Parachute Payments in English Football: Softening the Landing or Distorting the Balance?

Abstract

This paper examines the impact of parachute payments in English league football in relation to the competitive balance of the second tier (the Championship). League results and parachute payment fees data were collected for the 11 seasons between 2006/07 and 2016/17. Overall competitive balance was analysed as well as specific aspects of competition that are fundamental to the league-promotion, survival and relegation. Our results show that an increase in the number of clubs with parachute payments and the overall value of these payments coincides with a reduction in competitive balance in the Championship. Furthermore, clubs with parachute payments are twice as likely to be promoted to the English Premier League and considerably less likely to suffer further relegation to the third tier (League 1). The paper therefore proposes either a redistribution of parachute payments, the abolition of them completely, or a handicap points system to improve competitive balance.

COVID-19: the return of football fans

“…Clubs generate revenue from three main sources, matchday, commercial and broadcasting (see Plumley et al, 2017aPlumley et al, , 2017b. Indeed, clubs in the EFL are more dependent on matchday revenue than their Premier League counterparts (Wilson et al, 2018). Consequently, due to present rules ensuring that games are played behind closed doors, many clubs will feel a degree of financial pain through lost revenues.…”

“…Additional money has found its way into the Championship in the form of parachute and solidarity payments (see Wilson et al, 2018Wilson et al, , 2020. However, it too has resulted in that money being spent predominantly on player wages.…”

Challenging parachute payments and unmasking English football’s finances

“…Lucrative television deals, rising from £304million in 1992 to £4.46 bn for UK rights for the 2019-22 cycle (Wilson et al, 2018), has helped the EPL become one of the richest professional sports leagues in the world (Deloitte, 2020). There are significant financial benefits of competing at the top of the pyramid in top five European football leagues, in some instances leading to an eightfold increase in revenue for a club.…”

“…Huddersfield Town, for example, saw a £110 m uplift in revenue following promotion to the EPL in the 2016/17 season, owing to broadcast payments and a significant rise in sponsorship and commercial revenues. Relegation, by contrast, means an instant reduction of around £60 m and can result in financial distress for the clubs involved (Wilson et al, 2018).…”

“…Promotion for the successful club here means increased revenue and must be one of the key reasons for continuing. Higher up, in the Championship, play resumes in a similar way to the EPL with season completion being a key objective for clubs given the solidarity payments provided by the EPL and the metaphorical pot of gold for the teams promoted from football's second tier as £120 m is on offer to clubs reaching the EPL (Wilson et al, 2018).…”