“Money talks.”
With those two words, Rory McIlroy summed up the mood of the stunned global golfing community as it absorbed the news that the US-based PGA Tour was partnering with the Saudi backers of LIV Golf.
For almost two years, McMcIlroy acted as the PGA’s frontman as it battled to stem the flood of players abandoning the traditional tour in favour of the petrodollar millions offered by LIV, a breakaway competition bankrolled by the Public Investment Fund, Saudi Arabia’s sovereign wealth fund.
Established in 2021, LIV had upended the genteel world of golf, triggering legal disputes and shattering years-long friendships on the tour. Yet until this week, it was the upstart struggling to secure prime TV coverage and big commercial deals. Top players such as McIlroy and Tiger Woods remained loyal to the PGA as the golfing world endured a toxic split.
But the deal announced this week — under which the PIF could pump around $3bn into a new entity backed by the world’s biggest professional golf tour — elevated LIV to the sport’s top table. The financial firepower of Riyadh’s $650bn PIF had won the day.
“If you’re thinking about one of the biggest sovereign wealth funds in the world, would you rather have them as a partner or an enemy?” a deflated McIlroy told reporters. “At the end of the day, money talks and you’d rather have [the PIF] as a partner.”
It was not just golf that was stunned. The deal was one of the most striking illustrations yet of the growing power and influence of the PIF under the stewardship of Crown Prince Mohammed bin Salman.
The LIV-PGA deal is the tip of the iceberg for a fund that has been reinvented over the past eight years, changing the landscape of sovereign wealth in the oil-rich Gulf and beyond as it has splashed hundreds of billions of dollars at home and abroad.
It has come to epitomise Riyadh’s ambitions, spearheading Prince Mohammed’s drive to shake up the nation’s old order and project the kingdom on the global stage. And it is reshaping the way in which investors look at Saudi Arabia, its financial pulling power now luring some who were wary of doing business with Riyadh because of its dire human rights record.
Fund and games
Sport is one of 13 “strategic” sectors identified by the PIF, partly to deliver more entertainment options for a youthful domestic population, but also to champion Saudi Arabia’s brand overseas.
In recent years, Riyadh has spent tens of millions of dollars to bring myriad sporting events to the country, from heavyweight boxing bouts to Formula 1 racing. Two years ago, it acquired English football club Newcastle United. Now it is spending hundreds of millions of dollars to lure some of the planet’s top footballers to its shores, with French players N’Golo Kanté and Karim Benzema set to join Cristiano Ronaldo in its domestic league.
“Saudi Arabia sees itself as being at the centre of a new world order and investing in sport helps contribute to that national positioning,” says Simon Chadwick, professor of sport and geopolitical economy at Skema Business School in France.
But this week’s investment gives Saudi Arabia for the first time partial control of a professional sport circuit. The PIF will have a significant minority stake in the new entity that will unify the commercial operations of the PGA, the European DP World Tour and LIV. Jay Monahan, the PGA’s commissioner, will be chief executive; Yasir al-Rumayyan, the PIF’s governor and a golf fanatic, will be his chair. As one tabloid headline put it: “Saudis BUY golf.”
“It gives them a real seat at the table for decades,” says George Pyne, founder of the sports investment firm Bruin Capital.
With the LIV-PGA tie-up, the PIF has effectively bought within two years what it took the US to do over decades through the PGA, Chadwick says. “People might say, ‘Why buy a sport to project your brand?’ Well look at the tens of millions, if not hundreds of millions, of people who on a daily basis will be exposed to Saudi [entities] . . . it’s a billboard.”
Critics say this is just the latest attempt by Saudi Arabia to “sports-wash” its reputation, especially after the murder by Saudi agents of journalist Jamal Khashoggi in 2018 briefly turned the country into a quasi-pariah among western leaders.
To Rumayyan, the deal is about Saudis themselves and their ambitions. “Why are we doing it? We’re doing it for all the right reasons for our people: improve the quality of living, have more sporting events within the kingdom,” he tells the Financial Times.
“We have about 75 per cent of our population under the age of 35. So if you put all of these together, I think it makes not only logic, but financial sense.”
Impact investing
The PIF reflects not only Saudi Arabia’s long-term goals, but also the brashness that has characterised Prince Mohammed’s rule. While traditional Gulf sovereign wealth funds are secretive, revealing as little as possible about their portfolios, the PIF openly boasts of becoming “the world’s most impactful investor”.
Its goal is to pass $1tn assets under management in just two years and hit $2tn by 2030. In comparison, Norway manages the world’s largest SWF with about $1.3tn in assets, built up over more than three decades of squirrelling away its petrodollar surpluses.
“The growth has been in such a short time . . . it’s been really unparalleled,” says Diego López, managing director of Global SWF, which tracks sovereign funds’ activity.
The PIF’s transformation began in March 2015, when King Salman declared that the fund and a newly established council it reported to would be chaired by his favourite son — Prince Mohammed, known as MBS, then aged 29.
Until then, the PIF had been more development vehicle than SWF — cautious, risk-averse and with just one international investment of note, a stake in a South Korean steelmaker.
When Prince Mohammed took the reins the fund was “reborn”, in PIF parlance, and it radically altered Riyadh’s risk appetite and the way it managed its oil wealth.
The PIF first made a splash on the international stage in 2016, with a $3.5bn investment in Uber, and it followed up with a $45bn bet on SoftBank’s Vision Fund.
