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Saudi-Led Consortium Acquires Newcastle United Football Club For £305m

By Sonia Andrzejuk, Edoardo Borsoi , Luca Introna, Andrea Zenoniani (Bocconi University) and Dillan Pindoria (University of Nottingham)

Photo: Vienna Reyes (Unsplash)

 

Overview of the deal


Acquirer: Public Investment Fund, PCP Capital Partners, RB Sports and Media

Target: Newcastle United Football Club

Total Transaction Size: £305m

Closed date: 07/10/2021


A consortium composed of PCP Capital Partners, RB Sports, and Media, and the Public Investment Fund, the kingdom’s sovereign wealth fund controlled by Crown Prince Mohammed bin Salman, has completed on the 7th of October a £305m acquisition of the English football club Newcastle United.


The takeover, seen by the group as a long-term investment and considered by the leading member of the consortium, the Public Investment Fund, as a way to diversify its revenue from oil, brings Newcastle United among the richest football clubs of the European leagues and gives the club an economic potential difficult to contrast.

The acquisition process has been quite long and difficult for several reasons, among which the fact that the Public Investment Fund is currently chaired by Prince Mohammed who is banned from interacting with the club.


However, after the resolution of the different problems, the deal has been finally concluded, leaving some uncertainties among the supporters of the club and the other clubs competing in the Premier League.


“We are extremely proud to become the new owners of Newcastle United, one of the most famous clubs in English football. We thank the Newcastle fans for their tremendously loyal support over the years and we are excited to work together with them.” - Yasir Al-Rumayyan, governor of PIF

Company Details (Acquirer - Public Investment Fund (PIF))


The Public Investment Fund (PIF) was originally established in 1971 to invest in commercial projects. In addition to making select investments in a range of companies and assets domestically and internationally. The Fund has contributed to the establishment of numerous Saudi Arabian companies, supporting innovation, diversification, and non-oil sector development in the Kingdom. The Fund is building an investment portfolio that is diversified and risk-adjusted across sectors, geographies, and asset classes. All investments are primarily based on economic and financial criteria, with a focus on achieving attractive long-term financial returns.


Founded in 1971, headquartered in Riyadh, Saudi Arabia

Chairman: Prince Mohammad bin Salman Al-Saud

Number of employees: 1,940

Market Cap: N/A (sovereign wealth fund)

AUM:$450B


Company Details (Target - Newcastle United Football Club)


Newcastle United Football Club is a United Kingdom-based company that operates a football club. The Club issues tickets, such as home tickets, away tickets, hospitality, and stadium tours. It also offers men's and juniors shirts and accessories.


Founded in 1890, headquartered in Newcastle Upon Tyne, UK

Former President: Mike Ashley

Number of employees: 292

LTM Revenue: £152,63m

LTM EBITDA: £7,64m


Projections and Assumptions


Short-term consequences

The deal results in a sale to the investment group led by the Public Investment Fund (PIF), and also comprising PCP Capital Partners and RB Sports & Media (the “Investment Group”), which has completed the acquisition of 100% of Newcastle United Limited and Newcastle United Football Club Limited from St. James Holdings Limited. The new owner of the club will include a three-way split between a new consortium of:

  • 80% ownership to the Saudi Public Investment Fund

  • 10% ownership to PCP Capital Partners

  • 10% ownership to real estate developers David and Simon Reuben

As a result of the deal, the Reuben brothers will also receive a board seat pari-passu PCP.


Short-term PIF’s takeover also means more expected spending from ownership for Newcastle’s club. Net finance — when an owner lends capital to the team in exchange for more shares in the club — is a sign of ownership investment in the club. According to an analysis carried out by Swiss Rambles, Newcastle, under the reign of Mike Ashley, was the only Premier League club not to have any net finance put into the club by its owner. While Newcastle has received $0 net financing since 2010, Manchester City, another Middle Eastern-backed club, has received $1.6 billion in net financing during the same period.


The takeover also brought to the news a lot of discussion on the 2022 January transfer budget which is still being discussed by the new management; sources suggest that the club’s budget for reinforcements will be £50 million - a figure much lower than what most Newcastle supporters have been hoping for. This comes as a surprise to most given the takeover and financial fair play regulations which allow up to £200 million for spending.


