Parachute payments and their use by the FA Premier League

Income generated by playing in the FA Premier League

The football clubs which are able to ply their trade in the Football Association Premier League in England are able to gain huge amounts of income simply by being part of the league.

There is no doubt that attendances will increase for a club newly promoted from the football league as there will be a chance to see some of the top stars from the world game but there are also huge monetary benefits coming direct from the league.

Prize money for teams in the FA Premier League

All the teams competing in the FA Premier League will receive a base sum paid to them at the end of each season.

This base sum will then be increased for each individual club depending on the final position of that club in the Premier League table at the end of the season. This therefore means there is a financial incentive for teams to finish higher up the table.

The collective selling of television rights

One of the main factors that sets the Premier League apart from many other top divisions in European football is the way that the rights to broadcast the games are sold. All rights to Premier League matches are sold by the Premier League collectively and not by the individual clubs, meaning that each club will get a shared slice of the income.

This effectively means that a newly promoted club will gain a stake in the matches of the top Premier League sides.

The incentive to stay in the Premier League

This therefore means that there is not only a footballing incentive for teams to stay in the Premier League but there is also a huge monetary incentive. This means that clubs will often spend outside their budgets to ensure they buy players to keep them in the league.

If the club does not manage to do this and they get relegated to the Championship then the financial effects can be catastrophic.

Parachute payments for relegated clubs

When Premier League clubs are relegated to the Championship they will receive payments from the Premier League called parachute payments.

What is the purpose of the parachute payments?

The purpose of the parachute payments is to ensure that the club can cope with reduced income from not being part of the Premier League and also the fact that many of the players remaining at the club will still be under contract on so called Premier League wages.

How much do clubs receive in parachute payments and how long do these payments go on for?

Up until the end of the 2009/10 football season clubs relegated from the Premier League would receive a £16 million per year over a total of two years. After this period of two years it was deemed that the club will have adjusted to the income from the Championship and may have been able to offload some of the players on high paid contracts.

Has there been a change to the rules?

There has been a change to the rules concerning parachute payments which will come into play in time for the 2010/11 English football season.

What is this change?

From the beginning of the 2010/11 football season the parachute payments provided to English or Welsh football clubs relegated from the Premiership will change to a total of £48 million to be paid over a total of 4 years.

This effectively means that the club will receive £12 million a year for 4 years.

What is the reason for this change?

The reason for this change was that it was felt that after the initial two year period had commenced the clubs were still having problems adapting as they were missing the £16 million through the parachute payments.

It was therefore felt that less money a year but for a longer period was a better solution.

Legally, how is a change such as this brought about?

The agreement for parachute payments is done between the FA Premier League and the Football League. The Football League regulates not only the Championship but also the two divisions below – League One and League Two.

This means for the change to come about Football League clubs across all three divisions would have to be agreement concerning the change.

This caused a significant problem with the clubs in League One and League Two.

What was the reason for this problem?

The reason for this problem was that the clubs in League One and League Two felt that if increased money was coming into the Championship through the parachute payments it would simply serve to increase the gap in football terms between the Championship and the two leagues below.

How did the FA Premier League get around this opposition?

The Premier League was able to get around this position by providing the offer on a take-it-or-leave-it basis meaning that if it wasn’t accepted the system of parachute payments would stop all together. As this system is viewed as necessary in principle by the Football League the changes were adopted.