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How costly is relegation from the Premier League?

Relegation from England’s top flight is a severe hammer blow for clubs given how difficult it is to achieve promotion back to the world’s most competitive soccer league. On top of the emotional turmoil that life back in the second tier brings with it, there is also an extraordinary financial cost that relegated clubs have to bear. Here, we delve into the numbers to try and establish the reality of the financial implications that come with dropping out of the Premier League. 

Show me the money 

An interesting fact to start with is that clubs will get in the region of $112 million per season from the TV right deals that the Premier League has negotiated.

That sum is comprised of the revenue received from both domestic and foreign markets. It’s worth pointing out that teams at the top of the Premier League table, who make up the most popular outfits in the world, will receive slightly more with that figure being something closer to $124 million. 

Unsurprisingly, when teams are relegated from the Premier League, they will lose the aforementioned lucrative TV deals that broadcasters from around the world pay hand over fist to secure. So, when it is mathematically impossible for a team to retain their top-flight status and the guillotine falls, relegated clubs will wave goodbye to the $112 million check that the Premier League writes them every season. 

That, however, is not the complete end to the handouts from the world’s richest league. Indeed, relegated clubs will still receive what is called ‘parachute payments’ to help soften the financial blow that comes with going down. This is a payment system that is devised over three seasons and takes into account a percentage of what the TV deals were for the clubs whilst they were plying their trade in the Premier League. So in the first season back in the Championship, clubs will receive 55 percent of the $112 million broadcast deal whilst in the second, that number will drop to 45 percent and then 20 percent in the third and final season. As you can see, the amount drops significantly in the third season which, if a club has not managed to get its affairs in order by achieving promotion, can often lead to disaster with the money now officially dried up.

When it’s gone, it’s gone 

Essentially, there will be a $38 million financial black hole in a club’s accounts during the first season which will increase to $68 million, and eventually $93 million after 36 months. You’ll notice a trend here and that is promotion becomes increasingly harder to finance the longer a team gets stuck in the mire of the second tier. 

 

Indeed, liquidation is a very real prospect for clubs that roll the dice hoping to land a six in terms of going back up instantly, only for a one to appear. Granted, even if a winding-up petition doesn’t arrive on the club’s front door at this stage, a fire sale normally takes place as every effort is made to reduce costs in order to keep the lights on.

Could trouble be on the horizon for Leeds? 

We can look to the North East of England as an example of how catastrophic going down can be after Sunderland’s free fall continued through the Championship and into League One having been relegated from the Premier League in 2017. While this is an extreme example of a club managing its finances poorly after relegation, the bottom line is that clubs do have to get into the brace position when the unthinkable happens and the trapdoor of the Barclays Premier League swings open to the Championship. With this being the case, a developing example of this phenomenon could be Leeds United who look certain, as of the 20th of May, to be relegated to the Championship. At least, if you bet Betway markets on the Premier League, you will see the Whites at just 2/5 to go down. Revealingly, should that happen then Leeds’ current sponsorship revenue income from the likes of JD Sports and Hisense to name but a few will be significantly reduced. You can all of a sudden see just how devastating the knock-on effect of relegation can be.

Indeed, even the richest owners in football would feel the squeeze which means that a club like Leeds, which is not blessed with deep pockets by any stretch of the imagination, will potentially face a barren few years ahead. 

 

In conclusion, no one can predict the fallout from relegation as some clubs are able to bounce back up, others, however, seem to chase their tail indefinitely. Clubs that form part of the latter will eventually say goodbye to $112 million a season.

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