‘Evil’ parachute cash not to blame if spent wisely, insists football finance expert

Speaking to a House of Commons select committee this week, Football League chairman Parry spoke of the financial “chasm” between the Premier League and Championship. The top-flight’s broadcast deals are worth around £1.45bn a season, compared to £119m in the Football League, which has 71 members (usually 72).

To help relegated clubs adjust, they receive payments over three years, or two if theirs was a one-season spell in the top division. Winn says it works when clubs such as Huddersfield Town use them properly, but not when clubs distort the market, or when the likes of Sheffield Wednesday and many others spend more than they can afford to keep up.

“In 2018-19 you had around £230m dealt out to teams relegated from the Premier League in the last three years, a third of revenues across Championship clubs,” pointed out Winn, a football business consultant at the University Campus of Football Business. “Those teams were all in the top eight for revenue generation that season. Of all the teams that have reported their results, Leeds United were the only team to generate more than teams received in year one or year two parachute payments.”

The trap some Championship clubs fall into, he argues, is believing spending more on wages translates into success.

“In 2018-19 of the top five wage spenders, four were in receipts of parachute payments, but when you look at wage-to-revenue ratios, which are important for financial stability, all but one (Aston Villa) operated at under 100 per cent,” he said.

“From a sustainability angle, yes (parachute payments help), but it doesn’t mean all clubs are using them for that purpose.

“Villa’s £95m wage expenditure was far beyond any revenue in the Championship. In 2017 Newcastle United yo-yoed back up to the Premier League with a higher wage level than they had in the Premier League so some clubs don’t use them as an adjustment.

“There are examples of teams that have gone down (whilst receiving parachute payments) over the last six years and only half the teams are promoted. The advantage is more perceived.

“When it comes to Championship football there isn’t the same connect between wages and success you have at Premier League level. Is the reason why clubs (without parachute payments) spend at those levels because they feel they have to compete?”

Hull City and Middlesbrough have had to adjust to life without parachute payments this season after two years of them.

Huddersfield are helped by around £43m in payments this season, yet they are again fighting relegation. Winn believes their more prudent approach should serve them better in the coronavirus crisis.

Leeds and Sheffield Wednesday, big clubs with big fanbases, have been trying to compete on solidarity payments of around £4.5m. Like Barnsley and Bradford City, their time in the top division pre-dated parachute payments, introduced in 2006-07.

“Parachute payments represent 55 per cent, 45 per cent and 20 per cent of what a Premier League club would receive as their equal share of television money that season,” explained Winn.

“In 2018-19, that was £78m – £43m in year one, then £35m, then £16m. If you come down in your first season, you only get the first two payments.

“The broadcast deals haven’t changed much this season, so Huddersfield Town should get roughly those amounts.

“Looking at the £125m fund the Premier League provided to help clubs lower down, a hell of a lot of it is advanced parachute payments but a much larger number of teams need the money.

“The transfer market would seem to be a buyer’s market this summer and you might find some clubs who forecast to sell players will struggle. It seems Huddersfield haven’t over-committed contractually this season.

“The biggest gamble is if you ‘Do a Newcastle’. Aston Villa were on their third try and if they had not succeeded in winning promotion last season you could have been looking at profit and sustainability breaches. What Huddersfield have done looks much healthier and more sustainable.”

Winn supports Parry’s call for a Championship salary cap, but does not expect reforms to be in place next season

“The profit and sustainability rules have not resulted in sustainability because they’re profit-based, not wage-based,” he said.

“Relegated clubs add complication because you’re going to have players coming down with wages not on a Championship level so there might have to be some leeway but the whole point of a salary cap is that everyone sticks to it.

“It’s going to require a lot of thought and negotiations. The legalities will have to be ironed out.”

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