Parachute payments by the FA Premier League

Income generated by playing in the FA Premier League

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

Apart from an increase in attendances for a club newly promoted from the Championship, all the teams competing in the FA Premier League receive a base sum at the end of each season. This sum increases depending on a club’s final position in the Premier League table at the end of the season. Premier League clubs also get a shared slice of the money made from selling the rights to broadcast their games.

This all means that there is not only a footballing incentive for teams to stay in the Premier League, but also a huge monetary one. For clubs that do get relegated to the Championship, the financial effects can be catastrophic.

Parachute payments for relegated clubs

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

The aim of these payments is to ensure the club can cope with the reduced income from not being part of the Premier League – especially given that many of the players remaining at the club will still be under contract on so-called Premier League wages.

From the 2016/17 season, the payment system was changed so that the money will be distributed to relegated clubs over three years rather than four. Relegated clubs will receive 55 per cent of the equal share of broadcast revenue paid to Premier League clubs in the first year after relegation, 45 per cent the following year and 20 per cent in year three.

If a club is promoted to the Premier League again during the three-year parachute payment period, the payments stop as they will once again enjoy all the financial benefits of playing in the Premier League.

The change in rules also dictate that clubs relegated after a single season in the Premier League will only receive 55 per cent and 45 per cent over two seasons with the third payment eliminated entirely.

The revenue from broadcasting can vary, but the three clubs relegated from the top flight for the 2014/15 season – Hull, QPR and Burnley – received £64m split over four years: £24m in the first year, then £19.3m, then £9.6m for each of the next two years.

Solidarity payments

The Premier League also increased the Football League solidarity payments across seasons 2016/17 to 2018/19. Solidarity payments are a share of the revenue that Premier League clubs pay towards the development of football in the lower leagues.

Championship clubs previously received a flat free of £2.3m each per season, with League One clubs getting £360,000 a season, and League Two clubs receiving £240,000. Under the new arrangements, Football League clubs will receive solidarity payments which amount to a percentage of the value of a Year 3 parachute payment. Championship clubs will each receive 30%, League One clubs 4.5% and League Two clubs 3% of the value of a Year 3 parachute payment.

Since the value of parachute payments is based on the equal share of broadcasting revenue paid to Premier League clubs, any rise in the value of the Premier League’s broadcasting rights in the future will lead to increased solidarity payments to Football League clubs.