Although the deal is welcomed by the club’s long-suffering fans and the football community, the human rights watch organizations such as Amnesty International have urged the Premier League before the deal to review human rights records before they allow the Saudis to buy Newcastle United. In 2020, it was quite unlikely that PFI, connected to the regime accused of the murder and dismemberment of Jamal Khashoggi, would be able to gain ownership of Newcastle given acts considered a criminal offense in the UK.


Long-term Upsides

The purchase of Newcastle by a Saudi Arabia-backed group is the latest example of the country's efforts to market itself as an event destination and diversify its revenue streams away from oil. To begin, the investment might be part of Saudi Arabia's Vision 2030 strategy. PSG demonstrated that buying a struggling club in a big league can increase profit, going from a €100 million revenue per year in 2011 to more than €600 million.


Furthermore, the new owner has already promised the fans that this would not be a speculative investment, but rather a long-term commitment to "harness the club's potential and build upon the club’s legacy”.

The goal of restoring Newcastle to the pinnacle of football and making it competitive for titles in the world's most lucrative league is undoubtedly one of the main objectives of the new owners, but there is certainly much more behind the agreement than football.

Investing in football, indeed, is frequently used to establish ties with important stakeholders in the political and economic ecosystem.


Given the Premier League's fame, this acquisition could represent a push to finally achieve Saudi Arabia's long-term goal of forming a new airline to compete with Emirates and Qatar Airways, and using Newcastle for commercial purposes, given that its matches are broadcast in over 200 countries.


The nature of the arrangement, particularly the involvement of the Reuben brothers, a wealthy property developer, might pave the way for various infrastructural and property projects, such as the construction of a new stadium and the revitalization of a large portion of the northeast of England.


Furthermore, Saudi Arabia is recognized for attempting to establish a global network of container ports, and Newcastle, where the Tyne River flows, is a container port, a container destination, and a port city, so all of this might help Saudi Arabia's global network.


In conclusion, this arrangement may be beneficial to the kingdom’s worldwide image. Being the owner of a club in the world's most valuable league is, in fact, the best way for Saudi Arabia to clear its name following allegations of human rights abuses and to present a new, modern, and progressive image of the country that could eventually be beneficial in establishing and strengthening many trade relationships, including with the United Kingdom, whose business exports to the kingdom totaled more than £6.7 billion last year.


Risks and Uncertainties


The underlying rationale for this acquisition, which critics argue is a hidden agenda of ‘sportwashing’ by Saudi Arabia’s Public Investment Fund, poses risks associated with the reputation of Newcastle United and more broadly the integrity of English football. This is because Saudi Arabia has purely bought into the prestige and long-standing success of the Premier League, in an attempt to direct political attention away from the country’s poor human rights record. Amnesty International, a UK organization focused on human rights, immediately expressed its concerns to restructure the Premier League’s owners’ and directors’ test to incorporate clauses that protect human rights after the takeover had been announced. Although the Premier League has received ‘legally binding assurances’ that the Saudi state will not control Newcastle United, this has not alleviated backlash towards the club and Premier League.


Furthermore, in an emergency meeting consisting of the Premier League’s clubs, 18 of the 20 voted in favor of temporarily banning Newcastle United from signing sponsorship deals linked to their new Saudi owners. Given that the combined wealth of its owners is £320 billion, there is expected to be a substantial injection of fresh capital into the club over the next few years; the temporary ban could be the start of repeated concerns towards state-backed clubs competing unfairly through overspending. Another middle-eastern owned club, Manchester City, has been accused of disguising funding from its owners, Abu Dhabi United Group, and is currently under investigation for alleged breaches of the Financial Fair Play rules. Therefore, there is future uncertainty in terms of Newcastle United’s integrity and club conduct off the pitch, under this newly developed ownership.


“The way the Premier League waved this deal through raises a host of deeply troubling questions about sportswashing, about human rights and sport, and about the integrity of English football” - Sacha Deshmukh, Amnesty International UK’s Chief Executive

“We intend to instill a united philosophy across the club, establish a clear purpose, and help provide leadership that will allow Newcastle United to go on to big achievements over the long term.” - Amanda Staveley, CEO of PCP Capital Partners

Sources

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