• Tom Bradley

A New Era for Newcastle United under PIF?

St. James' Park, home of Newcastle United, Source: PA Images

Since UK retail tycoon Mike Ashley acquired Newcastle United in 2007 for £135m the club has experienced a series of highs and lows – though many of the club’s fans would argue that the club has seen a dramatic decline under the ownership of Ashley. Since the takeover the club has seen 2 relegations from the Premier League (however both times saw promotion back to the Premier League the following year), as well as a perceived lack of investment in the playing squad which has seen the club only achieve European qualification once in Ashley’s 13 season spell.

Despite earning the 6th highest cumulative pre-tax profits out of all the Premier League clubs from 2010-2018 Ashley has failed to spend heavily on players, and in a league where the top spenders on transfer fees and wages consistently outperform low spenders this has had a detrimental affect on Newcastle’s league performance. This has led to the fans turning on Ashley who they believe has chosen to underspend on the squad and hence is responsible for the club’s poor performance on the pitch.

With an agreed £300m acquisition deal backed by the Saudi Arabian sovereign wealth fund, public investment fund (PIF), Newcastle may see an end to the mediocrity under Ashley. A group led by crown prince Mohammed Bin Salman’s (MBS) PIF is expected to be funding 80% of the acquisition fee. The remaining 20% is split equally between UK businesswomen Amanda Staveley whose private equity firm PCP capital are structuring the deal and British property magnate brothers David and Simon Reuben. Despite Staveley’s experience in brokering high-profile deals, notably the Emirati takeover of Manchester City in 2008, negotiations between Ashley and Staveley have been long and drawn out – a £250m cash offer from PCP was rejected in 2018 and only now with Saudi backing has an agreement been reached. As part of the deal Ashley’s entity that currently owns the club has issued Staveley a vendor loan to assist with the completion of the transaction.

Amanda Staveley at St. James' Park, Source: Getty Images

Should the transaction go through it is expected that the club chairman will become Yasir al-Rumayyan, who is a close ally of MBS and governor of the PIF whilst PCP capital will act as asset managers for the club with Staveley playing a key role. The proposed acquisition has been likened to the Emirati takeover of Manchester City in 2008 and the Qatari takeover of Paris Saint-Germain in 2011 which has led to both clubs spending hundreds of millions on players which has enabled them to win multiple league titles. Newcastle fans will hope that this deal brings an end to the struggles on the pitch endured under Ashley and create a new era of success like that enjoyed by the other European clubs who have received Arab investment.

Like Newcastle on the pitch, the PIF has also seen poor performance in recent years. A series of high-profile bad investments have created heavy losses for the fund. A pre-listing $3.5bn investment in Uber is now worth less than $2bn following a botched IPO and a weak trading performance from the taxi-firm. PIF also sold out of Tesla shortly before the firm saw a rapid rise in the value of its stock price in 2019. Other poor investments include a 38% stake in Posco Engineering & Construction Co. which has lost over two-thirds of its value since the Saudi acquisition and investments with SoftBank who have seen disappointing performances in their bets on Lyft and WeWork.

However, MBS appears committed to turning this around and amidst the COVID-19 crisis is investing heavily as PIF seek to take advantage of falling asset prices. In recent weeks PIF has acquired an 8.2% stake on cruise operator Carnival and invested approximately $1bn in European energy firms – Eni SPA, Equinor ASA, Royal Dutch Shell and Total SA alongside the proposed takeover of Newcastle. However there are concerns with these deals – Carnival are set to go through $1bn of cash a month despite running 0 cruises and Saudi Arabia is already vulnerable to volatility in the energy markets as the worlds biggest oil exporter, the investment in oil therefore may only magnify losses with the market entering turmoil due to global oversupply. Despite the concerns the PIF appears to be set on continuing to invest during this time of crisis and the Newcastle deal could represent a new era for the fund.

Crown Prince Mohammed Bin Salman, Source : Getty Images

The proposed Newcastle deal has come under heavy criticism with various human rights groups, notably Amnesty International, calling for the Premier League to block the deal. Saudi Arabia has long been condemned for its poor human rights records with allegations of torture, restrictions on free speech and assassinations of political opponents. The infamous assassination of crown prince critic journalist Jamal Khashoggi on Turkish soil attracted international attention, MBS has vehemently denied any involvement in the plot although UN and western intelligence service reports suggest that MBS gave the order to execute Khashoggi. Hatice Cengiz, fiancée of Khashoggi, is also amongst those calling for the Premier League to block the takeover claiming it would make English football “complicit in murder”.

There also opponents to the deal due to the Saudi’s role in piracy of Premier League football coverage. Qatari broadcaster beIN, who have paid billions for exclusive Premier League broadcast rights in the Middle East, have written to the Premier League and all of its clubs requesting for the deal to be blocked. In the letter they cite allegations that Riyadh is behind illegal streaming services in the region, infringing on the intellectual property rights held by beIN. They believe the Saudi government are supportive of the sophisticated Arab network beoutQ which has illegally streamed premier league football and claim they have not taken sufficient preventive measures against the rogue network. Saudi Arabia have refuted the Qatari claims and do appear to have made some effort to reduce piracy through taking beoutQ feeds off-air and raiding stores believed to be selling the network’s streaming devices.

Despite pressure on the Premier League to block the takeover the chances of the deal being vetoed are very slim. The takeover group are yet to pass the league’s ‘owners and directors test’ which checks that prospective owners have sufficient funds to run the club and no criminal convictions – the group will easily pass this test. In 2017 the test was tightened to bar potential owners if they had committed acts in foreign countries that would be considered illegal in the UK, however this is likely to have an effect on the takeover despite questions over the Saudi Arabian state’s human rights record. The Premier League would also be reluctant to block the deal due to the potential diplomatic ramifications that it would cause. With UK arms trade to Saudi Arabia worth billions Riyadh represents a key trading ally and blocking the deal could cause tensions between the countries that the UK would seek desperately to avoid. Newcastle fans are also fully behind the deal, with a survey finding a 97% fan approval rate, after enduring years without success under Ashley the deal may represent a new era for the club that could see them challenge for titles and European football.

The £300m acquisition that is likely to be confirmed in the near future and will represent a new era for Newcastle United – their fans will hope they can enjoy similar success to Arab-money backed Manchester City and Paris Saint-Germain. Criticism of the new owners will persist but ultimately will do little to deter Newcastle fans and the potential future success of the club. The deal is also representative of a new era for PIF who are looking to not only put an end to a series of bad deals but foray into the lucrative sports industry and the deal may become a flagship one for the fund.