The Premier League is the richest football division in the world, with the bulk of that cash coming from enormous television rights deals.
With teams experiencing financial difficulty when they are relegated and lose their places in the English top flight, plans were drawn together to help soften the blow of dropping down a league.
Here’s why parachute payments were brought in and what they do.
Parachute payments were first introduced in the 2006/07 season. For two seasons following relegation a club would be given half of the per club basic television money from the Premier League, lowering the risk of a team going into administration due to higher costs – player wages, transfer fees, etc – they would experience in the top flight.
Payments worth £1m were given to each Championship team to reduce concerns about the impact that parachute payments could have on the competitiveness of the second tier.
The Premier League defines parachute payments as the following: “Parachute payments are made to clubs after they are relegated from the Premier League.
“They allow clubs to invest in their teams, and wider operations, in the knowledge that should they be relegated they have provisions in place to re-adjust their finances.
“Since 2016/17, payments are made over three years, with the amount received decreasing after each year.”
There are two types of payments the Premier League distributes to each English Football League club every season. They are known as ‘parachute payments’ and ‘solidarity payments’ and are linked to the value of the Premier League’s broadcasting rights.
Parachute payments see relegated clubs given a percentage of the equally shared broadcasting rights each Premier League club receives. Those clubs in the EFL who are not eligible instead receive solidarity payments. These are calculated as a percentage of the third year parachute payment a relegated Premier League team would receive. This means solidarity payments are nowhere near as high or lucrative as parachute payments/
As current TV deals are much more lucrative than they were ten or 15 years ago, the amount of cash relegated clubs receive from the Premier League is massive.
The payments are made over three years, with the sums received decreasing after each year. 55% (roughly £40m) of the amount each Premier League club receives as part of its equal share of broadcast revenue is given in the first year, 45% (£35m) in the second and 20% (£15m) in the third, though only if the club was in the Premier League for more than one season before relegation.
If a team wins promotion back to the Premier League while parachute payments are being made, they no longer receive said payments.
The amount of money paid through parachute payments has increased season on season. The 2015/16 season saw £172.1m worth of parachute payments dished out, and by the 2019/20 campaign it had risen to £248m.
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