After the longest-ever Premier League season, the three clubs that ended up being relegated to the Championship turned out to be Bournemouth, Norwich City and Watford, but what will the impact be on their finances? #AFCB #NCFC #WatfordFC
Looking at the last reported numbers from 2018/19, it would appear that #AFCB have most to fear, because they had by far the largest operating loss (£30m) and highest wage bill (£111m). #WatfordFC operating loss was only £6m, while I estimate small profit for #NCFC (pre-COVID). 
In 2018/19 #WatfordFC had the highest revenue of the relegated clubs with £148m, ahead of £136m for #NCFC (estimated, as played in Championship that season) and £131m for #AFCB. Revenue will be lower in 2019/20, due to smaller TV money (lower league place) and COVID-19 impact.
Financial debt was quite high at both #AFCB £100m and #WatfordFC £88m, though almost all owed to clubs’ owners. However, they also owed much transfer debt to other clubs: #AFCB £81m and #WatfordFC £79m. #NCFC only owed £24m and £14m respectively, though might have risen in PL.
For an idea of how the relegated clubs’ finances will change, we can look at the impact on the most recent relegations. As we do not yet have figures for 2019/20, we have to review 2017/18 (Hull City, Middlesbrough and Sunderland) and 2018/19 (Stoke City, Swansea City and WBA).
Revenue decrease following relegation ranged from £54m (WBA) to £63m (Sunderland), averaging £61m (50%) in 2017/18 and £56m (45%) in 2018/19. Given the higher revenue in 2019/20 Premier League (pre-COVID), due to new TV deal, the reduction is likely to be around £60m.
Obviously, the most significant revenue decrease is in broadcasting, despite the parachute payments, though clubs can also experience major reductions in the other revenue streams, e.g. Sunderland’s commercial income fell £14m, while Hull City’s match day was down £9m.
On average, broadcasting income drops around £50m following relegation from the Premier League. In 2018/19 this went from an average of £103m to £52m. This will change following the new TV deal in 2019/20, but the magnitude of the fall should be in the same ballpark.
In 2018/19 in first year after relegation, clubs received £43m parachute payment plus £2.5m from EFL, compared to £97m for last place in Premier League. #NCFC will only get 2 years parachute payments, as relegated after 1 season. Other Championship clubs only get £7m in total.
Interestingly, despite fairly large falls in attendance following relegation (9% in 18/19, 26% in 17/18), most clubs did not see dramatic decreases in match day income, partly due to more games in Championship. This fell no more than £2m at 5 clubs with Hull the outlier at £9m.
The decrease in commercial revenue was roughly £5-6m across the board in 2018/19, falling by around a third. It was slightly higher the previous season, very largely due to a chunky reduction at Sunderland. Sponsorship deals often have clauses to cut payments after relegation.
Of course, clubs invariably compensate for lower revenue by cutting the wage bill (many players have relegation clauses in their contracts). As an example, in 2018/19 the decrease in wages averaged £42m (45%), ranging from £38m at Stoke to £45m at WBA.
In fact, in 2018/19 the three relegated clubs actually improved profitability, as the average losses narrowed from £38m to £28m. The previous season, operating loss only rose by £7m from £11m to £18m. Note: operating loss excludes profit from player sales and interest payable.
It is worth noting that relegated clubs often book large once-off expenses (player impairment & exceptional charges) in their accounts once relegation is confirmed, presumably due to FFP regulations (higher limit in Premier League). These averaged £16m in 16/17 and £15m in 17/18.
However, even after adjusting for the once-off items, 18/19 only saw small £4m increase in average operating loss, though different for the 3 clubs: Swansea unchanged, while WBA £3m and Stoke £9m were worse. The numbers were much higher the previous year (£19m average worsening).
The other concern often voiced about relegated clubs is they will have to sell their best talent to balance the books. While it is true that they have made decent profits here, especially compared to other Championship clubs, average player sales have actually fallen on average.
In conclusion, clubs relegated from Premier League will undoubtedly see a large fall in revenue, but by and large they manage to compensate by cutting wages and other expenses. That said, this only means that their operating losses do not rise much – they do still lose money.
Furthermore, although the impact of the pandemic is hitting all clubs hard, it is particularly tough for those outside the Premier League, as they are more reliant on match day income, whereas the top flight is to an extent supported by TV deals (even behind closed doors).
To be clear, this analysis does not mean that relegation is a good thing financially, especially as parachute payments are only received for 3 years maximum, but it does show that some of the scaremongering that focuses purely on revenue reductions should dig a little deeper.
