The cost of relegation for West Ham

West Ham are in a relegation battle.  No one gains financially from demotion, but it impacts some more than others. Existing cost bases play a big part, likewise a team’s ability to generate money by selling some faces that didn’t look out of place in the top tier.

Beyond that, club owners come into play. Between 2015 and 2024, Championship clubs lost a collective £3.2billion, all of it (and a little more) funded by benevolent shareholders. Amounts required for recently relegated clubs can vary, but a general rule is that the longer you stay in the second tier, the more you’ll need to lean on an owner or two.

One thing is for certain — if relegation comes, West Ham’s revenue will drop. That has been the case pretty much since the Premier League’s inception, but it has become more pronounced since 2016, when a new TV deal exploded onto the scene.

Since then, only one club has seen post-relegation turnover fall by less than a third. That was Bournemouth in 2020-21, and even that was only because of the Covid-19 pandemic pushing seven of the club’s 38 Premier League games into the subsequent accounting year. On average, club revenues after relegation have fallen by 46 per cent.

That fall is principally driven by a reduction in broadcast income, even as relegated clubs enjoy the benefit of parachute payments, which far outstrip the TV earnings of their new Championship peers.

What West Ham will receive in Premier League earnings this season is unknowable currently, but last season’s floor, for bottom side Southampton, was £109.2million.

Post-relegation, clubs enjoy those parachute payments to ease the burden, but the drop-off is steep. Last season, a first-year parachute payment totalled £49m. The amount for Leeds United, in their second year in the Championship, was £40m and, had there been a club in receipt of a third-year payment (there wasn’t), they’d have received £17.8m.

Championship clubs, including recently relegated ones, receive a ‘Basic Award’ payment from the EFL, too, though that was just £5.4m last season and has only increased marginally since. In other words, TV income now halves upon relegation.

In the past decade, commercial revenues at relegated clubs have dropped by an average of 42 per cent. While the figures vary noticeably from club to club (the median drop is actually higher, at 46 per cent), even the most commercially astute have been unable to avoid losing revenue.

West Ham’s commercial income of £58m is the Premier League’s ninth-highest, so while a fall would be likely upon relegation, it may be that, like Leeds, they’d still be able to generate significantly more than Championship peers.

The London Stadium is the third-largest ground in the Premier League, only trailing the homes of Manchester United and Spurs. West Ham have routinely filled it since moving in as tenants in 2016, and while it’s uncertain if that would remain the case in the second tier, the deal the club got upon signing a 99-year lease would ensure the stadium isn’t a weight around West Ham’s neck like it might be for other sides with huge homes if they went down.

In terms of their biggest costs, West Ham’s wage bill had been static for years, but leapt to a club record £161m in 2023-24, a rise of £24.1m and 18 per cent in one year. For a long time, many Premier League clubs have included relegation wage cuts in player contracts, and a West Ham source confirmed they are no different in doing so. Yet even if those cuts offset revenue reductions, which isn’t a guarantee, the club’s underlying operating loss means other funds, likely from player sales, would need to be found.

Owner funding has been relatively thin on the ground at West Ham, save for when Daniel Kretinsky bought into the club in November 2021. That saw £123.5m in shares issued, but around half of it went on repaying existing owner loans, and no shareholder funding arrived between then and the end of May 2024, when the latest available accounts end.

West Ham won’t go bust from relegation, but nor will they want to countenance the strain it would impose. It would be better to avoid it altogether. Beating Burnley on Saturday afternoon looks an essential step toward that goal.