of it is due to the way money is distributed in the Premier League itself. The promoted clubs will start in a negative way compared to not just the big six clubs. [but the rest of the teams in the league],” he says.

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

“The other 14 clubs in the Premier League earn about three times the revenue of the clubs receiving parachute payments. The clubs receiving parachute payments earn three times the revenue, on average, of the other clubs in the Championship. The others Championship clubs get about three times the revenue of League One clubs”.

Maguire believes parachute payments are currently too high and could be reduced by as much as a third of their value.

Brentford begin their second season in the Premier League away from Leicester on Sunday 7 August, after finishing their first campaign in the top flight in 13th place.

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

While in the Championship, the Bees were at “a huge financial disadvantage” against then-former top teams like Aston Villa and Newcastle, director of football Phil Giles says.

Championship clubs generate around £7m a year in TV money, says Maguire, £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 parachute payments were introduced in 2006

“On one hand I understand [having parachute payments] because what you don’t want to see is clubs going under and having their money cut off so drastically that they’re struggling to survive and nobody wants to see football clubs close,” says Giles.

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

“I think that element of unfair competition is potentially the problem.”

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

He believes the parachute payments could be phased out over an extended period if established Premier League clubs were given enough time to prepare for the eventuality.

“Another way is to allow parachute money, but only for certain purposes to make sure they actually prevent clubs from getting into trouble, rather than spending more than their competitors,” he adds.

“There’s a pattern of teams going down and coming back up pretty quickly, so there seems to be a bit of unfair competition and it’s tough for teams in the Championship.

“Some clubs seek to work with their media, many do not”

Another proposal the EFL has tabled is to scrap parachute payments altogether and pool money with the Premier League, which would see 75% of the funds go to the top tier and the rest 25% will be distributed in the EFL.external link

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

This is supported by 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, carrying their play-off momentum into the final day of the season.

“Research suggests that, over the last five years, clubs that receive parachute payments are three times more likely to get promoted than those that don’t, so it tells you everything you need to know about the impact on the competitiveness and fairness in the division.” Kavanagh, who was recently elected to the EFL board, says.

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

“Some clubs, like us, will always look to operate within their means, but many don’t, which is a result of the climate in which they are trying to achieve success.”

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 payment system.

“Our view is that it is 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 and firmly 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 teams in the Premier League vying for top places and aiming for European competition.”

Much of the debate about the relevance of parachute payments centers on financial sustainability versus competitive equilibrium.

“I think the more important of those two is financial sustainability and the reason I think that is because, if you look at the trauma of Bury or Macclesfield, where the club is completely lost to the community, that’s a bigger trauma and worse than the fact that the playing field is uneven in terms of final league position,” says Jones, formerly of Deloitte.

“The preservation of the clubs, making sure they are there for the next generation, is the most important thing to me.

“In terms of the risk of the Championship becoming too predictable, the competition is strong enough to deal with that. Whether it’s Brentford getting promoted or, this season, Luton’s performance to make the play-offs, You still have drama. Coming into the last day of the season, you still have drama in the playoffs.

“Back in the Premier League, you have the battle for relegation. [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 not boring or predictable.

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

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