<P> The system is said to be the defining characteristic of the "European" form of professional sports league organization . Promotion and relegation have the effect of allowing the maintenance of a hierarchy of leagues and divisions, according to the relative strength of their teams . They also maintain the importance of games played by many low - ranked teams near the end of the season, which may be at risk of relegation . In contrast, a low - ranked US or Canadian team's final games serve little purpose, and in fact losing may be beneficial to such teams, yielding a better position in the next year's draft . </P> <P> Although not intrinsic to the system, problems can occur due to the differing monetary payouts and revenue - generating potential that different divisions provide to their clubs . For example, financial hardship has sometimes occurred in leagues where clubs do not reduce their wage bill once relegated . This usually occurs for one of two reasons: first, the club can't move underperforming players on, or second, the club is gambling on being promoted back straight away and is prepared to take a financial loss for one or two seasons to do so . Some leagues (most notably English football's Premier League) offer "parachute payments" to its relegated teams for the following year (s). The payouts are higher than the prize money received by some non-relegated teams and are designed to soften the financial hit that clubs take whilst dropping out of the Premier League . However, in many cases these parachute payments just serve to inflate the costs of competing for promotion among the lower division clubs as newly relegated teams retain a financial advantage . </P> <P> In some countries and at certain levels, teams in line for promotion may have to satisfy certain non-playing conditions in order to be accepted by the higher league, such as financial solvency, stadium capacity, and facilities . If these are not satisfied, a lower - ranked team may be promoted in their place, or a team in the league above may be saved from relegation . </P> <P> While the primary purpose of the promotion / relegation system is to maintain competitive balance, it may also be used as a disciplinary tool in special cases . On several occasions, the Italian Football Federation has relegated clubs found to have been involved in match - fixing . This occurred most recently in 2006, when the season's initial champions Juventus were relegated to Serie B, and two other teams were initially relegated but then restored to Serie A after appeal (see 2006 Serie A scandal). In some Communist nations, particularly several in Europe after World War II, clubs were promoted and relegated for political reasons rather than performance; clubs in East Germany, Romania, and Yugoslavia were given top - flight placements by the Communist authorities from their beginnings, and often held onto their places with these authorities' backing . </P>

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