In the years since, it has invested tens of billions of dollars in global markets, chasing opportunistic and strategic deals. Notable holdings include stakes in Aston Martin; Carnival, one of the world’s biggest cruise line operators; and Lucid, an electric vehicle manufacturer that is building a production plant in Saudi Arabia. Over the past 18 months, it has been snapping up stakes in gaming companies as part of a $38bn plot to conquer that industry.
Yet for all its international activity, it is at home where it is creating the biggest waves. It has become a dominant, omnipresent force in the economy after being identified by MBS as the vehicle to drive his plans to develop the nation and wean it off its addiction to oil.
It has created 79 companies, ranging from a coffee producer, to a new airline, a waste-recycling business, a defence firm and even a vape business. The fund and its subsidiaries are responsible for everything from Riyadh’s renewable energy goals to urban regeneration and food security.
As well as establishing new industries, the PIF has been tasked with developing a string of megaprojects. The most eye-catching — and controversial — is Neom, a $500bn scheme to create a massive futuristic development along the Red Sea coast with a 170km-long linear city in the desert, known as the Line, at its heart.
But much more is in the works, says an executive who has worked with the PIF. “Whatever you think [the pipeline] is, it’s double that.”
From the top
Those beating a path to Riyadh in the hope of tapping the fund’s riches now head to a new 77-floor headquarters named PIF Tower. Its headcount has soared from 40 in 2015 to 2,500 today. Last year, it opened offices in New York, London and Hong Kong.
At the pinnacle is MBS who receives biweekly reports on the fund’s portfolio of companies, with the PIF run in a manner that reflects the top-down, centralised hierarchy that the heir apparent has fostered, executives who have engaged with the fund say.
Rumayyan hinted at what happens when the board is split during an interview with a Saudi podcaster in October. He cited an example in 2020 when the crown prince and Rumayyan wanted to capitalise on global market turmoil to snap up cheap assets. Other board members cautioned it was more prudent to invest at home.
The board answers to a council chaired by MBS, noted the former investment banker, who answers to the king. “So we went to the king . . . and there was an order to seek the opinion of the chairman [MBS] and the governor [Rumayyan] and that happened.” The PIF went on to invest $35bn in global markets.
A senior manager on one PIF project says some plans are so secretive only four people know about them before they are announced. “But if MBS trusts you, he eases off — a little bit,” he says.
Bankers and people who have worked with the fund say the top-down structure allows it to be nimble. But it can also fuel a sense of chaos with deals being done off the cuff.
“The PIF has quality people; they’re doing good analysis, then [they] get told ‘to get on a plane, you are going there and sign a deal’,” says an international banker. “Some of them feel like book-keepers.”
Its reach across the economy — combined with its political clout in the autocracy — has sparked complaints that it is crowding out the private sector, as well as questions about the huge bets it is taking with the state’s savings.
“The very large projects, clearly the private sector doesn’t want to do and can’t do, because they’re very speculative and there’s a lot of risk,” says Steffen Hertog, a Gulf expert at the London School of Economics. “But the PIF is increasingly also getting involved in run-of-the-mill private sector activities.”
Some analysts have described the fund — which committed to invest $200bn in Saudi Arabia in the five years through to 2025 — as a state within a state. A Saudi critic of the fund goes further. “People think of them like mafia strongmen on a small street — they take over small shops,” the critic says.
Saudi officials insist the PIF’s heft is vital to developing industries the traditional private sector would be wary of betting on.
But given the scale of its commitments, some experts question whether the maths adds up, even as the PIF’s coffers are bolstered by cash and asset transfers from the government. The critical test, experts say, will be how successfully it manages its sprawling, fast-growing array of commitments.
“No one expects that all of the PIF’s investments will succeed. Some bad bets come with the territory and are easily overshadowed by lucrative investments,” says Robert Mogielnicki, a senior fellow at the Arab Gulf States Institute in Washington. “Yet given how the PIF has placed its chips on the table, and that the Saudi government has wagered significant financial and political capital on the fund, it would be difficult for Riyadh to accept lots of flops.”
Playing through
The PIF’s latest investment in golf is not without risk. Some lawyers caution that antitrust concerns could attract the attention of the US justice department and threaten the partnership.
“I don’t see how they do a deal to preserve competition among the three tours,” says Craig Wildfang, partner in the antitrust and trade regulation group at Robins Kaplan.
Even if the deal goes ahead, some experts say there are likely to be commercial hurdles to overcome, particularly because of Riyadh’s dire human rights record.
“Some sponsors will completely relook at it. They’ll look at what’s right for them. Up until now, the PGA Tour has been a commercial animal, it has been incredibly successful,” says Steve Martin, chief executive of M&C Saatchi Sport & Entertainment. “When you bring in the question marks around the Saudi investment, do brands want to align themselves with that? Some might be comfortable, others might not.”
But the PIF is not afraid to court controversy. After its initial bid for Newcastle was resisted amid criticism about “sports washing” and allegations of television piracy, the PIF still pushed ahead with the deal.
And with more deals set to come, this week’s investment can also be seen as a statement of intent. “What’s the end point [for sport]?” says Chadwick. “That really depends on the megalomania of Mohammed bin Salman and when he feels the geopolitical and economic interests of Saudi Arabia are being best served.”
Additional reporting by Tabby Kinder
Data visualisation by Dan Clark
Read the full article here
