How often do Relegated clubs go bankrupt?

Today on Twitter I was asked to write a post about another common refrain from those who are worried that an Open Pyramid that features Promotion and Relegation in the United States would some how deal the death blow to professional soccer in the United States… “but every team will go bankrupt when they are relegated”.

So I did a bit of simple research on the English pyramids top three, EPL, Championship and League 1 divisions. Firstly I listed all 10 teams, three from both the EPL and Championship and 4 from League 1 that were relegated each of the last 5 years giving me a total of 50 relegated clubs. I then compared that list of clubs to a list of clubs that entered in to Administration (bankruptcy) that year to give me a list of clubs that we can assume with a high probability were caused to have went insolvent by being relegated.

Out of those 50 clubs relegated in the last 5 years only 3 times have they immediately entered in to administration. Those 3 times have only included 2 different clubs with Portsmouth accounting for 2 instances in 3 years. So in 6% of the total amount of relegated clubs have we observed a bankruptcy directly because of relegation in the top 3 levels of English soccer over the last 5 years.

If we use these numbers as a comparison to MLS contraction over the last 5 years we will observe that this 6% number falls right in line with the 5.26% of clubs contracted over the same period of time without the financial hardship caused by relegation. The main difference between these two numbers is that both Portsmouth FC and Plymouth Argyle are still in existence while Chivas USA is not.

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