Gulf states are winning the hearts and minds of sports fans, one sovereign wealth fund at a time


Nov 3, 2023 • 12:44 PM ET

Gulf states are winning the hearts and minds of sports fans, one sovereign wealth fund at a time

Jose Pelayo

An illuminated advertising display for the Mubadala Citi DC Open appeared at a Washington bus stop on Fourteenth Street. The annual tennis tournament, colloquially known as the Washington Open, ended on August 6. It was renamed thanks to sponsorship from Abu Dhabi-based Mubadala Investment Company — a name unfamiliar to most Washington sports fans, but one they might see again. The Arab Gulf states are turning their efforts and attention to peripheral sports as this newfound gold rush of smart investment generates a lot of publicity and a lot of impressions on social media.

Mubadala, the sovereign and investment fund of the United Arab Emirates (UAE), has a portfolio under management valued at $276 billion. While this is not the first time Mubadala has sponsored a sporting event, it is the first time it has done so in the DC Beltway, where Abu Dhabi likely views these sponsorships as fruitful business investments that bring significant political and reputational benefits.

The UAE joins Saudi Arabia and Qatar in their race to establish their countries as global sporting leaders. In June 2023, Qatar’s sovereign wealth fund became the first foreign sovereign wealth fund to invest in a major American sports franchise.

Saudi Arabia is now set to host the 2034 World Cup, proving that the country is determined to pursue global sports investment as part of its diversification strategy and desire to become a global sports giant. As a result, more investment in long-standing and valued American sports institutions from other Gulf countries and Saudi Arabia is likely to follow before 2034.

Other countries believe that investing in American sports teams has a potentially excellent return on investment. Norway’s sovereign wealth fund, valued at $1.3 trillion, has reduced its investment in sports since 2020, but still owns a small 1.07 percent stake in Madison Square Garden Sports, which operates the National Basketball Association team (NBA) The New York Knicks of the National Hockey League (NHL) is the team of the New York Rangers and some of the league’s minor league affiliates. Beginning in 2022, the NBA and the Women’s NBA (WNBA) allow such foreign investments as long as they consist of no more than a 20 percent stake and do not include ownership control.

However, it remains an open question how long these investments will be limited to non-controlling interests. Major League Baseball (MLB) does not currently prohibit sovereign wealth fund investments in its clubs, nor does the NHL. For now, the National Football League (NFL) prohibits the investment of public funds in its franchises. According to NFL commissioner Roger Goodell, such investments are something they will “consider at some point.” The commissioner of Major League Soccer (MLS) also said in July that they are also considering the possibility of allowing such investments.

More than butter

Starting around 2040, oil revenues are expected to decline amid declining global demand driven by higher need for renewable energy. With the growing interest in international sports, as well as broadcasting and merchandising opportunities, sports clubs offer opportunities for investment funds in the Persian Gulf to generate returns. Gulf leaders also want to remodel their countries’ oil-focused images into ones that present themselves as good places to invest, work and live. They want to show that they can influence and contribute to world powers, not the other way around. These soft power investments and projections potentially also benefit US teams by increasing their value.

The Mubadala Open tournament took place recently following the announcement that the Qatar Investment Authority had purchased a five percent stake in Monumental Sports and Entertainment. Monumental owns NBC Sports Washington, the NBA’s Washington Wizards and the NHL’s Washington Capitals, a successful franchise that won the league championship in 2018. Monumental founder and CEO Ted Leonsis has also been in talks to buy MLB’s Washington Nationals.

Saudi Arabia has probably made the most significant move in this area in the past year; the Saudi LIV Golf-PGA Tour merger — now under investigation by Congress and the US Justice Department over suspicions about the Saudis’ expanding role in global sports — marked the Saudi Public Investment Fund’s $650 billion foray into the American sports market.

These types of investments are likely to grow as the region sees them as politically and economically advantageous. For the Gulf countries, US sports franchises offer limited investment risk with known recurring revenue and a loyal fan and customer base – not to mention the astonishing increase in valuation across all major US sports franchises over the years. Such investments provide the Gulf States with high-profile media attention and a wider opportunity to influence global public opinion and build the country’s brand.

