06 Aug 2024 5 min read Research Projects

How Relegation Effects Premier League Team Sponsorships and Purpose Driven Initiatives

The relegation system is a cornerstone of European football, structuring leagues to demote the worst-performing teams and promote the top performers from lower divisions. This model is followed by the Premier League and the entire English football pyramid. The relegation system has created historic moments and intense drama throughout the years creating a league where every game matters, rewarding teams that perform well enough to stay in the league as well as teams that are good enough for promotion. However, a somewhat under focused aspect of relegation is what happens to teams after they are relegated from a financial perspective.

With this in mind, I wanted to investigate how promotion and relegation impact teams' sponsorship portfolios and purpose driven initiatives, before and after promotion and relegation, shedding light on the financial health of clubs navigating these transitions.

Financial Impact of Relegation

Lost Revenue:

Premier League clubs share around $3.3 billion USD in prize cash and central funds.
Clubs relegated to the Championship lose out on their share of Premier League TV money, which can be around $127 million USD for bottom-placed teams.
Championship TV revenue is significantly lower, around $9.5-10 million USD.

Commercial Value:

The global audience and commercial activity in the Premier League allow clubs to charge much higher fees for advertisements and sponsorships.
Relegated clubs experience a drastic reduction in commercial income and marketing power.

Parachute Payments:

Introduced to ease financial pressure, parachute payments provide relegated clubs a percentage of the broadcast revenues over three years.
First year: 55% (~$51 million USD)
Second year: 45% (~$44.5 million USD)
Third year: 20% (~$19 million USD)
Clubs relegated after one season receive only the first two payments.

Operational Challenges:

Clubs often continue to pay Premier League wages to players, leading to financial strain.
Job losses among non-playing staff are common.
Some clubs have faced financial crisis despite parachute payments.

In summary, relegation from the Premier League entails a substantial drop in revenue and commercial value, leading clubs to implement cost-cutting measures, strategize player sales, and rely on parachute payments to cushion the financial blow. One area that is not addressed in these relegation measures is the effect relegation has on sponsorships.

Sponsorship Breakdown of Team Promoted and Relegated in the Premier League from 2020-2023

Using SponsorUnited to determine the impact of relegation and promotion on teams, we analyzed the changes in sponsor portfolios for teams relegated or promoted between 2020 and 2023 (See Figure 1). The research includes 13 teams from this period, comparing the number of deals, new partners, lost partners, retained partners, and CSR sponsor assets of each team. We then assessed these points against the teams' next season in either the Premier League (for promoted teams) or the Championship (for relegated teams) to identify trends.

Promoted Teams

Premier League Sponsor Deals: 1027 deals in their promoted season.
Championship Sponsor Deals: 667 deals over 3 seasons.

Changes Observed:

Total Partners: 35% increase
New Partners: 3% increase
Lost Deals: 4% decrease
Retained Deals: 1% increase
CSR Sponsor Assets: 4% increase

Relegated Teams

Premier League Sponsor Deals: 958 deals in their relegation season.
Championship Sponsor Deals: 708 deals in their first season after relegation.

Changes Observed:

Total Partners: 26% decrease
New Partners: 30% decrease
Lost Deals: 22% increase
Retained Partners: 8% increase
CSR Sponsor Assets: 1% decrease

These findings highlight significant shifts in sponsorship dynamics, with promoted teams generally seeing a boost in sponsorship deals and relegated teams experiencing a decline.

Impact of Relegation on Clubs Purpose Driven Initiatives

An issue that the research shed light on was the drop in CSR sponsor assets coupled with the relatively low number of CSR Sponsor Assets to begin with for teams that are on the bubble of promotion and relegation. Relegated teams experienced a 1% decrease in CSR sponsor assets. The drop highlights the challenges faced by teams when they move to the Championship.

An additional point that highlights the disparity of focus on purpose driven assets is the difference between the top 6 teams in the Premier League and the bottom 6 teams from the 2023/24 Premier League season when it comes to percentage of CSR Sponsor Assets. The top 6 teams average 13.5% of all assets focused on CSR while the bottom 6 average 5.2% (See Figure 2). This point further shows that there is an issue for teams with Premier League insecurity as it directly affects a team's purpose driven sponsor activities and programs.

The reality of reduced visibility and lower media coverage in the Championship makes it harder for clubs on the bubble to attract and retain sponsors with a strong focus on CSR. Sponsors may be less inclined to invest in CSR initiatives with a lower-profile team, leading to a decrease in CSR-related sponsorships. This decline can impact the club's ability to maintain or expand their social responsibility programs, potentially affecting their community engagement and overall brand image.

Future of Relegation and How the Premier League Can Better Establish Clubs Purpose Driven Initiatives That Can Withstand Promotion and Relegation

Relegation is a complex and often challenging transition for clubs, with significant financial repercussions that extend into their sponsorships and purpose-driven initiatives. As the Premier League continues to evolve, there is an opportunity to strengthen support for relegated clubs to ensure their community-focused efforts remain intact, regardless of their league status.

1. CSR Support in Parachute Payments

As mentioned earlier in the article the Premier League has a parachute plan for relegated teams to help them with the transition from Premier League to Championship I think a portion of this funding should specifically be directed to maintaining purpose driven initiatives. This additional funding would ensure that clubs can continue their community programs even after relegation, preserving their brand value and community engagement.

2. Interchangeable and Club-Run Purpose-Driven Activations

Another facet to strengthen clubs purpose driven efforts is to focus on developing adaptable CSR initiatives that can be managed by the club, independent of specific sponsors. A large part of why CSR initiatives are stopped after teams are relegated is the high amount of partner turnover. When partners do not renew after teams are relegated they usually take with them their activations which can include purpose driven activations. I believe that clubs should focus on developing their own purpose and community driven activities and programs that will be able to withstand relegation and partner turnover. This approach allows clubs to sustain their community efforts even if they lose sponsorships due to relegation.

Conclusion

The relegation system in the Premier League, while adding competitive drama and structuring the league, presents significant financial challenges for clubs. Teams facing relegation experience a steep decline in revenue, particularly from lost TV rights and sponsorship deals. This financial strain often forces clubs to cut costs, including staff layoffs, and can hinder their ability to maintain purpose-driven initiatives such as Corporate Social Responsibility (CSR) programs. The drop in CSR sponsor assets, particularly among relegated teams, highlights the challenges these clubs face in sustaining their community efforts.

To mitigate the impact of relegation, the Premier League could consider restructuring parachute payments to support CSR activities, developing adaptable purpose-driven activations that clubs can manage independently, and strengthening league-wide support for CSR. These measures would help clubs maintain their community engagement and brand value, regardless of their league status, ensuring that football's positive impact on society continues even through challenging transitions.