What happens after Premier League relegation?

There are no darker days in a season than the ones that see relegation confirmed and for Southampton, listless for so much of this Premier League campaign, the moment arrived on Sunday.

Their last hope of survival was snuffed out after a 3-1 defeat away to Tottenham Hotspur, with the gap to Wolverhampton Wanderers in 17th now insurmountable. Only the inevitability of it all numbed the pain.

An immediate return to the Championship beckons for others, too. Leicester City and Ipswich Town stand on a crumbling cliff edge with games running out and the odds on either escaping getting no shorter.

With their coveted Premier League status soon to be relinquished, The Athletic examines what comes next when the three clubs exit English football’s top flight.

How does the process work when the three clubs go down?

Think of the Premier League as a private members club. You’ve had your fun (even if only occasional) and enjoyed your enormous financial perks, but the moment has come for the heavies to politely usher you towards the exit door.

Alas, it’s time to go but before leaving there is something you are obliged to return.

Every Premier League club is the owner of one of 20 ordinary shares, affording equal voting rights for all governance matters. The executive issues a physical share certificate to any newly-promoted clubs but they ask for it back when the time comes to leave. All three clubs headed for the Championship can expect an email outlining the legalities of the process to land in their inboxes in the days that follow relegation.

The opening pages of the Premier League’s handbook — its complete set of rules — says its board requires each of the three relegated clubs “to execute an instrument transferring its ordinary share”, before them being passed on to the three promoted clubs from the Championship.

The three relegated clubs formally exchange a Premier League share certificate for one of the EFL’s 72, the opposite of the process that Southampton, Leicester and Ipswich went through last summer. They can expect a call from the EFL’s executive team, with clubs then invited to meet the EFL commercial department for discussions around sponsorships as well as the operations team for scheduling issues.

There used to be a time when the EFL would hold a 72-club summer meeting in Portugal for the three relegated teams and two promoted from the National League to readjust. But declining attendances now sees that held in February each year.

The Premier League’s AGM, meanwhile, remains the point when three promoted clubs are welcomed to the top table. That typically takes place at Rudding Park Hotel near the Yorkshire spa town of Harrogate in the first week of June and is significant for the final separation with the three that have gone down.

A board meeting directly before the AGM confirms the share transfers, allowing the promoted clubs to be fully-fledged voting members. Southampton, Leicester and Ipswich, for example, were all admitted in time to vote on the proposal to scrap VAR last June, despite still being Championship clubs when the motion was tabled by Wolverhampton Wanderers.

Given the likelihood of the three relegated clubs being familiar with the Championship, the process will at least be smooth. There will be little need for introductions to the likes of EFL chairman Rick Parry or chief executive Trevor Birch. That would be different if a more established Premier League club, such as Everton or Wolves, came down. But the reality is that relegation makes for a less traumatic summer than promotion. There is not the hurry to comply with infrastructure needs or ground improvements.

There is a greater familiarity with the rules and regulations that await them back in the Championship. Although all 92 clubs use the same player registration system, there are differences in Profit and Sustainability Rules (PSR) that need to be grasped. Chelsea’s sale of their women’s team to help with financial compliance, for example, would not be permitted in the EFL after that loophole was closed in 2021.

Is there anything to soften the blow?

Once the fall begins, at least there is a parachute strapped to the backs of the unfortunate three clubs each season. A cut of the Premier League’s revenues continue to come their way for at least two more years.

Parachute payments were introduced in 2006 as an attempt to guard against financial meltdowns. They are a comfort blanket, affording the clubs opportunity to readjust to life in the Championship.

The first season post-relegation brings in a 55 per cent cut of the central payment given to the 20 Premier League clubs, which falls to 45 per cent in the second year if that club fails to win promotion back to the top-flight. There is the promise of another 20 per cent in year three for any club that spent more than one season in the Premier League but that is unlikely to matter this term.

All that equates to a pay-out in the region of £49million ($63.4m) next season for Southampton and the two clubs that join them, five-times the amount that the standard Championship clubs receive through solidarity payments and broadcast rights.

The EFL’s Parry has called parachute payments “an evil that needs to be eradicated”, providing the clubs in receipt of them with a huge competitive advantage. The flipside to the argument is that relegated clubs would face financial ruin without them.

Either way, the Premier League controls the purse-strings and those 20 clubs are unlikely to overhaul a system that presents them with the best chance to return should relegation be their fate.

What is the commercial hit for relegation?

Leicester’s accounts, dropping this week, were a timely illustration of the divide. Commercial revenue fell to £33m in the Championship, down from £44m when they were a Premier League club in 2022-23.

Leicester’s finances will be hit hard if they are relegated for the second time in three seasons (DARREN STAPLES/AFP via Getty Images)

Leeds United’s drop-off was less evident, falling from £48m to £43m in the wake of relegation, but sponsorship deals are almost inevitably tied in with Premier League status. Even Manchester United, a club with dozens of partners, has it written into their deal with Adidas that payments would fall by 50 per cent in the event of becoming a Championship club.

Commercial partnerships typically contain clauses that will see payments reduced upon relegation, some even ceasing. Just as promoted clubs will field a flood of interest, those falling back into the Championship will often see sponsors jump ship once the international exposure disappears.

Southampton’s deal with Rollbit, the crypto casino, did not have a specified length when announced last summer, while there have been doubts over Leicester’s partnership with BC Game since they signed up on a two-year deal before a Premier League return. BC Game withdrew its gaming licence and ceased operating in the UK in November after being declared bankrupt in the Caribbean nation of Curacao.

Ipswich, the third club staring down the barrel, has begun the search for a new shirt sponsor after confirming in December their deal with Ed Sheeran, now a minority shareholder, will cease at the end of this season.

Relegation will make their search for the next that little bit tougher. A front-of-shirt sponsor can be up to six times more valuable as a Premier League club. A lower-end Premier League deal will typically be in the region of £6m to £8m but expectations must be dramatically reduced in the Championship.

Southampton, at least, well know the challenge that awaits them.

Additional reporting: Simon Hughes

(Top photo: Ivan Juric has been unable to keep Southampton up. Shaun Botterill/Getty Images)