The Premier League's "New Deal"
English Football's "New Deal" will try to smoothen the cliff edge that currently separates the revenue from Premier League teams from the teams in the Championship (1 tier below the Prem) and teams in the lower feeder leagues. In 2019, for example, the Premier League’s bottom club, Huddersfield Town, had central receipts of £96million, while Norwich , top of the Championship, earned £8million. Each year, the bottom 3 teams in the 20-team premier league are relegated to the championship, and this has significant financial consequences.
What is a Parachute Payment?
Premier League parachute payments are financial packages given to football clubs relegated from England's top-flight Premier League to the second-tier Championship. These payments are critical because they cushion the financial impact of relegation. Clubs in the Premier League receive significantly higher revenue from broadcasting rights and sponsorships compared to those in the Championship. Without parachute payments, relegated clubs could face severe financial difficulties due to the sudden drop in income, potentially leading to administration or even liquidation. This system aims to ensure a smoother financial transition and maintain competitive balance within the leagues. Recently relegated teams Leeds United, Southhampton, and Leicester City will receive £47.8million each this season and will get another £39.1million next season if they fail to bounce back. This insurance for relegated teams however does not account for the rest of the Championship and lower leagues of professional english football (League 1 and League 2)
The EFL's Current Situation
The Chasm in revenue between the Prem and the Championship grew to £4 Billion this year, so let's take a look at the specifics of the financials. The EFL Championship Clubs receive an aggregate £132million from their own central revenues (media rights, sponsorships and various levies), £200 in Parachute payments over a select few clubs relegated recently, and £130million in solidarity payments from the Premier League (Payments made by the Premier League to clubs that do not qualify for parachute payments, calculated as a percentage of the third year Parachute Payment amount a club relegated from the Premier League would receive).
On a per-club basis, each Championship side receives £5.19million in solidarity money, League One teams get £780,000 each and League Two sides even lower at £520,000 each.
The EFL wants to dispose of parachute payments (put that money in the solidarity bucket) and is suggesting that they combine the four leagues’ media-rights incomes, and take 25% of that gargantuan number and distribute it among EFL Clubs, which removes the need for parachute payments and ultimately smooths the cliffs between leagues. Currently, the Prem shells out 16% of the media earnings to outside clubs, but half of it goes to newly promoted clubs to encourage them to spend big on talented players once they join the league.
Some Wrenches in the Plan
The Premier League is hesitant to give away that much of their broadcast income, which is fair, as no one wants to risk damaging one of the UK’s strongest global brands. The Premier League is also not budging on parachute payments, even though 60 percent of all promoted clubs in the last decade have been part of the parachute payment system, making it extremely hard for new teams to surface in the Prem.
The EFL is implementing a merit rake, which means that the top finishing team would be allotted double the central revenue of the Championship as the last place team and proportionally similar numbers in between. This could hurt the spread of wealth among Championship teams but it would bring teams at the top of the EFL closer to the bottom of the Prem.
In a condition that comes with the deal, the Premier League wants all 4 major English leagues (Prem, Championship, League 1, League 2) to implement a squad cost ratio, meaning a club’s spending should be capped to a certain amount of the money it earns from football activities. The problems come with the proposed numbers across leagues, as the Prem wants its own clubs as well as current parachute clubs to be able to spend 85 per cent of their already-inflated revenues on their teams. The rest of the Championship, however, should be capped at 70 percent, with limits of 50 percent in the bottom two divisions.
In Recent News
The most recent offer on the elusive "New Deal" came after a Premier League shareholder meeting, where it was proposed that the Premier League clubs make an upfront payment £44 million to the EFL as part of a six-year settlement period to support clubs in the lower leagues of English football, which could be worth up to £875m by the end of the period. The pressure on the top-flight clubs to distribute money across the English Football Pyramid after they recently signed a £6.7bn broadcasting rights deal with Sky and TNT which will see their revenues soar even higher.