In early June 2023, announcements were made that may fundamentally alter two elite sports over the next decade.
The announcement of an impending merger of golf's rival tours into a combined entity, financed by the Saudi Public Investment Fund (PIF) grabbed headlines. But the impact of PIF's investment into four of the largest professional soccer clubs in the Saudi Pro League may be even more significant, when considering its impact on the finances of sports assets across the globe.
What's happened so far?
PIF, which owns an 80 per cent stake in English Premier League (EPL) side Newcastle United, has announced it will take a 75% ownership in four leading Saudi clubs. The clubs include Al-Ittihad—which recently acquired Karim Benzema, the current Ballon D'or holder—and Al-Nassr, the home of Cristiano Ronaldo since January 2023. As part of the announcement, several other Saudi teams have also been taken over by large Saudi-based companies.
PIF says the move will attract investment and other commercial opportunities. The investments form part of Saudi's Vision 2030 economic diversification plan, of which sport is a key pillar. It hopes to host the 2030 men's World Cup and to increase the annual revenue of the Saudi Pro League to around $500 million by 2030, from approximately $120 million in 2022.
A key component of the strategy to achieve this is, of course, to bring in some of the world's best and most marketable players. The common ownership of the four clubs, unusual in global soccer, allows for high-profile player transfers to be spread across the clubs to seek a certain level of equality in the league, and it is rumoured that each of the majority-PIF-owned clubs is seeking to acquire at least three global names.
As UEFA's Financial Fair Play (FFP) restrictions are not applicable to the Saudi Pro League, huge contracts can be used to entice players. In addition to Benzema, rumored targets during the 2023 summer transfer window include (at the time of writing): N'Golo Kante (linked with Al-Ittihad), Sergio Busquets (Al-Hilal), Wilfried Zaha (Al-Nassr), Riyad Mahrez (Al-Ahli), and Pierre-Emerick Aubameyang (Al-Ahli/Al-Shabab).
Financial impact on the global club game
The highest profile moves to date have been players whose contracts were expiring at their existing European clubs. The immediate financial impact to the European clubs in this situation is more difficult to quantify than the sporting impact.
However, the new riches available to the Saudi Pro League clubs may still have a profound impact on the finances of some European clubs. Examples of the potential impacts, presenting both opportunities and risks, include:
- A new potential outlet for selling
clubs: The Saudi Pro League may provide a welcome
outlet to offload unwanted high-profile players with large
salaries. In the financially rich EPL and Spain's La Liga, some
players have been inclined to wait out contracts, even if surplus
to requirements in the playing squad, aware they are unable to earn
comparable wages elsewhere. A new avenue may open for clubs to
reduce excessive wage bills, especially in the 2023 transfer window
as the Saudi Pro League seeks to establish itself.
- Salary inflation and increased contract
duration: FFP has resulted in an increasing
reluctance for clubs to provide multi-year contracts to players
over 30-years-old that may have limited re-sale value. This may
change. European clubs may not need to match the financial terms of
the Saudi teams (and none could match Ronaldo's rumoured contract of over $200 million per
year, more than the annual revenue of most European clubs
outside the top 20 richest), but longer-term contracts for players
over 30-years-old may again become more prevalent, as clubs seek to
retain important assets. Such a trend reduces clubs'
flexibility when facing changing economic circumstances due to a
failure to qualify for the UEFA Champions League or upon
relegation.
- Player trading models and competition for South
American and African talent: Forseveral clubs across
Europe, financial sustainability is based on a player trading model
that requires identifying young talent, developing the talent, and
reselling at a profit. Many players that feed into this model
arrive from South America. We recently looked at how changes in the Brazilian ownership model may
impact this pipeline. Should Saudi clubs pivot, now or in the
future, to younger players, the sheer finances on offer in the
Saudi Pro League, and potentially easier visa requirements, could
result in it rivalling Europe as a destination for South
America's best young talents. Such a move could inflate the
costs of talent and disrupt the financial model for the European
clubs.
Additionally, this year the Saudi Arabian Football Federation and the Confederation of African Football signed a five-year Memorandum Of Understanding (MOU) that focuses on initiatives around technical and football developments at club and national team level, women's football, talent identification and commercial opportunities.
- Commercial risks and opportunities: The
anticipated collection of marketable global stars in the Saudi Pro
League will have some attraction to broadcasters and commercial
partners. It seems unlikely the UEFA Champions League, the EPL or
other major European clubs will see an immediate negative impact to
commercial opportunities, but there may be a negative ripple effect
to smaller clubs as advertising and other revenues are diverted to
the new market.
Pre-season tournaments and friendlies between Saudi Pro League clubs and European clubs are likely to become more prevalent, presenting commercial opportunities. In 2021, the Saudi Arabian Football Federation and the Royal Spanish Football Federation signed an agreement to host the Spanish Super Cup in Saudi Arabia through 2029.
The Future
It is possible the Saudi Pro League has already hit its first speedbump. One player who will not be making a Saudi switch this summer is Lionel Messi. Despite strong interest from Al-Hilal, Messi says he will instead be joining David Beckham's Major League Soccer side, Inter Miami. Messi's announcement came shortly after the Saudi announcement and, if unexpected by the league, undoubtedly will have impacted marketing opportunities for this summer, and beyond.
The experiences of the Chinese Super League also theoretically provides a cautionary tale. There was massive investment in the Chinese Super League in 2017, attracting a range of high-profile talents on huge contracts, but the investment was almost immediately scaled back with limits imposed on the number of foreign players and a punitive transfer tax. However, there are numerous differences, including the PIF ownership model and the impact of COVID-19 restrictions in China, which make the Saudi proposition very different.
The pathway to the Saudi Pro League being a counterbalance to UEFA at the center of the global club game may seem long and unlikely, but the financial resources available to it raise its potential to disrupt the global game and impact the finances of established European clubs along the way.
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