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Buradasınız >> Ana Sayfa Haberler & Makaleler Genel Diğer Yazarlar Challenging Parachute Payments and Unmasking English Football’s Finances

Challenging Parachute Payments and Unmasking English Football’s Finances

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7 August 2020- This commentary provides a rapid analysis of the impact of COVID-19 on English football’s finances.

The focus surrounds the distribution of wealth and financial disparity between clubs in the English football system leading to overspending and potential insolvency. We consider the impact of broadcast rights distribution, solidarity payments and parachute payments and provide strategic direction for a collective recovery. The intention is to stimulate discussion and analysis on how football governing bodies can use the COVID-19 pandemic to reset the finances of English football. Such discussion provides a more balanced, competitive suite of competitions that tackle financial inequality and put aside self-interest. We reposition the winner takes all narrative, requesting clubs to reflect on the sporting product that has led to both success and failure at an individual club level.

Introduction

It has taken a global health pandemic to unmask the frailties of football’s finances. As leagues shut down across Europe, revenues have dried up presenting acute cash flow challenges for the game (Parnell, Bond, et al., 2020; Parnell, Widdop, et al., 2020). While some leagues have managed to restart, others have curtailed their season. First the Bundesliga, and most recently the English Premier League (EPL) and English Football Championship (EFL) managed to pause initially, restarting in June, albeit under strict social distancing protocols and behind closed doors. Ligue 1 in France perhaps the highest-profile league to curtail its competition. Many clubs could go out of business owing to the problematic nature of social distancing at football matches meaning games continue to be played behind closed doors, a measure which may be in place for the whole of the 2020/21 season (Sky Sports, 2020).

No club will be immune to financial repercussions from the crisis, but some will be better placed than others. The EPL and its clubs generated combined revenues of over £5bn in 2018/19, yet nine clubs still made a pre-tax loss (Deloitte, 2020). In the EFL, revenues are not on the same scale. The average revenue per club in the Championship (tier 2), League 1 (tier 3) and League 2 (tier 4) stand at £33 m, £8 m and £4 m respectively compared to average EPL revenues of £215 m per club (Deloitte, 2020). Recent reports suggest that EPL clubs should brace themselves for a 50% reduction (at least) in matchday revenue next season and to expect a total loss of £500 m (Taylor & Conn, 2020). If the same scales are applied to the rest of the Football League then financial crisis, unfortunately, appears inevitable. Indeed, one club (Wigan Athletic) has already been placed into administration in July 2020 (BBC Sport, 2020a), with more clubs reported to follow (BBC, 2020b).

COVID-19 allows us to revisit existing issues in how football leagues in England are governed. Existing structures have created a significant financial disparity between the professional leagues; a financial disparity that has grown since the formation of the EPL in 1992/93 and which COVID-19 has laid bare. Indeed, while the EPL and EFL Championship has resumed, clubs in EFL League One and EFL League Two have voted to end the regular league season using “unweighted points per game” to decide the final finishing positions (English Football League, 2020b2020c). The argument from most clubs here is that restarting now is not cost-effective owing to the significant outlay required for COVID-19 testing and hosting matches with no fans present to drive revenue. However, despite the curtailment of the league, the end-of-season play-offs are still taking place and the usual promotion and relegation remain (English Football League, 2020a2020b2020c). Promotion for the successful club here means increased revenue and must be one of the key reasons for continuing. Higher up, in the Championship, play resumes in a similar way to the EPL with season completion being a key objective for clubs given the solidarity payments provided by the EPL and the metaphorical pot of gold for the teams promoted from football’s second tier as £120 m is on offer to clubs reaching the EPL (Wilson et al., 2018).

 

Table 1. Parachute Payments to EFL Clubs 2019/20 (Projected).
ClubYear2019/20 Parachute Payment (£m)
Cardiff City FC 1 46.75
Fulham FC 1 46.75
Huddersfield Town FC 1 46.75
Swansea City FC 2 38.25
Stoke City FC 2 38.25
West Bromwich Albion FC 2 38.25
Sunderland AFC 3 17
Total   288

 

Again, by contrast, the solidarity payments distributed by the EPL to the EFL are considerably lower in value. These payments are calculated as a percentage of a third-year parachute payment (30% for Championship clubs, 4.5% for League 1 clubs and 3% for League 2 clubs). A total of 64 clubs in the EFL are in receipt of solidarity payments in 2019/20 (see ).

