Parachute Payments Are Crippling Competition

While clubs relegated from the Premier League are given enormous parachute payments, their Football League rivals are being left behind to the detriment of competition...

Last Updated: 10/09/13 at 11:22 Post Comment

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In April, the Premier League announced that it would be increasing its parachute payments to those relegated to the Championship, the arrival of a bumper new broadcasting deal making 'generosity' far easier to bear. The existing figure of £48million spread over four seasons would be raised to almost £60m (a 25% increase), whilst the first-year payout would increase by 44% to £23m (from £16m).

Meanwhile, 'solidarity payments' (handouts given to every Football League club), have also been increased. Championship clubs will receive £2.3m (a rise of £116,000), League One clubs £360,000 (£22,000) and League Two £240,000 (£12,000). These 'boosts' of between 5-6% are strikingly lower than those mentioned above.

The aim of parachute payments is clear. The substantial gap in the average quality of teams between the Championship and Premier League dictates that whilst a squad may have contained sufficient ability to gain promotion, such a level of proficiency is unlikely to be enough to survive. Without this economic buffer, promoted clubs would lose their ability to negotiate the transfer market. Potential signings could not be offered extended contracts because if relegation did occur after just one season, the reduced provisions in the Championship would almost inevitably end in financial disarray.

Affording clubs handouts upon relegation allows for a comfort blanket to be provided, generating a heightened sense of ambition. Without such luxuries, the logical tactic for a promoted club would be clear - don't over-invest, take relegation as an expected occurrence and count the broadcasting revenue on the way down. That doesn't make for much of a relegation battle, and having a 'Big Four' and 'Little Three' rather reduces the potential for intrigue.

Significantly increasing parachute payments is nothing new, either. In 1999 the amount bestowed to each relegated team in their first season outside the top flight was more than doubled from £1.74m to £3.65m, and in 2007 a 78% increase from £6.5m came into effect. Finally, in 2011 it was announced that payments would not only be increased but also spread over four seasons rather than the existing two.

There is also evidence to suggest that these initiatives worked. In the six years before the 1999/00 increase, only seven of the 17 promoted clubs strengthened enough to survive their first season, whilst in the three seasons following seven of nine survived. In the same way, before the 2007 increase only six promoted clubs in five years managed to avoid relegation. In the five seasons since, 11 of 15 have managed to do so.

The increased ambition afforded by parachute payments has never been more evident. In their three transfer windows since promotion Southampton have spent £71m on improving their squad and West Ham £41m, whilst this summer alone has seen Cardiff spend £34m.

For the Premier League, it all seems logical. The lower the likelihood of financial danger through relegation, the greater the ambition. The greater the ambition, the higher value of spending by also-rans. The higher the spending by also-rans, the better the competition. The better the competition, the wider the Premier League smiles and the fatter the wallets as marketability increases. It's all so simple. However, whilst parachute payments strengthen the PL product, there is surely a case to answer regarding the distortion of competition in the Championship below?

This season, whilst QPR, Wigan and Reading have been given £23m each, non-parachute Championship clubs will receive just 10% of this total as part of the broadcasting deal. Over the course of their four-year windfall, these three will receive £60m in parachute payments alone, whilst a club such as Ipswich Town will get £9.2m. Given that the three relegated clubs already received in the region of £63m each last season through broadcasting alone, they have a significant advantage over their Championship rivals.

Championship clubs this summer spent £36.3m on transfers. The relegated trio accounted for £18.9m of this - or in other words, 48% of the transfer expenditure was shared between 21 of the 24 clubs. The same three accounted for 60% of all the money received in transfers - they are operating in a different sphere to other teams in the league.

That is not to say that automatic promotion is an inevitable consequence (the negativity and lack of morale associated with relegation will have a substantial impact as teams look to find their feet), but the payments to QPR, Wigan and Reading this season clearly create an uneven playing field within the division. Despite fears over financial 'Armageddon' upon relegation, QPR have dealt with their decline by letting six internationals leave the club and bringing in six with Premier League experience, as well as loaning in two more internationals.

Furthermore, the inflation of payments makes promotion for those without all the more difficult. Of the £17.4m spent by the non-parachute clubs this summer, £9.8m of this was made by Nottingham Forest and Bournemouth, owned by billionaires from Kuwait and Russia respectively. Six different Championship clubs failed to spend any money on a player this summer, and yet must fight against the tide of these engorged Premier League millions. Of last season's three promoted clubs, two are owned by investors from Egypt and Malaysia whilst each of Crystal Palace's four co-owners is thought to be worth more than £100m. The blueprint for success has been laid out, and sod the romance.

It is clear that the Football League have little real say in the matter. In 2010, when the Football League clubs expressed doubts over the extension of payments from two to four years, clubs in Leagues One and Two unanimously refused to approve the plans despite their own slice also increasing, with Football League chairman Greg Clarke conceding "this is not a perfect deal." A Football League spokesperson admitted "many clubs expressed concerns about the proposals but their acceptance was considered the only viable way forward." Clubs could reject the proposals, but that would simply end in having to go without, not an option at a time of economic austerity.

This time around, there was a larger outcry. A meeting of Championship clubs ended with a warning that the Premier League was "risking the integrity of the Football League" by allowing those relegated to have access to such a comparatively inflated pot. Their insistence is that whilst increasing parachute payments was not an issue per se, such a modest rise in the 'solidarity payments' has irrevocably damaged competition, the very fabric of the league.

The response from the Premier League was swift, pointing out that most teams given parachute payments do not come straight back up. Whilst that is true until now, whether that continues to be the case with such swollen funds remains to be seen. Moreover, last season's examples (Wolves, Blackburn and Bolton) were severely strangled by mismanagement.

At a time when owners and directors are being reminded of their duties to run clubs in a financially sustainable manner, giving such increased handouts merely raises the necessity for a rich benefactor, and these will be the only clubs capable to challenge for continued success at Championship level. That seems to clash with an idealistic philosophy of economic prudence.

"We are now faced with yet another devastating widening of the gap in terms of cash being given to relegated Premier League clubs - an increase of between 40.6 per cent and 47.5 per cent per season. A mixture of the Premier League and the Football League's lack of ability to exploit the Football League brand is driving a wedge between the football haves and have nots that will see the disintegration of the Football League sooner rather than later."

Whilst I wholeheartedly agree with those words they are not my own, instead taken from an official statement made by Preston North End, one of the Football League's founding members. Now is the season of their discontent, but whether anyone actually listens is an entirely different matter.

Daniel Storey - you can follow him on Twitter here

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