French club Lyon have been demoted to Ligue 2 because of the poor state of their finances.

The club were provisionally demoted by the DNGC, the body which oversees the accounts of French professional football clubs, in November.

Lyon officials including owner John Textor, met with the DNGC on Tuesday but failed to convince the body that the club had sufficiently improved their financial situation to lift the punishment.

Last October, his Eagle Football Group, which owns a 77% stake in Lyon, announced debts of £422m.

In a statement, Lyon said the DNGC's decision was "incomprehensible" and confirmed they would appeal.

Lyon's relegation could prove significant to Crystal Palace's hopes of playing in the Europa League next season.

Their participation is currently in doubt because of Uefa rules, which prevent multiple teams under one multi-club ownership structure competing in the same European competition.

Textor owns stakes in both clubs although he agreed a deal to sell his 43% share in Palace on Monday.

"With proven funds and sporting success that has earned us a place in European competition for two consecutive years, we sincerely do not understand how an administrative decision could relegate such a major French club," Lyon's statement said.

"We will appeal to demonstrate our ability to provide the necessary financial resources to guarantee OL's place in Ligue 1."

Seven-time French champions Lyon raised around £45m with the sales of Maxence Caqueret to Como in January and Rayan Cherki to Manchester City in June in an attempt to improve their finances.

High earners such as Alexandre Lacazette and Anthony Lopes have also been released.

Lyon have the right to appeal against the decision. Should it stand, Lyon will be replaced in the top flight by Reims, who were beaten in the relegation play-off by Metz.

Only five teams have lifted more French titles than Lyon's seven, which they won in successive seasons between 2002 and 2008.

The club reached the Champions League semi-finals as recently as 2020 and have not played in the second tier since 1989.

When the provisional punishment was handed down in November, Textor said that there was "no chance" the club would be relegated and reiterated his confidence before Tuesday's meeting.

"We have made a variety of investments in recent weeks," he said. "Everything is good financially."

Textor is also the largest shareholder of Brazilian club Botafogo and currently co-owner of Palace until his deal to sell his stake to New York Jets owner Woody Johnson is completed.

"Over the past few months, we have worked closely with the DNCG, fulfilling all of its requests with equity investments that exceeded the required amounts," Lyon's statement continued.

"Thanks to capital injections from our shareholders and the sale of Crystal Palace, our cash flow has significantly improved and we now have more than sufficient financial resources for the 2025-26 season."

Palace qualified for the Europa League by winning the FA Cup but Lyon also qualified by finishing sixth in Ligue 1. The French side's higher league finish means they would take a European spot at Palace's expense - should Uefa decide their multi-club ownership rules are being breached.

Last year, six-time Ligue 1 champions Bordeaux had to surrender their professional status after being relegated from Ligue 2 to the French fourth tier because of bankruptcy.

There remains an air of caution at Palace despite the significant news of Lyon's enforced relegation.

Uefa rules state that two clubs under significant control of the same person or entity cannot compete in the same competition and that the team with the highest league finish - Lyon - takes the spot in that respective European competition.

The Premier League side have insisted to Uefa that Textor has no control at all at Selhurst Park, despite the American businessman's company Eagle Football Holdings having a 43.9% stake.

The news that Lyon have been relegated has raised hope at Palace that the issue will disappear because the French side, according to sources, will lose last season's sixth-place finish.

As of Tuesday night, Palace were still awaiting full clarification on what Lyon's relegation means for their European hopes.

But even if the French football authorities verify that Lyon's sixth-place finish has now been expunged, Palace will have to wait for a final decision before they can plan their first venture into European football.

Lyon have already confirmed that they intend to appeal the decision.

There are concerns at the south London club that even if Lyon fail in their appeal with the French league, they will take their fight even further - thus prolonging the agony.

Can Textor and Lyon convince the authorities that they are rectifying their poor financial state enough to lift their relegation?

And can Lyon have their punishment delayed until the appeals processes are complete?

These are questions Palace are likely to be asking themselves.

Then there's the matter of Nottingham Forest, who stand to gain if Palace lose their Europa League status, and their response to Palace keeping their place in Uefa's second most prestigious competition.

There was hope that Palace would have clarity over their European destiny by the end of this week. They may now have to wait much longer.