 

 

Table 2. Solidarity payments to EFL Clubs 2019/20.
LeagueNo. of clubsSolidarity Payments
2019/20 per club
(£m)
Total payments
2019/20 league total
(£m)
EFL Championship 18 5.1 91.8
EFL League One 22 0.76 16.83
EFL League Two 24 0.51 12.24
Total 64 1.89 120.87

 

Covid-19: time for a financial reset?

Parachute payments have come into sharp focus again during the covid-19 pandemic. EFL Chief Executive, Rick Parry, referred to them as “evil” at a parliamentary committee hearing and has called for them to be scrapped as part of a radical overhaul of club finances to provide financial balance in the Championship (J. Wilson, 2020). Academic research argues a similar point in relation to sporting balance (see Wilson et al., 2018). The authors found that clubs in receipt of parachute payments are twice as likely to get promoted to the EPL and, on average, gain five points more on the pitch than those clubs that do not have parachute payments. They conclude that parachute payments are one of the factors that have led to a decline in competitive balance in the EFL Championship.

However, a spokesperson from the EPL defended the parachute payments as a mechanism of confidence for newly promoted clubs to invest in their playing squad to remain competitive in the top division. It has been further argued by the EPL that there is no evidence that parachute payments distort competitive balance in the Championship as they support other clubs of the EFL with solidarity payments (The Guardian, 2020), something at odds with the academic evidence (Plumley et al., 2018; Wilson et al., 2018). Herein lies a wider governance challenge for English football and the power play between the EPL and the EFL.

The EFL has attempted to support its clubs during this pandemic, committing a further £50 m in solidarity payments to all clubs in the system to run daily operations (English Football League, 2020d). However, there have been calls for the EPL to also help by sharing their revenue with clubs lower down the pyramid to ensure their survival (R. Wilson, 2020). This relates to the concept of co-opetition (e.g. Nalebuff & Brandenburger, 1997). Professional football clubs act as economic partners to deliver the product to its audience (see Bond et al., 2019). Member clubs need to recognise the value created collectively or risk failure. In short, the clubs need each other to survive both on and off the pitch.

As part of a financial reset in football, parachute payments could be used to aid “co-opetition” and competition. The money ringfenced for just three clubs every season (£46.75 m per club in the first year) could be redistributed equally to every club in the EFL (of which there are 71) to prop up the short-term cash flow necessary for the survival of these clubs in the coming months. In any given season, based on current data, that would equate around £1.98 m per club. The EPL, of course, will argue this is not their problem, which in a governance sense is true, yet they clearly have the power and the cash (current cash reserves stood at approximately £1.6bn in the latest accounts) to do more should they wish.

The worry for clubs remains games without fans. In this scenario, clubs (especially those in the EFL) are likely to face a significant drop in revenues. By way of an example,  outlines the most recent revenue figures for Championship clubs and examines the proportion of money earned through matchday revenues based on current league position (as at 1st July 2020).

Table 3. Revenue and matchday income in the English Football League Championship 

Pos.ClubRevenue (£m)Matchday % of Rev.Adjusted Revenue (£m)
1 Leeds United 48,920 25.8 36,299
2 West Bromwich Albion 70,823 10.3 63,528
3 Brentford 15,250 22.3 11,849
4 Nottingham Forest 25,344 30 17,741
5 Fulham 137,748 7.8 127,004
6 Cardiff City 125,216 6.3 117,327
7 Preston North End 13,808 25.8 10,246
8 Derby County* 29,616 31.3 20,346
9 Blackburn Rovers 16,674 22.4 12,939
10 Swansea City 69,419 9.6 62,755
11 Millwall 18,336 30.8 12,689
12 Bristol City 30,251 19.8 24,261
13 Sheffield Wednesday** 25,234 71.9 7,091
14 Queens Park Rangers 34,219 15.6 28,881
15 Reading 21,053 22.5 16,316
16 Birmingham City 23,007 21.8 17,991
17 Wigan Athletic 11,536 20.7 9,148
18 Charlton Athletic 7,307 52.7 3,456
19 Middlesbrough 55,643 10.9 49,578
20 Stoke City 70,620 9.1 64,194
21 Hull City 11,155 12.8 9,727
22 Huddersfield Town 119,321 4.2 114,310
23 Luton Town N/A N/A N/A0
24 Barnsley 7,782 39.9 4,677

