Money Talks: How Do Parachute Payments Work?

min read

How do parachute payments work from the Premier League (EPL)? - zicoball

Home » The Vault » Money Talks: How Do Parachute Payments Work?

How do parachute payments work from the Premier League (EPL)?

A report undertaken at Sheffield Hallam University has unearthed alarming Championship trends linked to parachute payments from the Premier League. The independent report analyses a period from 2016-2021, producing figures that may not surprise the average football fan.

The findings suggests that Championship sides plump with parachute payments are three times more likely to clinch promotion.

There’s an evident gulf between a section of the second-tier and those parachute payment clubs. Below, we’ll look at the information behind the report’s findings of “continuing, alarming, and upward trends” linked to the Premier League’s financial offering.

How Do Parachute Payments Work?

Firstly, let’s take a look at the definition of parachute payments on the Premier League website:

How do parachute payments work from the Premier League (EPL)?

So, in short, financial aid is offered to clubs who experience relegation from England’s top flight via parachute payments from the Premier League. These payments bridge the economic gap between the Premier League and the Championship. The aim is to ensure stability and support during the transition of those hurtling down a division.

Parachute payments are distributed over a specific period to cover player wages, operational expenses, and infrastructure investments. With the prospect of future parachute payments in mind, clubs can manage their finances strategically.

Parachute payments should, all things considered, equip said club with the foresight to enhance their chances of returning to the Premier League and improve the possibility of long-term competitiveness at a leading level.

How much do clubs receive in EPL Parachute Payments?

So, how do parachute payments work? Well, the Premier League divides parachute payments into three separate sums. These payments vary. The initial payment consists of 55% of the fee that Premier League clubs receive from the broadcast revenue. This 55%, which currently totals around £45m, is paid to clubs in the initial year after facing relegation to the Championship.

This drops slightly to 45% in the second year before a 20% payment wraps up the parachute payments from a Premier League stay and subsequent execution. The three payments equate to just over £100m over three years.

How Do Parachute Payments Work? zicoball

Feel free to save our infographic (high quality image here) which sums the payments in a nutshell. If you plan on re-sharing it elsewhere – don’t forget to link this webpage!

However, there are some stipulations. Relegated Premier League teams can’t expect three EPL parachute payments regardless of future performance. Firstly, if a side gains promotion back to the promised land whilst their coffers are full of parachute finances, said payments cease. 

Secondly, a club can only receive the third and final parachute payment of 20% (£17m) if said club enjoys more than one season in the Premier League before being cast back into the rigours of the Championship.

The EFL Wants Change

The EFL‘s stance on parachute payments sits firmly in one camp. They want them gone. Instead, the English Football League’s powers that be, Rick Parry most notably, believe receiving a larger share of wealth to generate for clubs is the best alternative. 

This way, perhaps, the Championship and below can prepare for battle on a more even keel. The emergence of parachute payments, the Premier League says, helps those coming up from the Championship to compete amongst the financial muscle of the top flight. 

That may be true, but what’s the impact of these payments further down the pyramid away from the shining lights of football’s biggest league?

Premier League Chief Executive Richard Masters went on record in March when discussing Rick Parry’s idea;

“A gap has built up. What I think we are trying to address is to close that gap, specifically between the parachute and non-parachute clubs in the Championship.”

Richard Masters

The report From Sheffield Hallam University found:

In 2020/21, those clubs receiving parachute payments positioned themselves in the league standings with a points haul of +16 more than the chasing pack. Across the study (2016-2021), the average points gap between the parachute clubs and the rest stood at +8.6.

The sheer size of the EPL parachute payments saw £233m shared amongst the receiving Championship clubs in 2020/21. That worked out to an average of £33m each. Considering that the average income for a Championship club not blessed by such a payment was £20m, it’s not too difficult to see the financial disparity working its way into the league. 

That financial disparity has lent itself to 40% of all clubs which received parachute payments, from 2016 to Burnley and Sheffield United’s promotion in 2022/23, overseeing promotion back to the Premier League.

The Sheffield Hallam University study recorded that the average finishing position was 9th across the five-year sample. As the final playoff spot is in 6th, it’s safe to say that parachute payment clubs are right amongst the Premier League-chasing cohort season after season.

Parachute Payments in 2023

With all three Championship-bound Premier League sides spending more than one season at the upper echelons of the pyramid, all three are eligible for three years worth of parachute payments. But, of course, a three-year payment plan is not what any relegated side will wish for.

The aim and expectation for all three will be to bounce straight back up the first time of asking. In the Championship, though, things are rarely as straightforward as that.

Elsewhere, Burnley and Sheffield United’s parachute payments stop as they re-enter the Premier League. The Blades, who were rock bottom in 2020/21, were set for a three-year parachute payment cycle following their impressive finish (9th) in the season before relegation.

From the top half of the Premier League, along a parachute payment structured wave to the delights of automatic promotion from the Championship two years later. That doesn’t sound too bad, does it?

After performing terribly in the Championship by their standards, Norwich (13th) and Watford (11th) will receive their second parachute instalment in 2023/23. Whether they can make the most of it is a different question entirely.

How do parachute payments work from the Premier League (EPL)?