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General Football & Sports / Discussion: the economics of the Yo-yo
« on: March 29, 2025, 09:20:06 AM »Ok so as the CEO of a newly promoted club, you’re happy, ecstatic even. Your club has achieved promotion into the sunny uplands of the English Premier League (EPL). You know damn well there’s every likelihood that you will be relegated the very next season – recent statistics tell you that. The relative wealth and finance of the long-standing members of this elite league make it very difficult to compete. Finances of your rivals may be boosted by input from US backers, the odd Hedge Fund and sovereign states, some with ethics that are not spotless.
Nevertheless, you’re happy because you know that as well as the golden handshake for being promoted - let’s say ~£140M for one year’s sojourn. When you are relegated – possibly having attained a humiliatingly low number of points – you will receive a generous pension (aka parachute payment) from the EPL. In the first year back in the second tier, this is around 55% of the TV money - perhaps £40M. (2023-2024 prices: expect inflation of payments and player costs)
Your cunning strategy is to partake in a promotion – relegation cycle picking up £180M each cycle. You’ve been clever and all your players are on flex-down contracts that drastically reduce their wages on the downswing. This cycle is known as yo-yo-ing.
However, does this cycle pay-off anymore? Firstly the EPL might drastically alter the parachute payment regime possibly moving to a payment spread over all the 2nd tier clubs. Secondly, the economics of it might now have changed.
Having achieved promotion, you know you have to spend a lot that golden handshake money on acquiring players that can bridge the ever-increasing gap between 1st and 2nd tier football.
Your choice is limited.
Many players will look at your club with the knowledge that most likely it’s going to be back down in the 2nd tier the very next season.
• They may reject you out of hand or …
• They can demand a short-term contract or one that stipulates they can be sold on for a very low price if that happens or ...
• They can demand a higher than normal to unaffordable wage.
You might choose seasoned old-timers that are looking for a contract that will boost their pension pots but are not going to give their all for the cause. This sort of player will demand a longer-term contract, might be on the treatment table for extended periods and will be very difficult to shift when money is tight.
When you go down, you may lose any decent players you recruited and are stuck with the mid-thirty-year-olds on relatively high wages for the 2nd tier. Are the parachute payments going to cover the money you have shelled out on the decent players and the wages you are still paying for the old-timers?
There is also the gamble that you splurge all your funds and loan more besides to replenish the entire squad. This worked for Nottingham Forest but that club is possibly the exception that proves the rule. You could easily plunge into the 3rd or 4th tiers if the gamble fails.
Then there are the fans. Attendances can be the most reliable form of income for a football club. The advantage of playing 1st tier football is that you are playing more attractive clubs and might in turn attract new fans and season ticket holders. But how loyal is this type of fan? How many more fans can your stadium accommodate? If, as in all likelihood, you go down, is this type of fickle fan going to stick or flit off to another club? Will the experience of being soundly beaten most games endear you to them?
Loyalty is built-up over time and I would argue so is a club’s strength. Using canny recruitment of young players, some sold on at a profit and playing attractive football that gets the club near the promotion places for several years might be a better route to growing the fan-base and extended membership of the EPL.