NB All data is 2018/19 expect *Derby County (2017/18). **Sheffield Wednesday is also 2017/18 and club does not break down matchday and television revenue as individual items in accounts. No data available for Luton Town.

Here, we can note two key points. Firstly, the influence of parachute payment on the revenue profile of clubs. The clubs with low percentages of matchday revenue are the ones also in receipt of parachute payments from . Second, in the adjusted revenue column (based on 2018/19 data) we can see that 16/23 clubs would have a projected revenue for 2019/20 that is lower than a first-year parachute payment. At a time when revenue will be even harder to come following Covid-19, the financial playing field will be even more unstable due to parachute payments. There may still yet be further implications linked to television money with multiple international broadcasters having already deferred payments to the EPL (The Guardian, 2020a). This, in turn, would have a knock-on effect on the EFL.

The financial reset must benefit all clubs and seek balance, not just the books, but the sporting playing field, too. Strong evidence exists suggesting parachute payments are no longer fit for purpose and a sensible starting point for future discussion would be to consider the redistribution of them throughout the football pyramid. Canadian medical sociologist Arthur Frank stated that new evidence does not necessarily help us make better, more ethical decisions for our communities (Frank, 2000). But the time to engage with the evidence and for collective action, not self-interest, is now more important than ever. Some of the authors from this commentary have made practical suggestions to support the system, abolishing parachute payments and implementing salary cap regulations perhaps being the most prominent (Wilson et al., 2018). It’s time the policymakers reacted to such evidence.

 https://www.tandfonline.com/doi/full/10.1080/23750472.2020.1792745

ReferencesBBC Sport .

1. (2020a). Wigan Athletic in administration: Championship club set for 12-point deduction https://www.bbc.co.uk/sport/football/53247333  

2. BBC Sport . (2020b). Wigan Athletic administration could be tip of a large iceberg in EFL.  https://www.bbc.co.uk/sport/football/53256015

 3. Bond, A. J. Widdop, P. , & Parnell, D. (2019). Topological network properties of the European football loan systemEuropean Sport Management Quarterly .  https://doi.org/10.1080/16184742.2019.1673460  [Taylor & Francis Online]

4. Deloitte . (2020). Annual review of football finance: Home truths . Sport Business Group. 

5. English Football League . (2020a). EFL statement: Coronavirus update.  https://www.efl.com/news/2020/march/efl-statement-coronavirus-update2

6.English Football League . (2020b). EFL statement: League One opts to curtail.  https://www.efl.com/news/2020/june/efl-statement-league-one-opts-to-curtail/ 

7.English Football League . (2020c). EFL statement: League Two opts to curtail https://www.efl.com/news/2020/june/efl-statement-league-two-opts-to-curtail/ 

8.English Football League . (2020d). EFL statement: Board update on coronavirus.  https://www.efl.com/news/2020/march/efl-statement-board-update-on-coronavirus/  9.Frank, A. (2000). The standpoint of storytellerQualitative Health Research , 10 (3), 354365 https://doi.org/10.1177/104973200129118499  [Crossref][PubMed][Web of Science ®]

10.Nalebuff, B. , & Brandenburger, A. (1997). Co-opetition: Competitive and cooperative business strategies for the digital economyStrategy & Leadership , 25 (6), 2835 https://doi.org/10.1108/eb054655  [Crossref] 

11. Parnell, D. Bond, A. J. Widdop, P. , & Cockayne, D. (2020). Football Worlds: Business and networks during COVID-19Soccer & Society .  https://doi.org/10.1080/14660970.2020.1782719  [Taylor & Francis Online] 

12.Parnell, D. Widdop, P. Bond, A. , & Wilson, R. (2020). COVID-19, networks and sportManaging Sport and Leisure. Earlycite .  https://doi.org/10.1080/23750472.2020.1750100  [Taylor & Francis Online][Web of Science ®],

