Time to ditch the parachutes

Likening relegation from the Premier League to a skydive is pretty apt. Three clubs each season are pushed out of the cosy £70m-a-season ‘Promised Land’ gravy plane and left to hope that parachute payments will save them from a catastrophic collision with the earthly consequences of paying mediocre footballers too much money.

Premier League Football League

This ‘parachute’ consists of four annual payments intended to reduce the potentially disastrous financial impact of relegation. Next season, the total payments due to each relegated club will increase by about £11m. During their first season in the Championship relegated clubs will receive £23m, while their competitors will only get around £2.3m of ‘solidarity’ money. Recently relegated clubs will have a vast budget in comparison to their rivals. It’s not surprising that the Football League is considering radical measures; salary caps or withholding that solidarity payment, to try to maintain a competitive balance within the Championship.

The Premier League argue that the payments aren’t proving to be overly influential on competition. Out of the current top six in the Championship, only Hull City are receiving the windfall. But that’s not presenting the full picture – since 2006/07, nine of the 18 clubs promoted have been receiving them.

But the biggest problem is that parachute payments are inspiring financial suicide among clubs not receiving them. Look at some of this season’s top six. Cardiff City announced a loss of £13.6m in 2011/12 with a debt of around £80m. It’s a similar story at Leicester, £50m in debt and a loss of £15.6m in the same year. Though bankrolled by foreign investors, neither club’s future is particularly rosy without the prospect of promotion to ease the balance sheet. Even Hull, who have parachute payments, lost £20m during their first season out of the top flight and £9m the year after. Though teams have bucked the trend to be promoted without vast debts or overspending, they aren’t the norm – Championship clubs spend £4 for every £3 of revenue.

The Football League have realised that this situation isn’t sustainable – Financial Fair Play has been introduced to try to curb overspending. When the League has the power to sanction clubs for exceeding certain losses, in 2014/15, parachute payments will take on huge importance. With clubs limited to spending within their means, those with parachute payments will have an even greater advantage than they do now. The dangers of unsustainable debt may be diminished, but potentially at the cost of a competitive Championship.

The inherent problem is that the Premier League is a global brand capable of dwarfing the income that the Championship can generate. Such a vast difference of incomes between the top two divisions is bound to create enormous difficulties for clubs moving between them. Though the Football League is searching for solutions to keep the Championship competitive and financially prudent, they’ll never bridge the income gap from below. A salary cap would prove incredibly problematic for relegated sides and withholding £2.3m from clubs receiving ten times that amount wouldn’t be effective.

The only permanent fix would be for the Premier League to abandon parachute payments altogether and adopt a fairer model of distributing their enormous cache of cash. A good starting point would be to take the current parachute payments and distribute them evenly among Championship clubs – the solidarity payments would increase to around £7.5m. Hardly perfect, but a step in the right direction.

The Championship is not a minor competition. It’s the fourth most attended football league in the world and its best asset is its unpredictable and fiercely competitive nature. Though teams have recently been maintaining this competition through overspending to match those with parachute payments, that can’t and won’t continue. Therefore the only way to keep the Championship at its best is for the Premier League to start kicking clubs out the door without a parachute, while giving the rest of English football a little more to survive on.

1 comment
  1. I just blogged about the same thing – I think we’re making the same point here, that parachute payments are harmful to the Championship http://wp.me/p37A88-1Q

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