Programming note: JohnWallStreet will be off Monday and be back on Tuesday morning.
Saudi Arabia’s Minister of Sports, Prince Abdulaziz bin Turki Al-Faisal, recently introduced the launch of “NAFES,” an online licensing platform designed to encourage and facilitate foreign investment into local clubs, academies and facilities across 27 sports. For the first time, investors from around the globe will have the opportunity to take full ownership of assets in the rapidly growing Saudi sports economy (+174% over the last three years).
As a wealthy, sports-crazed market still in its relative infancy, Saudi Arabia offers much potential—in and of itself but also as the gatekeeper to the Afro-Eurasian sports economy. But Emlyon Global Professor of Eurasian Sport Simon Chadwick isn’t wholly convinced smart money is ready to invest heavily in Saudi Arabia. In fact, he only foresees NAFES achieving a “moderate level of success” because of the multitude of concerns investors have with doing business in the country.
Our Take: Saudi Arabia is encouraging private investment in sports for the first time. But as Chadwick noted, the Kingdom has deployed a similar approach across other industries and sectors in recent years. “If you look at the [$500 billion] Neom [super-city] project, Saudi Arabia [took investment capital from] organizations like SoftBank, [a Japanese conglomerate],” he said. “This is the exact same play from exactly the same playbook.”
Saudi Arabia has been focused on growing its own sports economy, as opposed to buying up teams and properties abroad, like neighboring UAE and Qatar have. Chadwick explained Saudi Arabia’s decision to invest internally has been driven by the realization that the clock is ticking. “The world is turning against carbon fuel, and [the country realized it] needs to do something [else to grow the GDP],” he said. “Building up the sport industry as an economic pillar is part of [the solution].” Having a strong sports ecosystem also supports the country’s public health initiatives (think: lowering diabetes rates, the highest in the world), and it can be used to help effect societal change.
Saudi Arabia already has some well-established sports assets, such as its men’s national soccer team, “which is already a regional powerhouse,” Chadwick said. But the country has not “made great use of sport as a means to achieve political, economic and industrial gains, [like UAE and Qatar have]. If you think about [Dubai] as a point of comparison, it is commonplace for [wealthy individuals] to buy an apartment there.” That is not the case in Riyadh, he noted. Qatar, meanwhile, will be on the global stage when it hosts the 2022 World Cup.
Nur Jasni Mohamed (managing director, Sportswork Group) believes UAE and Qatar’s successes pushed the Saudis to finally open their doors to investors from around the world. “They see their neighboring countries [thriving] and realize with enough control—especially over money and where the investments go—they can have the best of both worlds,” he said. UAE and Qatar have both used their own financial strength to attract smart money capable of furthering their ambitions (see: Silver Lake’s $500 million investment in City Football Group). For what it’s worth, the Saudis have expressed interest in hosting the 2030/2034 Asian Games and 2030 FIFA World Cup.
“They want to build the sports economy fast,” Mohamed said, and taking foreign capital will help to ensure that occurs. The country is working on several large-scale projects as part of Vision 2030, and despite what some might believe, their supply of money is not limitless.
But NAFES is not just about economics. “It’s about securing a vote of confidence for [the country], legitimacy, and Saudi Arabia embedding itself within the wider global sports ecosystem,” Chadwick said.
Saudi sports are likely to continue on their current growth trajectory as long as Mohammed bin Salman Al Saud remains in power (sports is his passion). But, as Chadwick explained, there are several reasons why that may not be enough to attract international investors. “The rational economic investments that you might make in the United States, you can’t [necessarily] do that in Saudi Arabia because of the socio-political environment and the scrutiny that will come along with it,” he said.
And even if an investor is willing to go in, “the Saudi Arabian government is so prone to exaggeration (see: privatization of Saudi Aramco)” that it is hard to accurately size up the opportunity, Chadwick said. For what it’s worth, the Ministry of Sport currently pegs the value of the Saudi sports sector at roughly $1.7 billion; it’s not clear just how much of that money is being spent by the royal family to position the country as a global sports hub.
Mohamed was more bullish on the opportunity and the prospect of finding interested investors. While he agreed private equity and venture capital will have to weigh social responsibility, “at the end of the day money talks, and if they can generate [outsized] returns they will [invest],” he said. “In the near-term, you may see some semblance of hesitancy. But over the medium and longer term, you’ll see the money coming in—just like the Silver Lake investment in [City Football Group]” because the ROI should be there for those willing to take the risk. Being in close proximity to some of the biggest VCs and PE firms in the world shouldn’t hurt.
One of the key reasons Saudi Arabia presents investors with the potential for outsized returns is its position as the gateway to the MEA (Middle East and Africa) region. “If you can get Saudi, you get the rest of the Middle East,” Mohamed said. “In terms of growth potential, there is a lot of upside there—especially considering where they are starting from [as a closed economy that is just opening up].”