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Saudi Arabia’s newfound love for football could have ripple effects

Portuguese football star Cristiano Ronaldo poses for a photo in his jersey after signing with Saudi Arabia’s Al Nasr Football Club on December 30, 2022 in Riyadh, Saudi Arabia.

Al Nassr Football Club/Handout/Anadolu Agency via Getty Images

Football superstar Cristiano Ronaldo’s move to Saudi club Al Nasr and increased Saudi investment in the sport could have knock-on effects across Europe and the US, experts say told CNBC.

Ronaldo’s two-and-a-half-year contract is reportedly worth up to €200 million ($212 million) a year, including commercial contracts, making the 37-year-old the most expensive footballer of all time. You will receive the highest reward. world athletes.

For context, Ronaldo’s annual personal income exceeds the total wages of staff at about half the clubs in the English Premier League. The former Real Madrid, Manchester United and Juventus star argued earlier this week that a ‘unique deal’ qualifies him for his status as a ‘unique player’.

Ronaldo terminated his contract with Manchester United in November after he gave an explosive interview criticizing the club and its manager Eric Ten Hug.

The Portuguese forward’s move is reportedly gearing up for a possible joint bid for Saudi Arabia to host the 2030 World Cup, with historic Premier League club Newcastle United set to join the Saudi Public Investment Fund in late 2021. It follows that it was acquired by

The Financial Times reported in October that Saudi PIF had committed more than $2 billion in sponsorship deals over the first eight months of 2022. Most of it went to domestic football competitions.

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Author and football finance expert Kieran Maguire told CNBC on Thursday that Al Nasr’s signing of Ronaldo was not an effort to rival the major European leagues, but rather that the kingdom would exceed its natural resources. He said it was a “marketing activity” that would allow him to diversify his commercial appeal. The size of the player’s individual profile.

“When you look at the social media that someone in a position like Cristiano Ronaldo has brought about, it’s so much better than individual football clubs,” Maguire said.

“Saudi Arabia has a young population, so he will attract that generation. There are economic benefits, political and social benefits, and financial costs are completely irrelevant.”

Manchester United and Liverpool in sights for Saudi Arabia?

The Saudi PIF’s takeover of Newcastle United has been met with criticism across the football world. This was seen as an attempt to cleanse the country’s reputation against the backdrop of its poor human rights record.

A group called NUFC fans against sportswashing have risen to protest the takeover, but seeing their club endure a prolonged period of mediocrity, many Newcastle fans are skeptical of the competition between England and beyond. I supported the investment in the hope that it would help me.

Just 15 months after the deal was completed, the club are third in the Premier League standings, sandwiched between eternal giants Manchester City and Manchester United.

Saudi officials have consistently denied allegations of sportswashing in various sporting activities, and the Newcastle buyout consortium, led by British businessman Amanda Stavely, claims the PIF is independent of the Saudi government. are doing.

However, the PIF forms the basis of the Saudi Economic Project and its Vision 2030 programme. Statements from King Salman bin Abdul Aziz and Crown Prince Mohammed bin Salman praising his PIF’s progress can be found in its annual financial statements.

PIF will own 80% of the club, with the remaining 20% ​​split between Staveley’s PCP Capital Partners and RB Sports & Media. We reached out to PIF for comment.

Premier League champions Manchester City (owned by Abu Dhabi United Group) and French champions Paris Saint-Germain (owned by Qatar Sports Investments) have also been involved in ownership disputes.

Maguire observes other state-sponsored acquisitions over the past decade, along with the success of the FIFA World Cup in Qatar in December, with Saudi Arabia expanding its football portfolio in one of two ways. suggested that we could consider doing so.

“The PIF could follow a similar path to the UAE by going to a multi-club ownership model with a city football group, de facto mothership and many satellites,” he suggested. bottom.

In addition to its flagship club, Manchester City, ADUG’s City Football Group now owns nine clubs across four continents, ensuring consistent branding and resource availability.

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“From a financial point of view, it really works because there is continuity in terms of the culture and philosophy of the club and we can transfer players and help them grow and start selling them at a higher price. So it’s actually proven to be a pretty smart model these days,” added Maguire.

Alternatively, he suggested other high-profile clubs could be in Riyadh’s sights, given the number of wealthy Saudis likely interested in building on the acquisition of Newcastle United. bottom.

Both Liverpool and Manchester United, arguably the two biggest clubs in England in terms of global profile, have publicly declared themselves open to investment, and in some cases even outright sale.

“[The Saudis] We’ve seen positive reactions from Newcastle fans, with the two clubs professing some form of investment in Liverpool and Manchester United, and not disrespecting Newcastle United. It’s a big fish.

“Investing in sports is attractive. Considering the high cost of acquiring clubs of such height, it is not always possible to obtain a sufficient return on investment. Etihad I’ve seen it both[at Manchester City]and at PSG and it’s been positive.”

Individual star acquisition model could threaten MLS

Credit rating agency DBRS Morningstar has suggested that Ronaldo’s move to the Saudi Pro League and the country’s apparent intentions could jeopardize the club’s credit risk profile in Europe and North America.

“In Europe, the cost of football club players is tied to their earnings, so if demand from abroad increases individual salaries, it can lead to a decline in team quality over time. This can have a long-term impact on brand value, viewership, and the inability of teams to increase and reinvest in their revenue.”

The Saudi investment has disrupted professional golf in the form of LIV Golf, a breakaway competition from the traditional PGA Tour that has used Riyadh’s deep pockets to attract the game’s biggest names.

But Goldberg suggested that attracting a handful of career-ending superstars to team sports leagues would not be enough for Saudi Arabia to attract a critical mass of fans. european league.

Major League Soccer (MLS) has a longstanding strategy of attracting aging stars to increase interest and viewership, making the Saudi model a bigger threat to the U.S., he noted. . To this end, each club is allowed to sign his three players whose compensation package is excluded from the team’s salary his cap.

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Italian winger Lorenzo Insigne, for example, left Serie A team Napoli to join Toronto FC in 2022, making him the highest-paid player in MLS history with a reported salary of $12.4 million. This pales in comparison to the huge deal Ronaldo signed.

“The SPL has the potential to far outperform MLS clubs and threaten key aspects of the MLS business model. The quality gap between them is much narrower than the SPL compared to the European leagues,” Goldberg said.

As such, DBRS Morningstar believes that the SPL’s financial strength and willingness to target Europa League star players who might otherwise consider MLS could adversely affect the credit profile of North American clubs. I believe there is.

Goldberg expects Saudi investments to pose greater immediate risks to individual sports such as golf, tennis, mixed martial arts (MMA) and racing.

european wage inflation

European clubs have continuously increased transfer fees and player salaries in recent decades in order to attract and retain top talent and remain competitive.

Goldberg suggested Saudi investments in individual players could boost player salaries, but European football body UEFA recently said that no club could make more than 90% of its annual earnings in wages in 2023. Introduced a rule prohibiting spending on transfer fees, agent fees.This limit will be further reduced to 70% in 2025.

“Therefore, if revenues do not continue to grow, wage claims for European clubs will be limited. In this scenario, an increase in individual player salaries would lead to a decline in team quality over time, It could make us less competitive against non-European teams,” Goldberg said.

“The negative impact on on-field results, brand value and viewership will also affect the credibility of European football clubs, with clubs failing to generate revenue and reinvest in their squads most at risk.”

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