Saudi PIF-Newcastle takeover about more than soft power: Riyadh, Tyneside to benefit
There’s one story dominating Tyneside right now: the takeover of English Premier League club Newcastle United by a consortium led by Saudi Arabia’s sovereign wealth fund. The Saudi Public Investment Fund (PIF), along with financial entrepreneur Amanda Staveley and billionaire investors the Reuben brothers, completed a $410 million acquisition of one of the oldest and most storied clubs in English football. The PIF maintains the dominant position in the new ownership structure, claiming 80 percent of the club’s shares, while Staveley and the Reubens hold 10 percent each.
High manager turnover, a lack of clear vision and a self-limiting shortage of ambition seems to epitomize Newcastle’s modern history. Supporter expectations, seemingly fixated and satisfied with mid-table obscurity, are being rapidly transformed. Hopes deemed unrealistic for decades are now suffused with belief.
The club represents a region and a city, but seldom mentioned in the same breath as the Manchester giants, Liverpool, and London’s elite. However, it wasn’t always the case as Newcastle’s preeminence in the topflight preceded London’s success by over 25 years and was just ahead of Manchester’s ascent.
Many in the English Northeast live and breathe black and white – the colors of Newcastle United. They’re thrilled that the era of Mike Ashley – tainted by a scarcity of funds while teetering on the edge of Premier League relegation – is finally history. A Newcastle United Supporters Trust survey reveals that 94 percent of its members support the takeover. But where do the new owners intend on guiding the Magpies? “Our ambition is aligned with the fans – to create a consistently successful team that’s regularly competing for major trophies and generates pride across the globe,” Staveley, chief executive officer of PCP Capital Partners, said during the takeover.
While fans outside St. James’ Park donned traditional Saudi attire in celebration, the impact of the acquisition is not exclusive to on-field performance. New leadership comes with a plethora of second-order byproducts that extend far beyond sports-based outcomes and soft power projection
On a fundamental level, the acquisition fills a crucial socio-cultural function. It impels Geordies – Newcastle’s fan base – to ask themselves: Who are the people of Saudi Arabia? And where is the country headed? The Newcastle faithful won’t have to look too long for an answer, quickly realizing that the biggest economy in the Middle East, and home to the Arab Gulf’s largest population, is undergoing one of the region’s most expansive socio-economic reform projects, fueled by its most valuable asset – no, not oil – the country’s ambitious youthful majority.
Sports, like music, represents a universal language that overcomes cross-cultural variance. This gives Saudi youth an indispensable opportunity to cut through the noise of the global information society and provide the international community with an unfettered window into the richness inherent to Saudi culture, values, and heritage. Young Saudis are now empowered with a stake in the world’s wealthiest and most-watched domestic football league. It is therefore imperative that on-field investments from the top-down are coupled with creative bottom-up, community-level engagement by Saudi youth to form a potent transformational mix – one uniquely positioned to propel the successful export of Saudi culture to football fans across the globe. Such engagement does not come without precedent: The Manchester City Council has acted in partnership with Abu Dhabi to build museums, hospitals, reduce crime, refurbish public amenities, and support local disability programs.
The efficacy of this acquisition is not exclusive to success on the pitch, but also long-term, community-level regeneration. Newcastle is a city with unmet potential. One of the busiest food banks in England is located a mere two miles from St. James’ Park – the takeover therefore comes with the power to transform lives in more ways than one. Youth-led initiatives– spanning Saudi NGOs, startups, and student associations – in partnership with the Newcastle City Council have the potential to showcase Saudi society’s inimitable altruism and social responsibility beyond regional confines.
Fortunately, social and economic outcomes are closely entwined. Newcastle’s acquisition is best viewed in line with the Kingdom’s aim of diversifying its economy away from oil – a strategic investment by one of the world’s largest sovereign wealth funds to relay and implement economic diversification policy on a global scale. More specifically, the takeover will positively impact the inflow of foreign direct investment (FDI) as well as the visibility and attractiveness of the Saudi tourism sector. Research indicates that the inflow of FDI is closely correlated with states’ ability to showcase their domestic economic potential and cultural attractiveness to the broader international community, and the acquisition’s socio-cultural dimension will serve as a powerful illustration of those factors.
But is this all worth it? What can the PIF expect for a return on investment (ROI)? The short answer: a whole lot. For starters, the Premier League rakes in $4.3 billion a season – nearly double what Spain’s La Liga makes. Too broad? Let’s delve into English club precedent: Manchester City, for whom Abu Dhabi’s Sheikh Mansour bin Zayed Al Nahyan paid $175 million in 2008 – and spent $2.7 billion on world-class players, coaches and facilities landing the club five Premier League trophies – was recently valued at $5 billion.
When it comes to Newcastle, the fund is getting a bargain: Reuters reports that the deal’s price tag values Newcastle at 1.7 times its revenue in the last pre-pandemic financial year – European giants Manchester United and Juventus trade at 4.1 times and 2.1 times, respectively. Over the past decade – and despite failing to win a major title since 1969 – Newcastle has generated the fourth highest cumulative earnings of teams currently in the Premier League. Of those earnings, commercial income – sponsorships, merchandising, gate receipts, replica-kit sales – only forms 15 percent, indicating massive unmet financial potential.
Quantitative metrics can only go so far. At its core, the acquisition’s success centers on non-quantifiable dimensions. First, strategic timing is worth unpacking. On one hand, the Saudi sport’s sector is flourishing – over the span of four years, the sector’s contribution to GDP soared from $640 million in 2016 to nearly $2 billion in 2019. Saudi football is experiencing its best month since June 1994 – an unbeaten national team is in line to qualify for the Qatar World Cup, while Al-Hilal find themselves Asian Champions League final favorites. On the other hand, despite chronic underperformance, Newcastle maintains a large and deeply passionate supporter base.
The reputational dividend of rebuilding a winning side is low-hanging fruit for new leadership committed to achieving longed-for glory. The deal’s strategic timing creates fertile soil for a plethora of strategic partnerships that trigger positive spill-over in other sectors of both respective economies, indicating that its relative impact is far more substantive than estimates suggest. Indeed, research following Leicester City’s Premier League win in 2016 establishes a robust link between local club success, economic growth, and positive consumer spending. Viewed holistically, the takeover establishes positive associations in the minds of people across the world through football. It builds visibility and amplifies nation branding while providing a broader platform for sponsorship, empowerment, and partnerships – this is all part and parcel of the ROI, the return on investment, from spending on football in the first place.
Newcastle fans have earned the right to dream again – beyond mid-table mediocrity and into the realm of titles, consistent Champions League football and topflight competition. From the outset, the takeover may seem exclusive to the realm of sports, but when viewed analytically, the deal’s strategic dimensions are glaringly clear. Rome wasn’t built in a day, and for fans in Tyneside and Riyadh, patience is a virtue as the club navigates its transition into the grandees of European football.