DROP THE PARACHUTE?
The pluses and minuses of payments
WITH Reading manager Jaap Stam reportedly being in favour of abolishing Premier League parachute payments, I decided to take a look at the arguments for and against their existence in the top two tiers of the English game as well as some of the potential consequences of their removal.
This season, a team being relegated out of the English Premier League will receive an estimated sum of somewhere between £87 and £92 million over three seasons, unless the club has only spent a year in the top flight where they will get parachute payments for just two seasons.
If we take Aston Villa as our example club, we can assume they will receive a ball-park figure of around £87 million over the next three seasons. If they are promoted during this time then they will, of course, forgo these payments.
The parachute payments are paid in decreasing increments over the three years, so £40 million in season one, £33 million in season two and around £15 million in season three.
Clubs will argue this will give them the best chance at adjusting their finances according to their new circumstances.
Looking at the arguments against the payments, then the most obvious question is why should a team be rewarded for failure? Essentially, you are being given a wad of cash for being relegated thus putting you at a huge advantage over your rivals for next season.
You could easily argue that all clubs should have financial contingency plans in case of relegation. These could be automatic wage reductions for players or the sale of the team’s highest earners. When Portsmouth got into financial trouble, it transpired they had already borrowed against future projected TV income and had to be subbed some of this in advance just to survive the season.
So why should a club who have failed so abjectly to control their finances be rewarded with parachute payments?
The truth is I’m not sure they should be but if the payments were removed we would see a lot more clubs go the way of Bradford, Coventry and Portsmouth.
So do parachute payments actually give a disproportionate advantage to the relegated side?
Well, if the answer is yes you would expect to see a trend forming where the same clubs are promoted and relegated every year, such is their financial advantage over the other clubs in the Championship – but, interestingly, this has not transpired.
Over the last decade we have seen a host of different clubs get promoted, including the likes of Blackpool, Bournemouth, Reading, Burnley and Hull City.
We have also seen some of those relegated really struggle despite their financial advantage – Bolton, Blackburn, Fulham and Wigan come to mind.
I ask myself where I sit regarding the issue of parachute payments and, in truth, I am a bit conflicted over this.
I can see the sums being estimated now seem to give such a huge advantage to those coming down that it could really skew the competition but, on the other hand, it has been nice to see