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Parachute payments: a safety net or a fall sense of security?

The Premier League is the richest football league in the world, with the bulk of that cash coming from enormous television rights deals.

With teams experiencing financial difficulty when they are relegated and lose their places in the English top flight, plans were drawn together to help soften the blow of dropping down a league.

What are parachute payments?

Parachute payments are continuous payments made from the Premier League at the turn of every season to the three newly relegated clubs for up to three years post relegation worth around £30 million per year on average. It is designed to help them adapt to the huge reduce in revenue from the tv rights the Championship teams usually bring in compared to the Premier League. The parachute payments are made over three years, with the fees received decreasing each year. 55% (roughly £40m) of the amount each Premier League club receives as part of its equal share of broadcast revenue is given in the first year, 45% (£35m) in the second and 20% (£15m) in the third, though only if the club was in the Premier League for more than one season before relegation.

If a team wins promotion back to the Premier League while parachute payments are being made, they no longer receive the payments.

Parachute payments see relegated clubs given a percentage of the equally shared broadcasting rights that each Premier League club receives. Taking into consideration those clubs who are not eligible for parachute payments, receive solidarity payments. These forms of payments are calculated as a percentage of the third year parachute payment a relegated Premier League team would receive. The idea behind this is to create a much a level playing field as possible.

It can be seen on the cusp of things, the parachute payments can be described and coated as financial safety for any club dropping down to the second tier, which sees them shoot straight back up to the premier league. Yes, that has happened more times then it has not but there is not the one hundred percent certainty.

A team who are in this criteria are Huddersfield Town.

It all seemed well at the start of this cycle that will be in discussion. Between 2017 and 2019 Huddersfield Town resonated in the Premier League, something that The Terrier had never experienced before. Within their first year in the premier league they upturned a reported fee of £125 million and then in the second and final term in the top flight they upturned similar figures, a reported £119 million pounds for season 2018/19. Despite spending two of the last ten years in the Premier League the amount of revenue Huddersfield Town made was 5.2x the amount made then they did in the other eight years in the championship. Bringing in 122.2 million in revenue compared to 23.5 million which was accumulated in the championship.

It goes without saying that their relegation in 2019 and the imminent pause of football via the pandemic meant Huddersfield were in luck to have £30 million approximately of cash inflow for three consecutive years to the club when money in football was at an all time low.

With the parachute payments in tact over the pandemic they were able to sustain an average profit turn over of £22 million in the three years following relegation from the Premier League. However this didn't mean all things were smooth going, The Terriers had to half their wage bill in the period from being relegated to the second tier.

Then in terms of their transfer profit figures, the third year in the championship post relegation, the 2021/22 season they amassed £2 million pounds in transfer profit, in which there only peice of business that wasn't a free transfer was Juninho Bacuna, leaving to, at the time Scottish champions, Rangers.

However as pretty and stable it may seem and be interpreted, in their second season in the Premier League Huddersfield needed extra funding, in what was an attempt to keep up with the required expenses of life in the premier league. Huddersfield took reportedly £31 million pounds from the bank in the 2018/19 season which was only a percentage of the £77 million loan they used that term, the rest coming from third party companies.

Since their swift return to the championship, Huddersfield have found consistency at the wrong end of the table, having placed 18th and 20th respectably in the first 2 seasons, followed by a surprising 3rd place finish narrowly missing out to Nottingham forest in the play off final. With many fans expecting that season which included a trip to Wembley to be a step in the right direction for the club, it only infect put them two steps backwards. In 2023 Huddersfield slumped down to a familiar 18th place finish. At the time of writing Huddersfield are set in the relegation places by one point, with Plymouth their direct opponent in stopping them from creeping in to the third tier of English football. With six games to go they are awaiting some of the leagues best opposition, creating an even harder task to stay in the division.

In the midst of all this financial trouble they are still following a continuous process of a managerial merry go round, not thinking it is appropriate to wait for upturn in form with their managers.

Off the pitch rumours of issue regarding cash flow sprung into discussion, as recent as March 2023 with rumours around the town speculating possible administration as things looked bad to worse for them. However come the end of month Huddersfield were took over by American owner Kevin Nagle.

Nagle openly admitted he only knew about Huddersfield 10 days prior to the completion of purchasing the club.

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