Is a football club the ultimate trophy asset? And is buying one necessarily as dim an investment for a sovereign wealth fund (SWF) as it might at first appear? The acquisition of Newcastle United by Saudi Arabia’s Public Investment Fund (PIF) brings with it some mixed history, and some big current-day questions as well.
Football club purchases often look absurdly showy, no matter who is doing the buying. They are associated with the boisterous, the boorish, rather than with the savvy investor, and certainly not one tasked with stewarding the long-term wealth of a nation.
Exhibit A is Saif Gaddafi’s purchase of a stake in Juventus through the Libyan Investment Authority (LIA) in 2002 during the sovereign fund’s early days. These days, a frivolous stake in a glamorous footie asset ranks rather low on the list of sins for a man wanted under an International Criminal Court arrest warrant for crimes against humanity. But still, back then, it seemed illustrative of an investment style based on the power-hungry trappings of a screwball dictator – or a dictator’s son, anyway – Muammar Gaddafi was Saif’s father – rather than a refined investment methodology.
In truth, the LIA’s stake in Juventus was reasonably modest, about 7.5% at its peak, and rubbed shoulders with more practical investments in names including Italian oil major Eni and Pearson, which was then the owner of the FT. The stake was seized at the request of The Hague in 2012 alongside a clutch of other exotic assets, including a Harley Davidson motorbike and a 150-hectare estate on the Mediterranean island of Pantelleria. It was all frozen by the UN and has probably done rather well since.
There seems to be a perception that most of the marquee names in world football are owned by SWFs, but the truth is they are rather less commonplace than Russian oligarchs and US hedge funds.
Part of the reason for this misapprehension is a series of arm’s-length arrangements between sovereign funds and the grandees of the game.
There is no question Saudi wants to do some rehabilitation of its reputation and sport is a tried-and-tested method of doing it
Real Madrid, for example, has a strategic agreement with International Petroleum Investment Company (IPIC), one of the UAE’s sovereign funds, covering internationalization of the Real Madrid Foundation’s network of football schools and the refurbishment and sponsorship of the Santiago Bernabéu stadium, but this does not involve IPIC owning a stake in the club.
At Barcelona, there is a clear link to Qatar. Barcelona commenced a shirt sponsorship deal with Qatar Foundation in 2011, which is an instrument of the state but is not part of the Qatar Investment Authority (QIA). Then in 2013 the Qatar Foundation logo was replaced by Qatar Airways – which is owned by the QIA.
But Barcelona – més que un club, as they like to say – is owned by its members, not by any corporate interests. Real Madrid also belongs to its shareholders and neither club’s shares are traded on secondary markets. There has been talk of listing Real in New York, but it has never happened.
Similarly, Manchester City has close links to UAE SWFs, but they are indirect. Sheikh Mansour owns Manchester City through the sports holding company City Football Group (CFG), which is itself 78% owned by the Abu Dhabi United Group for Development and Investment, Sheikh Mansour’s private equity fund. CFG did secure $2 billion from the Abu Dhabi sovereign fund Mubadala in 2020, but not all of that money is linked to Manchester City; CFG has a network covering 10 clubs, including its Major League Soccer franchise New York City FC.
QIA and PSG
To date, the most direct ownership by a SWF of a top football club has been the QIA’s ownership of Paris Saint-Germain (PSG). There is nothing indirect here: in 2011, Tamim bin Hamad Al Thani, the Emir of Qatar, bought 70% of the club’s shares through Qatar Sports Investments (QSI), which is a direct subsidiary of the QIA. It bought the remaining 30% the following year.
If this is our model – the only fully-owned major football club by a SWF in the world – then it is an interesting one to study.
In the SWF world, the QIA has long been associated with a rather scattershot model: Harrods, for example, and some other trophy-level London property, though in the past 10 years its most notable investments have become more blue-chip and mainstream.
It was clear from the outset that Qatar’s ambitions with PSG were not exclusively financial. Qatar sought to improve its image as a sporting nation ahead of the 2022 World Cup. Indeed, when it won the bid to host the tournament in 2010, it did so after a meeting between Al Thani, then-Uefa president Michel Platini, and then French president Nicolas Sarkozy, a well-known PSG fan, a meeting which caused Platini to change his voting intention from the US to Qatar. QSI bought financially troubled PSG six months later. So, politics has always been in the mix here, not just investment returns.
Fans of Newcastle will no doubt look at the QIA’s astonishing largesse at PSG – the owners have spent more than €1 billion and have assembled the world’s greatest stars, including Lionel Messi, Neymar and Kylian Mbappé, into a single team – and hope for the same to happen for them.
But this points to something else. Football behaves under market forces that have barely an equivalent anywhere else in the business world. Wage inflation, and transfer inflation, is dramatically out of step with the realities of the global economy. Many clubs appear to be run on financially unsustainable models, and numerous attempts to bring more rigour into these clubs, such as through Uefa’s financial fair play regulations, seem to be thwarted.
