LONDON: Saudi Arabia’s £ 305m ($ 416m) buyout of Newcastle United FC is a solid financial investment for the Kingdom, but one that should be judged beyond the profit and loss accounts club annuals in the years to come.
Premier League football is not a particularly profitable business. Even before the pandemic hit, clubs in the league recorded a collective pre-tax loss of £ 165million in the 2018/19 season, even as revenue surpassed £ 5bn for the first time times, according to professional services firm Deloitte.
Unsurprisingly, the pandemic had a major impact on revenues, which fell to £ 4.5bn the following year, leaving clubs with nursing losses of just under £ 1bn.
Premier League clubs have only recorded pre-tax profits four times since its launch in 1992, all since 2013.
There is also a growing divide in English football. Many of the bigger clubs are able to turn a profit while the smaller teams struggle. Manchester City, owned by Sheikh Mansour of Abu Dhabi, posted a fifth consecutive annual profit in 2018/19 of £ 10.1million, while rivals Manchester United earned £ 18.88million. Both posted losses in 2019/20.
However, City’s profit is a drop in the ocean compared to the £ billion invested in the club since its acquisition in 2008.
So if profits are not the motivation for the Gulf States to invest money in English football, what is it?
One of the most obvious answers is branding. Saudi Arabia is in the process of building a number of global businesses, including a new airline, and a global name like Newcastle FC would potentially be a great vehicle for the Kingdom’s tourism ambitions.
There have been rumors that PIF are looking to build a club portfolio, with Inter Milan and Marseille being two possible targets. The relationships that these investments bring and the opportunities to build more partnerships through corporate hospitality are vast.
But there is more to this deal than the marketing. The deal offers Saudi Arabia the opportunity to invest in other related sectors in Newcastle and beyond that align with its Vision 2030 economic strategy.
Real estate (there could be a new stadium complex), logistics and renewables come to mind as potential areas of synergy. Offshore wind is a growing industry off the UK’s northeast coast and the River Tyne is quickly becoming a hub for the country’s wind industry.
It is no exaggeration to imagine that the city’s port is part of the Kingdom’s growing international logistics network centered on the Islamic port of Jeddah.
However, PIF is leveraging its investment in Newcastle, this represents an exciting opportunity for Saudi Arabia as it remodels its economy for a post-oil world.