Although Gulf investment in sports is not new in Europe, American sports franchises are arguably more diverse than European ones and do not offer the risk of relegation – unlike European football clubs in the Union of European Football Associations (UEFA) leagues – which makes the rating of American teams extremely high High. From 2012 to 2021, the average value per NBA team increased 387 percent, while the average value per NHL team increased 207 percent. The result is that American sports franchises are largely seen as “recession-proof,” outpacing the growth of the S&P 500 — a U.S. stock market index made up of 500 of the largest public companies — from 2004-2012.

Gulf sovereign and sub-sovereign funds are likely to continue to pursue an investment strategy of acquiring sports teams, especially as Saudi Arabia prepares to host the World Cup in 2034. Increasing their links with governing bodies and securing major sponsorship deals and broadcasting is likely to bring them substantial returns, media rights and international attention.

A new field of competition

The Gulf states now have a stake in two major D.C. sports teams and the city’s only major tennis tournament. By capitalizing on the strength of American live sports and mature markets, these investments tie the countries’ image to recognizable cultural world products and reflect the Gulf states’ belief that these are good opportunities for growth.

One big question is whether U.S. regulators will scrutinize more of these deals, especially controlling stakes in American teams, when they inevitably happen. The Committee on Foreign Investment in the U.S. (CFIUS) — the interagency committee that reviews the national security implications of foreign acquisitions of U.S. companies — may have jurisdiction if there are national security concerns related to the data collected by these teams, but such a review would not adequately review these deals based on reputational risk—something the U.S. government should consider if it wants to give CFIUS that authority or create a new review mechanism.

The increased focus on sports investment may lead to reputational challenges for foreign and US businesses operating in the Gulf; mainly in relation to related political, social and labor rights. In addition, the increased attention will also lead to potential challenges for the governments of the Arab countries of the Persian Gulf, and the increased control over the 2022 FIFA World Cup in Doha is likely to be repeated on the host of the 2034 FIFA World Cup, Saudi Arabia and other Gulf countries as these investments grow.

But these investments are not going anywhere. Any resistance in American sports leagues to controlling stakes and foreign ownership is likely to dissipate over the next decade or two if such investments become efficient and productive and ownership rules continue to change, albeit slowly. Expect the Gulf countries to increase their investment in American sports teams while trying to leverage their economic benefits and influence in the community (as they did in the United Kingdom (UK)).

In the UK, research by New Economy Manchester reported a return on investment of £1.63 per British pound earned by Abu Dhabi United Group’s ownership of Manchester City’s City in the Community programme, which benefits disabled people. The same study reported a return on investment of £1.98 per British pound for Manchester City’s Kicks programme, which helps reduce anti-social behavior and youth crime – something cities such as DC desperately need further investment in. However, others, including Amnesty International, have argued that Manchester City is being used as an exercise in “washing the sport”, allowing a nation with a record of human rights abuses to project a positive image of itself on the world stage, given the huge international advertising platform that the Premier League provides. They argue that by investing in the emotional power of football clubs and East Manchester, Abu Dhabi is trying to win hearts and minds by instrumentalizing the sport.

If competition for stakes in major American sports franchises and tournaments is the next front in the US Gulf state competition, the next domino to fall could be MLB – especially if Leonsis and Monumental Sports buy the Nationals. Such a sale would put three major sports teams in Washington (NBA, NHL and MLB) and NBC Washington Sports under Monumental, providing a huge platform and opportunities for growth and partnerships for the Qatar Investment Fund in the nation’s capital. It remains to be seen what the Saudis’ next move will be on the US sports investment front as they continue on their path to becoming a global sports power.

One thing is for sure: there is likely to be more competition among the Gulf countries, known as the biggest formative world sports, each vying to have the most popular American team in its portfolio. Fans will care most about their teams winning, but they will – perhaps unknowingly – be participating in another rivalry fought halfway around the world.

Jose Pelayo is Associate Director of the Scowcroft Middle East Security Initiative. Follow him on Twitter: @jozemrpelaya.

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Image: 4 August 2023; Washington, USA; Maria Sakkari (GRE) serves against Leylah Fernandez (CAN) (not pictured) on day seven of the Mubadala Citi DC Open at the Fitzgerald Tennis Stadium. Mandatory Credit: Jeff Burke-USA TODAY Sports

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