A drop of comfort

Relegation is always seen as a financial blow as well as a football disaster, but parachute payments are giving sides an edge in their new divisions and some teams may even be better off. Tom Green explains

Your tears have dried. The echoes of abusive comments at your team’s woeful defence have faded. Your season ticket has, in all probability, been renewed. But, if your team are relegated, how much will it cost them in the coming year?

If you’re a fan of Watford, Charlton or Sheffield United, you will probably know the answer already (subject to appeal). At times the end of the 2006-07 season seemed more like an accountancy seminar than a sporting contest. As the battle to stay in the Premier League hotted up, there was no escaping the barrage of statistics about the value of a seat at the footballing top table.

The biggest factor, of course, is TV money. Next season will be the first under the new deals that are worth, over three years, £1.7 billion for domestic broadcasts and £625 million for overseas rights. Oh, and there are internet and mobile phone deals totalling £400m.

How much each club will earn will depend on where they finish and how many TV games they feature in, but ­Richard Scudamore, the Premier League’s chief executive, has said that the bottom club’s share will be worth about £30m. Compared with being in the Championship, the additional revenue from attendances, sponsorship and other commercial activity should add up to £5m to £10m. Therefore, with the parachute payments of £11.5m for the two following seasons if you are relegated, a place in the Premier League next season is, according to accountants Deloitte, probably worth around £60m.

Teams relegated last season don’t miss out entirely. They will still get the two parachute payments of £11.5 million, putting them in good shape to bounce straight back up and cash in once again. Their new opponents in the Championship, remember, will not be seeing a penny from the new Premier League deals. Their income from Football League TV and sponsorship will be just £1m each. The only way that the wealth could trickle down to them is through sales of their best players – with new money ­flooding into the top division from all directions, transfer prices look to be heading skywards. But that’s hardly a comforting prospect.

The fact that two of the three clubs relegated last year gained promotion, while the other reached the play-off final, will be further comfort for Watford, Charlton and Sheffield United. While some cutbacks will have to be made, as long as the club are in reasonable financial shape, have a decent manager and can maintain season-ticket sales, there is every chance that relegation can be followed by promotion. Indeed, with the TV money and the growing number of billionaires investing in Premier League sides, there could be a new breed of yo-yo club moving between the top two divisions on a regular basis. Unable to compete with the really big boys, but rich enough to get promotion from the Championship, clubs could see relegation as little more than a temporary inconvenience.

There is still a danger of over-reaching, however. The lure of the Premier League makes it tempting for Championship clubs to live beyond their means and if they fail to make it then things can go from bad to worse. Ask Leeds fans.

It is notable that both they and Luton were relegated from the Championship last season under the cloud of debt. For Leeds the curious buy-out engineered by Ken Bates may yet mean that a season in League One provides a good chance to rebuild, but for Luton the loss of gate revenue could be more serious. There is a one-off parachute payment of £120,000, but League One clubs get just £350,000 from the Football League. More comes for each live TV appearance, but these are rarer for League One clubs than those in the Championship.

The key, then, is to keep the fans coming in, and in this respect it is Southend who seem best placed of those going down to League One. According to a club spokesman, their season-ticket sales are actually up this year, with supporters happy with the fist they made of their first season back in the second tier in almost a decade and looking forward to making a strong showing in League One. While they estimate that they might lose between £1m and £2m from lower sponsorship and playing clubs with, on average, smaller crowds, they are not expecting to have to sell players to make ends meet. It’s a similar story for the clubs relegated into League Two. Although Bradford are struggling with long-term financial problems, the fact that this season both Hartlepool and Walsall were promoted from League Two at the first time of asking will be encouraging for Chesterfield, Rotherham and Brentford.

Their income from the Football League will drop by only £100,000, to £250,000, and they will get a parachute payment of £50,000. Again, however, it is season-ticket sales that are key and those that have good relations with fans are likely to be best placed. Cutting ticket prices can also be a good tactic – Bradford, for example, have introduced a £138 season ticket for 2007‑08. Short-term revenue must be sacrificed for the club’s long-term viability.

Curiously, relegation from League Two, often portrayed as the most disastrous fate that can befall a club, is, these days, perhaps the least serious drop of all. As well as a parachute payment of £130,000, clubs dropping out of the Football League can actually see their regular income increase.

 “The clubs relegated from League Two are often financially better off in the Conference,” explains John Moules, the Conference’s chief executive. “Their attendance levels increase, they are featured on live televised matches and they do not have to pay a three per cent levy to the Conference on attendance income. Indeed, if you look at Doncaster Rovers, Carlisle United, Shrewsbury Town and Chester City, they all had their best financial seasons while in the Conference and Hereford United came out of administration and have gone back to the League, having made a profit each year while in the Conference.”

The TV deal with Setanta not only brings revenue but exposure, and the chance to follow their team in away games that might otherwise go unnoticed. “Oxford United have had record attendances this season,” Moules continues, “and they featured in more live TV games than in any previous season while in the League.” Oxford United, of course, narrowly missed out on promotion to League Two. The key for them next season, along with all relegated clubs, is to be sufficiently successful to make sure that fans are looking forward to the future rather than dwelling on the past.

From WSC 245 July 2007