Portuguese soccer star Cristiano Ronaldo poses for a photo wearing the jersey after signing with Saudi Arabia’s Al-Nassr Football Club in Riyadh, Saudi Arabia on December 30, 2022.
Al Nassr Football Club / Handout / Anadolu Agency via Getty Images
Soccer superstar Cristiano Ronaldo’s move to Saudi club Al-Nassr, and the kingdom’s massive investment in the sport, could have a ripple effect across Europe and the US, experts told CNBC.
Ronaldo’s two-and-a-half-year contract, reportedly worth up to 200 million euros ($212 million) a year including commercial agreements, will make the 37-year-old the highest paid footballer in history, and the highest paid. athletes in the world.
For context, Ronaldo’s annual earnings would exceed the total staff wage bill for roughly half of the clubs in the English Premier League. The former Real Madrid, Manchester United and Juventus star insisted earlier this week that his “unique contract” matches his status as a “unique player.”
Ronaldo had his contract with Manchester United terminated in November after he gave an explosive interview criticizing the club and its manager, Erik ten Hag.
The Portuguese forward’s move comes as Saudi Arabia is reportedly preparing a potential joint bid to host the 2030 World Cup, and follows the Saudi Public Investment Fund’s payment of Premier League club Newcastle United at the end of 2021.
The Financial Times reported in October that the Saudi PIF had committed more than $2 billion in sponsorship for the first eight months of 2022, most of which was directed at domestic soccer competitions.
Football writer and financial expert Kieran Maguire told CNBC on Thursday that instead of an attempt to compete in Europe’s top leagues, Al-Nassr’s signing of Ronaldo is a “marketing exercise” that allows the kingdom to diversify its commercial appeal beyond its natural resources. player’s individual profile size.
“If you look at the social media that Cristiano Ronaldo’s status brings, it’s bigger than individual football clubs,” Maguire said.
“Saudi Arabia has a young population, so they will attract that generation. There are economic benefits, there are political and social benefits, and the financial costs are irrelevant.”
Manchester United and Liverpool in the Saudi crosshairs?
The takeover of Newcastle United by the Saudi PIF was met with criticism across the football world – seen as an attempt to tarnish the country’s reputation against the backdrop of its poor human rights record.
A group called NUFC Fans Against Sportswashing emerged in protest at the takeover, but after watching the club suffer a spell of mediocrity, many Newcastle fans welcomed the investment in the hope of becoming a competitive force in England and beyond.
Just 15 months after completing the deal, the club is third in the Premier League table, sandwiched between perennial giants Manchester City and Manchester United.
Saudi officials have consistently denied allegations of sports laundering in various sports activities, and the Newcastle takeover consortium led by British businesswoman Amanda Staveley insists that the PIF is independent of the Saudi government.
However, the PIF is the cornerstone of Saudi economic projects and the Vision 2030 program. Statements praising the PIF’s progress from King Salman bin Abdulaziz and Crown Prince Mohammed bin Salman appear in the annual financial report.
PIF owns 80% of the club, with the remaining 20% split between PCP Capital Partners Staveley and RB Sports & Media. PIF has been contacted for comment.
Ownership controversy also surrounds Premier League champions Manchester City, (owned by Abu Dhabi United Group) and French champions Paris Saint-Germain (owned by Qatar Sports Investments).
After observing other state-sponsored takeovers in the past decade, along with the success of the controversial FIFA World Cup in Qatar in December, Maguire suggested that Saudi Arabia could expand its football portfolio in one of two ways.
“PIF can go down the same route to the UAE to have a City Football Group and go for a multi-club ownership model, where effectively you have a mothership and you have many satellites,” he suggested.
Apart from flagship club Manchester City, the ADUG City Football Group currently has nine other clubs on four continents with a consistent brand and resource availability.
“From a financial point of view, it’s actually quite successful because you can have continuity in terms of culture and philosophy in the club, you can transfer players to help their development, and then you can sell them at higher prices. prices, so it’s proven true, today, a beautiful model smart,” added Maguire.
Alternatively, given the number of high-net-worth individuals in Saudi Arabia who would be interested in building Newcastle United’s acquisition, he suggested other high-profile clubs could enter Riyadh.
Both Liverpool and Manchester United, arguably England’s two biggest clubs in terms of global profile, have publicly announced that they are open to disinvestment, and possibly a complete sale.
“[The Saudis] have seen a positive response from Newcastle fans – there are two clubs in common for investment in Liverpool and Manchester United and do not respect Newcastle United, they are bigger fish,” he said.
“Sports investment is attractive. You don’t have to get a substantial return on financial investment, given the high prices they are likely to go and pay for a club of that stature, but a non-financial return on our investment. I have seen it at the Etihad (home of Manchester City) and PSG is positive.
The individual star signing model could threaten the MLS
Credit rating agency DBRS Morningstar has suggested that Ronaldo’s move to the Saudi Pro League, and the country’s apparent destination, could jeopardize the credit risk profile of European and North American clubs.
“In Europe, because the cost of players in football clubs is linked to profits, increasing individual salaries driven by foreign demand can reduce the quality of the squad over time. This can have a long-term impact on the results on the field, the value of the brand, and the audience of the team that cannot increasing revenue and reinvesting in the squad,” said DBRS Morningstar Senior Vice President for Sports Finance Michael Goldberg.
Saudi investment has disrupted professional golf in the form of LIV Golf, a breakaway competition from the traditional PGA Tour that uses Riyadh’s deep pockets to attract some of the biggest names in the game.
However, Goldberg suggests that attracting a few superstars in the twilight of their careers to a team sports league will not be enough for Saudi Arabia to attract critical fan interest, as the quality of play is still lower than at the top. European league.
The Saudi model poses more of a threat to the US, he said, because Major League Soccer (MLS) has a long-term strategy to attract aging star players to build interest and audience. For this purpose, each club is allowed to sign three players whose compensation package is excluded from the team’s salary cap.
For example, Italian winger Lorenzo Insigne left Serie A side Napoli to join Toronto FC in 2022 and became the highest paid player in MLS history with a reported annual salary of $12.4 million. This is nothing compared to the mammoth contract Ronaldo signed.
“The SPL can go far beyond MLS clubs and could threaten key aspects of the MLS business model. While the overall quality in MLS has increased rapidly through investment in player development, coaching, and designated players, the quality gap between them and the SPL is narrower than the SPL relative against the European league,” said Goldberg.
As such, DBRS Morningstar believes the SPL’s financial strength and willingness to target star players from European leagues, who may consider MLS, may have a negative impact on the credit profile of North American clubs.
Goldberg expects that the Saudi investment will lead to greater direct risk to individual sports such as golf, tennis, mixed martial arts (MMA), and racing.
European wage inflation
European clubs have steadily increased their transfer fees and player salaries over the past several decades in order to attract and retain the best talent and remain competitive.
Goldberg suggested that Saudi investment in individual players could boost player salaries, but European football body UEFA recently introduced a rule stating that no club can spend more than 90% of its annual revenue on wages, transfers, and agent fees by 2023. .This limit will be further reduced to 70% in 2025.
“Thus, if profits do not continue to grow, the wage bill of European clubs will be closed. In this scenario, an increase in the salary of individual players can lead to a decrease in the quality of the squad over time and a competitive disadvantage with teams outside of Europe,” said Goldberg.
“Any negative impact on on-field results, brand value and audiences will also affect the credit profile of European football clubs, and clubs unable to generate profits and reinvest in squads will be most visible.”