The English Premier League offers financial rewards that dwarf anything else available in English, European and world football.
Broadcasters in the UK pay approximately £5 billion over four seasons for the right to show live EPL matches, and international broadcasters bring in around the same amount, with most of the money distributed between the 20 top-flight sides.
Meanwhile, the EPL champions receive around £150 million in prize money, and even the team finishing in 20th place banks around £100 million.
However, when a team is relegated and the money disappears, the “parachute payment” comes into play, a handout that clubs relegated from the EPL to the Championship are given to help plug the huge financial hole.
Why do parachute payments exist, and how much will a club like Southampton receive after relegation?
What is the Premier League Parachute Payment?
The Premier League parachute payment is allocated to clubs relegated to the Championship, and is designed to soften the blow of leaving the financial goldmine that is the EPL.
These payments are unique to English football, and have been criticised by the English Football League chairman Rick Parry for widening the gap between the finances of former EPL clubs and other Championship clubs, such as by allowing them to retain players on far higher wages than offered by other clubs.
How Much Is Southampton’s Parachute Payment?
Based on what has been handed out previously, it is likely that Southampton will stand to earn around £45 million next season as a parachute payment.
Each relegated club receives 55% of the amount that every Premier League team would pocket as an equal share of broadcast revenue, which is then reduced to 45% in the second year and 20% the year after.
That equates to around £45 million in the first year, £40 million in the second and £17 million in the third.
How Much Will Relegation Cost Southampton?
Relegation from the Premier League is a financial disaster for a club like Southampton, given that the average basic revenue for an EPL club is around £240 million, while a Championship club stands to earn around £40 million a season.
During the 2019/20 season, the Premier League brought in total a revenue of over £4.5 billion, while the Championship saw its total revenue decrease to £679m. This means the Premier League’s total revenue was over 6.6 times that of the English second tier.
In addition, the Saints will obviously miss out on the chance to earn Premier League prize money, where even the side finishing bottom of the league pockets around £100 million.
Do Relegated Teams All Get the Same Parachute Payments?
Teams relegated from the Premier League all receive the same parachute payments for the first two seasons at least; each club receives 55% of what a Premier League team earns from broadcast revenue, which is reduced to 45% in the second year and 20% the year after.
However, if a club returns to the Championship after only one season playing in the EPL, they are only entitled to two years’ worth of payments, while other clubs receive a payment for three seasons, unless they earn promotion back to the Premier League in that time.
How Long Will Southampton’s Parachute Payments Last?
Parachute payments for relegated teams like Southampton used to last for four seasons, but since 2016 have been limited to three seasons, and teams that earn promotion back to the EPL within that three-season period become ineligible to receive the payments.
Teams that only spend one season in the Premier League before being relegated now receive money for just two years.
Parachute payments are highly contentious and there is speculation that they might be scrapped or renegotiated in the future; however, the EPL and EFL remain in talks over the future of the payments.