The use and abuse of financial regulation in professional team sports: the case of parachute payments in the English football Championship

This paper addresses the impact of financial regulation, and specifically of parachute payments, in professional men’s football. The research asks the question: Should the parachute payments to clubs relegated from the English Premier League to the Championship in football be reformed? The research considers the impact on competitive balance and competitive intensity in the Championship. Findings show that there is a tendency for football clubs to use the payments to subsidise rather than reduce their wage spend as intended with the payments. This element of abuse of payment intent has an effect on promotion, play-off and relegation places and on the competitive balance of the league but without that element, contrary to previous research, the effect of parachute payments is not significant for the league as a whole. The research contributes to our understanding of parachute payments in two ways. First, it looks at the extent to which football clubs in receipt of parachute payments (financially) abuse the system, adding a critical new dimension to current academic literature on parachute payments. Second, it builds on existing research by using regression analysis to create counterfactual leagues to show the impact of parachute payments themselves and of the abuse element on sporting outcomes. The conclusions are that parachute payments do not need to be abolished to increase competitive balance in the Championship but they are in need of reform to reduce the competitive advantage gained by the both the current amount and duration of payments and element of abuse.