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Newcastle United ‘opening doors’ for PIF as two Premier League rivals to cash in from £1.2bn bailout
Who in their right mind would buy a Premier League football club? That was the question on many fans’ lips when the Saudi Public Investment Fund (PIF) took over Newcastle United in October 2021.
In the last financial year, Premier League clubs posted operating losses in excess of £1bn. Since PIF bought the club, Newcastle alone have lost almost £150m.
What’s more, the sovereign wealth fund have also injected north of £300m into Newcastle via equity since the takeover, with the latest share issue – worth around £15m – coming just a few weeks ago.
If PIF either fully or partially fund the redevelopment of St James’ Park or the construction of a new stadium altogether, the Saudis can expect to add up to £1bn to the bill.
PIF insist that they see Newcastle as a business investment like any other in their £750bn-strong portfolio. So when, if ever, do they expect to see a return on that investment?
To make money from a football club, owners have three options. Broadly speaking, they can:
- Take a dividend when the club turns a profit
- Loan the club money and charge it interest
- Sell the club for a higher price than you bought it
Newcastle maintain that they will spend the maximum allowed under Profit and Sustainability Rules (PSR), which effectively means long-term profitability is not possible.
As for the loans route, it simply isn’t in PIF’s genes. For starters, Islamic finance forbids traditional interest-bearing loans. In any case, PIF are more focused on asset management and appreciation.
The remaining option is to one day sell Newcastle for a higher price than the £305m they paid for it three-and-a-half years ago.
When Amanda Staveley’s PCP Capital Partners sold its remaining shares in the club back to PIF last summer, the £60m deal valued Newcastle at £1bn.
But whether there would be an actual market for the club at that price is up for debate. To justify that valuation, Eddie Howe’s side would need to be Champions League regulars.
Although the Newcastle manager has them fighting in a weight class well beyond their budget, the brutal reality of PSR means it will be extraordinarily hard to sustain it in the long term.
Even if there were a market for the club, PIF’s £600m investment to date, coupled with their commitment to spend far more on infrastructure, means a £1bn windfall wouldn’t even see them break even.
And even if PIF were somehow able to turn a £500m profit on the sale of the club, that is the kind of money they barely bother getting out of bed for.
It certainly isn’t the kind of growth that would make PIF governor Yasir Al-Rumayyan, one of the most powerful figures in global business, take the chairmanship of a business and oversee its daily operations.
So if it isn’t cold, hard capital they are looking for, what is it? And no, it isn’t just sportswashing, although that is undeniably a major factor for Mohamed Bin Salman’s autocratic regime’s presence on Tyneside.
The latest news from the sports business ecosystem shines some light on the Saudis’ more esoteric motivations.
Finance expert: Newcastle a ‘loss leader’ for PIF amid £820m talks
In October last year, PIF were forced to rebuke stories that they were in talks to invest in London-based sports streaming service DAZN.
Before their denial, the news caused a stir at Premier League HQ as DAZN own the TV rights for the competition in Portugal and Spain, raising questions about a conflict of interest for Newcastle’s owners.
DAZN CEO Shay Segev has also admitted they are interested in the Premier League’s domestic rights too, which were worth almost £6bn at the last auction and account for the vast majority of club revenues.
PIF now appears to have resurrected those negotiations and, according to highly reliable reports, will soon pump around £820m into the company in exchange for a significant minority stake.
Where do Newcastle come into this besides the potential concerns over PIF being both a Premier League club owner and a media rightsholder?
Liverpool University football finance lecturer Kieran Maguire says PIF’s ownership of the Magpies has a validating effect, allowing the Saudis to pursue more profitable ventures elsewhere in sports and media.
“I think clubs are viewed by many owners as loss leaders that open doors for them,” the Price of Football author said in an exclusive conversation with TBR Football.
“To a certain extent, this is how PIF view their investment in Newcastle.
“They have the ability to entertain, to leverage upon the passion of the fans and so on is worth a financial loss based on their calculations.
“As far as DAZN is concerned, they will be looking for a financial return on investment.
“The value of Premier League broadcasting rights in particular is the one product in European football which is continuing to accelerate.
“Buying the rights now in an industry that is expected to go through a revolution in terms of new technologies, immersive tech and so on, will be significant.”
PIF indirectly funding Chelsea and Man City via DAZN deal
DAZN is a long, long way from profitability.
According to its latest accounts, the company ran at a loss of almost £1.2bn in the last financial year, with owner Leonard Blavatnik injecting £623m as recently as last week to cover costs.
And yet, DAZN are still aggressively expanding. Late last year, they agreed to pay £2.7bn to take over Australian cable TV giants Foxtel.
Incidentally, that deal will see Rupert Murdoch’s News Corp take a six per cent stake in DAZN and get a seat on the board, illustrating that there is clearly faith in the company from the sector’s biggest players.
What’s more, DAZN have also agreed a deal worth around £800m to exclusively air the expanded Club World Cup this summer.
FIFA are taking a huge gamble on the revamped tournament in the United States, where Manchester City and Chelsea will be among 32 teams competing.
The suspicion is that PIF’s investment in DAZN is a manoeuvre to indirectly finance the Club World Cup rights deal, currying more favour with world football’s governing body as a result.
If that is the case, then Newcastle’s owners are effectively paying prize money to two of Newcastle’s rivals in Chelsea and Man City, as well as the likes of Bayern Munich, Real Madrid and Paris Saint-Germain.
That in turn is indicative of PIF’s aims in football, which are much, much bigger than their project at St James’ Park.