Parachute payments were intended to cushion the blow of relegation from the Premier League and prevent clubs getting into financial difficulties. However, they have been criticised for distorting the competitive balance in the Championship. Clubs relegated from the Premier League now receive £91m over three years. The authoritative Swiss Ramble looks at how they work.
It is evident that parachutes have a major impact on the competitive balance in the Championship, as the six clubs with the highest revenue in 2016/17 all benefited from these payments, most notably the three relegated the previous season (Aston Villa, Norwich City and Newcastle United).
Eight Championship clubs received Premier League parachute payments in 2016/17 with Villa, Newcastle and Norwich getting £41m (up from £26m in 2015/16 thanks to the new TV deal), followed by QPR £31m, then Cardiff City, Fulham, Reading and Wigan all £16m.
If parachute payments were excluded, the same three clubs would still have the highest revenue, but different clubs would fill the next three places (Leeds, Birmigham City and Derby County – plus the gap would be much smaller.
Although the Premier League solidarity payment rose from £2.3m to £4.3m in 2016/17, most Championship clubs only receive £7-8m TV money (including £2.3m distribution from EFL). Clubs that receive parachute payments do not receive solidarity payments as well.
Parachute payments are calculated relative to Premier League equal share: year 1 – 55%, year 2 – 45%, year 3 – 20%. If a club is relegated after only one season in the top flight, it is only entitled to two years of payments, so £74m instead of £89m in 2016/17.
It is worth noting that the parachute payments for clubs relegated in earlier seasons can change in line with any updated TV deal. QPR actually got more in their second year after relegation (£31.2m) than their first year (£25.9m), while they get £16.6m in each of years 3 and 4, compared to the original £10.5m.
If a club is promoted to the Premier League, it will receive a minimum of £170m TV money, even if immediately relegated: £95m for last place in the Premiership plus £76m parachute payments. This helps explain why so many Championship clubs 'go for it', as the rewards are so lucrative.
The Swiss Ramble concludes, 'The argument in favour of parachute payments is that they encourage promoted clubs to invest to compete, safe in the knowledge that if they are relegated, then there is a safety net. However, they do undoubtedly create a huge revenue disadvantage for other Championship clubs.'
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