Should any SWF be considering investment in such an apparently ill-run industry?
The counter-argument is that the same absurd inflation also applies to the valuation of Premier League clubs, which is a consequence of spiralling TV rights fees. PSG might be a trophy asset and a cash drain for Qatar, but in April Forbes calculated the club’s value at $2.5 billion, up 129% over the previous two years. Based on enterprise value, it has been a good investment.
If one can assume there will eventually be another buyer, then there is a financial argument to be made for buying a football club, mining all possible commercial opportunity from it, and then eventually selling it, or at least inviting in minority shareholders.
Outside of the realm of sovereign wealth, for example, Liverpool’s owners Fenway Sports Group (FSG) have long-indicated a willingness to bring in a junior partner for a minority stake. Such has been the inflation of Premier League club values since FSG bought Liverpool for about £300 million in 2010, FSG would probably cover its initial investment costs while still being majority owner; US sports website Sportico valued Liverpool at £2.93 billion this year.
So, a football club is not necessarily the folly it might at first appear. But what, ultimately, does the PIF want from this? Commercial returns or an improvement in the reputation of the Saudi Arabian state?
What Saudi wants
The clearest sense of PIF’s investment and asset allocation strategy comes from its 2021-2025 PIF Program document.
The first thing to understand about the fund is that it is ultimately in service to Saudi Arabia’s Vision 2030 blueprint. Absolutely everything in Saudi is. The broader objectives of this include diversification away from oil revenue, job creation, improving the private sector and a host of social ideals getting right to the heart of national identity. A big subject.
A large part of the PIF’s role in this is catalytic: creating national private sector champions and funding key national projects, for example. Some of these are vast. An example is Neom, an enterprise on the Red Sea entrusted with developing 16 diverse sectors from biotech to fashion. Neom includes the project known as The Line, a 170km-long “dream city”, which will have no cars and will be powered entirely by clean energy.
To fund this, PIF is also expected to invest internationally, which it does through two investment pools, the International Strategic Investments pool and the International Diversified Pool. These must invest in assets not just outside Saudi but outside the MENA region. When last reported, the volume of international assets constituted 30% of PIF’s assets under management (AUM).
Since PIF’s total AUM were around SAR1,500 billion ($400 billion) in 2020, the international portfolio should be in the order of about SAR450 billion. Earlier this year, fund chair Crown Prince Mohammed bin Salman said he wanted the fund’s assets to reach SAR4 trillion by 2025 and SAR7.5 trillion by 2030.
The International Strategic Investments pool is where you find the SoftBank Vision Fund, for example, in which PIF is the major investor – to rather mixed results so far. It is also where you find PIF’s up to $20 billion commitment to the Blackstone infrastructure fund programme, and a series of teamed agreements with the Russia Direct Investment Fund in which PIF is known to have invested almost $2 billion.
Many of the fund’s more public direct equity stakes – $3.5 billion in Uber Technologies, $1.5 billion in Jio Platforms, $1.3 billion in Reliance Retail – can also be found in this pool. It is not clear if PIF’s exceptionally ballsy, contrarian stake in cruise line operator Carnival, acquired at the absolute low point of the market reaction to Covid, appears in this portfolio, but it probably does.
The International Diversified Pool is the one that looks most like a classic fund: delivering diversified returns through holdings in public and private markets, much of it outsourced to international fund managers. We know that these investments can go into equity, fixed income, real estate, infrastructure, and both direct and indirect investments: much like a classic sovereign fund such as ADIA or GIC.
So, Newcastle will presumably reside in the International Strategic Investments pool. This all suggests Saudi wants a decent return out of it, not just bragging rights, and that is possible in terms of outright valuation in the long run.
But, to say the least, the PIF should not be expecting much of a dividend from the club on a year-by-year basis. Football clubs are notorious for devouring far more capital than they ever give out, and it will be seen as a sign of commitment for the PIF to reinvest any profits Newcastle might somehow generate while being reinvented from a relegation-threatened team to a global sporting icon. The fund will have to spend for years to turn it around.
However, there is no question Saudi wants to do some rehabilitation of its reputation here, too, and sport is a tried-and-tested method of doing it. That was part of the reason for Qatar buying PSG, and Qatar did not have anything like the global reputational problems that Saudi has. In their public announcements so far, PIF governor Yasir Al Rumayyan and partner Amanda Staveley of co-investor PCP Capital Partners have not once mentioned anything as gauche as profit or business growth: they have talked about success, about fans, about community, even about moving Alan Shearer’s statue.
And it just might work: football fans are a remarkably forgiving constituency when they win things. But reputational washing and a decent commercial return? It will be a big ask to tick both of those boxes.
