The promotion and relegation system is a process that takes place at the end of the season that transfers teams from a division to another. This system have the best team(s) from a division promote to the next highest one, in replacement for the worse one(s) from that same division, who are relegated to take the place of those teams in the lower division. This process may continue down through many levels; between division 1 and 2, 2 and 3, 3 and 4 and so on.
Usually, the number of teams promoted to one league is equal to the number of teams relegated from it. In some cases, it is not true; this is usually due to league restructurations, or to changes in membership sizes if the league lost one or several members due to bankruptcy.
This system is characteristic of European hockey. While several leagues adopted the North American closed league model in recent years, traditionally, European leagues have usually used the promotion and relegation system. Its main advantages over the closed league one is that it maintains a hierarchy between the various divisions and teams within a country and ensure that, even for the worse teams, every match played is important, as they may be at risk of relegation and may want to avoid falling down one division; in closed leagues, the lower teams not only do not gain anything from trying to avoid finishing last, but they may even gain a lot - in North America, the worse a team's standing is, the higher the team will pick in the draft.
The system also has one major downside: the potentially severe economic hardships or even bankruptcy that may be triggered by a relegation to a lower level. Some leagues will counter this effect by offering what is called parachute payments, i.e. a sum of money given over the following year(s) to the demoted team to ensure its finances stay afloat. Promoted teams also receive financial support to help them being competitive at their new level.
Teams who gain promotion by their performances on the ice may not necessarily be granted access to the higher level; some leagues require those teams to satisfy several non-playing criteria as well, such as financial solvability, stadium facilities and general quality of the facilities. Teams failing to satisfy these conditions can see themselves stripped from their access to the upper division and the promotion may be awarded to a team ranked below the first one, or even be canceled for the season, leaving the former last-ranked team of the upper level in place for the next season.
In some leagues, qualifying rounds are part of the process. These rounds oppose the lowest ranked teams of the higher level to the best ranked teams of the next lowest (number of team depends on the leagues). These rounds have two main advantages: they mean some extra gate receipts for the teams involved, and they ensure that the level of competition in the leagues involved is balanced, by preventing a too weak team from promoting to a higher league and a too strong one from relegating, in case the lowest ranked team of the higher league is still stronger that the highest ranked team of the lower league. One example of such qualifying rounds is the Kvalserien in Sweden.
In hockey, the promotion and relegation system also applies to the World Championships.