Reading are still receiving them three years after relegation but are the Premier League's parachute payments causing damage to the Championship?
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, so any club that has been relegated in their first season in the Premier League.
If we take Aston Villa as our example club we can assume that 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 that this will give them the best chance at adjusting their finances according to their new circumstances.
An unfair advantage?
If we start by 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 that 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.
Allows clubs to take on the big boys
I ask myself where I sit regarding the issue of parachute payments and in truth I'm a bit conflicted. I can see that 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's been nice to see sides promoted to the Premier League that are not afraid to invest in new players in an attempt to be competitive. If they didn't have the security of parachute payments many sides might opt not strengthen their squads to any great extent and just take the money from that season and resign themselves to relegation. The other main argument for the payments are that they stop teams from going out of business or into administration. If I was a betting man I reckon that without parachute payments you'd see the amount of teams in serious financial problems double. This isn't a situation anybody wants as it would severely damage the competitiveness and reputation of the Championship if clubs kept being docked 10 points and potentially relegated for entering administration.
So Jaap Stam may want them abolished but he should perhaps ask some of those on the Reading board just where the club might be now if they hadn't received them for the past three years. My guess is we'd be heading up the M55 for an away game at Fleetwood firmly in League One!
So where do you stand on the issue? Let us know in the comments below.