When a club gets relegated to the championship, the most hard-hitting impact is the loss of television revenue paid to clubs purely for turning up. So, in order to combat the effects of this loss, the Premier League gives clubs parachute payments which help ease the transition. These payments last three years following the season of relegation and fall in value before clubs are faced with supporting their own finances. If the club is fortunate enough to be promoted then the parachute payments will end.
For the three clubs relegated in the 2015/16 season, Newcastle, Norwich and Aston Villa the parachute payments fee was £40.9m. Queen’s Park Rangers who were relegated in the 2014/15 season received £20.1m and Fulham and Cardiff who were relegated the 2013/14 season received £9.7m (but were thought to have received £16.2m overall). The reason for this huge jump is the huge increase in the cost of the television rights bought by broadcasters and paid to the premier league. As these have increased, so has the value of parachute payments.
Beginning with clubs as part of the parachute payment program on average they spent £30.9M on players and received £32.7m and so the difference is £1.8m. Clubs who were not receiving parachute payments on average spent £6.4m and received £5.7m with a difference of -£630k. There is obviously quite a large difference in the spending habits of clubs who received parachute payments and those who do not. One of the main reasons this takes place is that clubs who are recently relegated often sell their best players (due to them wanting to play at a higher standard and the club wanting to reduce their wage bill). This is most striking in the case of Newcastle as, according to Transfermarkt, they received £85.7m in the transfer market through the sale of players like Moussa Sissoko (£29.75m) and Georginio Wijnaldum (£23.4m). Naturally this frees up funds to buy replacements and often purchases are high in order to replace the departures.
Newcastle were a slight anomaly last year as Norwich and Aston Villa received £31.2m and £39m respectively. The table below shows the transfer balance for the previously relegated teams of last season. Both Newcastle and Norwich have very sound finances for the past year which will support them next season. Newcastle especially considering that they won the competition on the last game of the season. Aston Villa spent much more the most in the league and got very little for their money, finishing in 13th place.
|Club||Spent (£)||Received (£)||Parachute (£)||Net (£)|
Spending money is in no way a guarantor of success. Of the teams who finished in the top six, only Newcastle and Fulham spent massively above average with the rest below the average spending for the season (using the league average of £13.2m). This idea is further enhanced when you see clubs such as wolves spending £30.7m in a single season and only finishing in 15th place. Huddersfield spent a tiny £3.8m on players last season, with a good plan and recruitment strategy the results can be huge, they will play next season in the premier league. The Graph below shows the ingoing’s and outgoings for every club in the championship. It shows how most clubs outside the parachute payments system pay very little or receive very little, highlighting the vast inequality between the premier league and the championship.
So, what about after the first year? How do clubs perform after that? Generally, not that well, few teams naturally rebound straight back up again and there are many cases of clubs facing the double relegation (think Blackpool or Portsmouth). The reality is that when clubs are relegated they usually finish their first season in a respectable position and then decline from there as shown by the graph below.
It can be concluded, in my opinion, that parachute payments have had no massive effect on the performance of Championship clubs in the season of 2015/16. Often the increase in spending is as a result of funding from player departure, not necessarily the parachute payments themselves. Performance of clubs can often be poor or mediocre at best with such financial backing. As television fees and player prices sky rocket, it will be interesting to see if this trend continues next season.
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Disclaimer: this article uses Transfermarkt.co.uk as the main source, although this may not always be accurate, it is by far the most reliable place to find information for the whole league.