13.Plumley, D. Ramchandani, G. , & Wilson, R. (2018). Mind the gap: An analysis of competitive balance in the English football League systemInternational Journal of Sport Management and Marketing , 18 (5), 358375 https://doi.org/10.1504/IJSMM.2018.094344  [Crossref],

14.Plumley, D. J. Wilson, R. , & Shibli, S. (2017). A holistic performance assessment of English Premier League football clubs 1992–2013Journal of Applied Sport Management , 9 (1).  https://doi.org/10.18666/JASM-2017-V9-I1-7353  [Crossref][Web of Science ®],

15.Premier League . (2019). Premier League broadcast deals for 2019-2022.  https://www.premierleague.com/news/970151 

16.Scelles, N. Szymanski, S. , & Dermit-Richard, N. (2018). Insolvency in French soccer: The case of payment failureJournal of Sports Economics , 19 (5), 603624 https://doi.org/10.1177/1527002516674510  [Crossref][Web of Science ®],

17.Sky Sports . (2020). Premier League clubs prepare for possibility of 2020/21 season behind closed doors.  https://www.skysports.com/football/news/11661/11982637/premier-league-clubs-prepare-for-2020-21-season-behind-closed-doors 

18. Szymanski, S. (2012). Insolvency in English professional football: Irrational exuberance or negative shocks. International Association of Sports Economists (Working Paper Series, 10-02).

19.Taylor, L. , & Conn, D. (2020). Premier League clubs set for £500m collective loss due to coronavirus.  https://www.theguardian.com/football/2020/jun/11/premier-league-clubs-set-for-500m-collective-loss-due-to-coronavirus  

20.The Guardian . (2015). Parachute payments overhaul for Premier League’s relegated clubs.  https://www.theguardian.com/football/2015/jun/02/parachute-payments-clubs-relegated-premier-league 

21.The Guardian . (2020). Streaming service DAZN asks Premier League to defer rights payments.  https://www.theguardian.com/football/2020/apr/06/streaming-dazn-premier-league-football-rights-payment-deferment 

22.Wilson, J. (2020). EFL boss calls for end to ‘evil’ Premier League parachute payments, warning of £200m black hole.  https://www.telegraph.co.uk/football/2020/05/05/efl-boss-calls-end-evil-premier-league-parachute-payments-warning/ 

23.Wilson, R. (2020). EXPERT VIEW: So many football clubs are on the brink of financial devastation. Coronavirus has cut off their lifeblood. The Premier League must share their billions and authorities must act. Finishing this season is key to survival.  https://www.dailymail.co.uk/sport/football/article-8134389/Coronavirus-UK-finishing-season-key-footballs-survival.html 

24. Wilson, R. Ramchandani, G. , & Plumley, D. (2018). Parachute payments in English football: Softening the landing or distorting the balance? Journal of Global Sport Management , 3 (4), 351368 https://doi.org/10.1080/24704067.2018.1441740  [Taylor & Francis Online]

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2  Alanyaspor  2  2  0  0 4 0  4   6
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2

3  4
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6

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1

1  0 3  1

2

 4
7

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 1 

1  0 2  0 2  4
8

 Fenerbahçe

 2  1 1  0 2

 1

1  4
9

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0

 1 2  1 1  3
10

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 2  1 0  1 3  3 0  3
11 Sivasspor  2

 1

0  1  2  3 -1  3
12  Kayserispor  2  1 0  1  1  2 -1

 3

13  Konyaspor  1  0 1  0  0  0  0  1
14 Gaziantep  2  0 1  1  3  5 -2  1
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 2

 0 1  1  1  3

-2

 1
16

Gençlerbirliği

 2

 0 1  1  0  2 -2  1
17  Malatyaspor  2  0 1  1  1  4 -3  1
18  Denizlispor  2  0 1  1  1  5 -4  1
19  Ankaragücü  1  0 0  1  1  2 -1  0
20  Rizespor  2  0 0  2  1  4 -3  0
21  Başakşehir  2  0 0  2  0  4 -4  0

 

            

 

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