The prospect of playing in the Premier League comes with massive rewards but when relegation knocks on your door, a lot of these perks are taken away. So when fans ridicule the appointments of managers like Sean Dyche & Sam Allardyce, they do not fully understand the extent of the financial burden a team faces when it suffers relegation.
Every year we hear the EFL Championship playoff final being the most valuable single football match in the world and it is a result of the increase in revenue to the winning club from sponsorship and media agreements. When Chelsea won the UEFA Champions League final at Porto in 2021-22, they collected a huge £95m payment for their exploits in arguably the biggest club competition on the planet but when a Levi Colwill own-goal allowed Nottingham Forest to secure a promotion back to the Premier League, they are expected to collect £170m ($302m). Such are the stakes for Premier League survival, that a team securing a promotion is more financially lucrative than winning the Champions League. But what happens when a team gets relegated? Well, we will try and look at four financial aspects which are affected due to playing in the second tier of English football as compared to the Premier League.
The reduction in revenue could be massive for sides dropping in the second tier of English football with as much as 50% to 70% revenue getting reduced due to this drop. For context, Fulham‘s revenue plummeted down by 58% when they suffered relegation in the 2019-20 season and Norwich and Watford saw a decrease of 52% in 2020-21. The biggest factor in this reduction is down to the broadcasting revenue.
A top-placed Premier League side can earn upto £130m while a relegation-threatened club could earn as much as £100m in broadcasting revenue. But if your team gets the drop, the number goes down to a measly £5m-£6m. That is a massive loss of nearly £100m! So to ease such a financial shock to the clubs, the league introduced parachute payments across the English league system in 2011-12 with the aim of easing the pressure on clubs who go down. The funds get distributed in three installments with the clubs receiving 55% of the broadcast revenues in their first year after relegation (around £40m), 45% (£35m) the year after that and 20% (£15m) in the subsequent year and if the clubs stay in the league for a solitary season, they only receive the first two parachute payments.
After relegation, a lot of financial remodeling needs to take place with matchday revenues, commercial income and sponsorship deals getting significantly during this time.
B) WAGES & TRANSFER ACTIVITIES
From a player’s perspective as well, the league is so attractive that the sides in the lower half of the Premier League can manage to steal players from many giant clubs across Europe. A study by Statista Research Department in 2022, revealed that the average under-23 player in the Premier League earns 2.13 million British pounds per year in basic pay, while 23-29 and 30-plus year old players earn an average of 3.52 and 3.17 million British pounds respectively.
Everton’s wage bill is nearly 90-95% of the revenue of the club. This results in a fire sale of the players to avoid financial burdens. An example of things to come for them would be West Ham United who suffered the drop in 2002-03, players like Defoe (£10.5m), Joe Cole (£9.9m) & Glenn Johnson (£8.3m) all were sold for significantly less than their market value. That is why players also jump off these drowning ships in order to avoid big losses to themselves as some of them must have relegation clauses inserted to their contracts if they stay at the club and also avoid the tag of being an EFL Championship player. The guidelines placed by UEFA suggest that a club’s wages should be 70% of the incoming revenue and many clubs in the Prem are dangerously above the guidelines with Everton as we suggested being a good example.
C) DEBT & FINANCIAL LEVERAGE
There is no other example apt for this final factor other than Leeds United. When The Whites reached the Champions League semifinal in 2000-01, it was done on the back of highly contingent debt taken by the club. So the club started underperforming in 2002-03 and suffered eventual relegation in the 2003-04 season, their debt kept on increasing. It went from £9m to £21m to £39m to £82m and after their drop, it rose to about £119m. Multiple stars had to be sold just to pay off these debts.
These issues dragged on for 15 years which included two 10 and 15 point reductions and a second relegation down to League One. It took some clever recruitment and a manager of the level of Marcelo Bielsa to take them back to the league.
So the price of relegation is immeasurable as it varies from club to club with the above said factors coming into play. There is no guarantee that once a side that gets relegated from the league will bounce back in the next season but the parachute payments do provide a big advantage in that aspect. Newcastle United under Rafael Benitez bounced back in the next season by selling Moussa Sissoko to Tottenham for almost £30m. Fulham were promoted back to the Premier League at the first attempt in 2021-22, and Bournemouth only needed two seasons to regain their place following relegation in 2019-20. But for clubs like Leeds United and Portsmouth, their very existence is threatened after the relegation.