Last week, Leeds, Leicester and Southampton, the bottom placed clubs in the Premier League were relegated to the Championship division of the English Football League (EFL). The Premier League offers the greatest financial riches of any football competition in the world, adding to the pressure faced by clubs hoping to escape relegation each year and extend their time in the extravagantly lucrative top flight, writes David Little, a Partner in our Commercial department who increasingly handles Sports Law cases too.
This season’s Championship playoff final between Coventry and Luton, to decide which team was the last to join the Premier League next season was described by the BBC as a “£180 million game,” and the price of dropping out of the division involves figures even higher than that. (Luton overcame Coventry 6 -5 on penalties, after the full time score was 1 -1).
When sides struggling near the foot of the table sack managers, the desperation of their decision makers is usually driven by the fear of foregoing the vast rewards involved in being part of the Premier League. In the Premier League season just gone 15 new managers came and went.
Clubs in the Premier League split around £2.6 billion in prize cash and central funds during the 2022-23 season.
The figure is a huge increase from the inaugural Premier League season in 1992-93, when clubs shared slightly more than £35m. Each club makes is incrementally awarded prize money based on their final league position made from their share of TV and commercial money and merit payments.
The top side receives around £200m, the side in 20th, half that.
According to Sporting News as well as a £79m share of TV money, clubs received around £940,000 per televised game they were involved in during the 2021-22 campaign.
By contrast teams in the Championship receive around £7.5-8m from TV.
The other major loss comes from the reduction in international exposure. In 2019 the Premier League stated that its games are shown in 191 out of 193 countries recognised by the United Nations. That equates to billions of eyes on screen, on the club and the area in which they play. It is impossible to attach an actual figure on what this aspect is worth, but the reach is phenomenal. This, coupled with the financial blow, is why many Premier League clubs cite relegation and divisional status as their principal risk in their annual accounts and it is also why if they do drop out of the league, they are desperate to return at the earliest possible opportunity.
Despite the steep drop in revenue and commercial clout, clubs often still find themselves paying Premier League wages to some players when they drop into the Championship.
At the other end of the scale, job losses among club staff, who tend to earn far less than players, is a common hidden cost of relegation.
From the 2015-16 season, the funds have been distributed by 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.
If a club stays in the Premier League for a solitary season, they only receive the first two parachute payments. In November 2022, Premier League clubs agreed a mandate to significantly increase the payments given to EFL clubs and said further discussions will take place over the future nature of parachute payments.
There are financial measures clubs can take to make relegation easier, such as adding pay cuts into player contracts and selling stars. Manager Rafael Benitez could not save Newcastle United from relegation at the end of the 2015-16 campaign, but he led them to promotion the following season having made the club a profit during the summer thanks to selling players including Moussa Sissoko, who joined Tottenham for almost £30m.
The financial hit is still hard: clubs who earn the maximum amount from parachute payments still end up with a minimum of around £10m less than they would from Premier League TV payments alone, with broadcasting income from the Championship negligible in comparison.
Norwich have won praise for appearing to take a wider view than chasing promotion at any cost, but club boards of directors still routinely seem to believe that going for broke is the best bet.
It has worked for some: 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.
So, is there still hope for Southampton, Leicester and Leeds? Maybe. It all starts again on Friday, 4 August.
Contact our Sports Lawyer
David Little, is a Partner in the Corporate & Commercial team and also Head of Sports Law for the firm. If you would like to contact him please quote Ref CB400 on either 07968 027343 or 020 7631 4141 or email email@example.com.
The above is accurate as at 31 May 2023. The content of this note should not be considered legal advice. Each matter should be considered on a case-by-case basis.