Al-Riyadh newspaper | The pillars of managing sports clubs are based on investment thinking, not emotions in the stands

Specialists in economic affairs stressed the importance of activating investment work in various Saudi sports clubs according to modern principles that guarantee them sustainable revenues, and organized work to achieve economic and societal results that lead to achieving a tangible impact on the goals and directions of these clubs in accordance with the objectives of Vision 2030, noting the importance of multiple sports activity and events in the growth of the local product and raising the presence of associated small and medium entrepreneurial projects, as well as the importance of sports as a sector linked to tourism and contributing to its growth and rising revenues, and this is demonstrated by the marketing and tourism presence of more than 16 A city in America, Canada and Mexico that hosts matches for 48 teams from all continents of the world, and millions of fans support these teams with direct attendance and follow-up through various channels and means of communication.

An inspired roadmap

In this regard, Layan Qudsi, a specialist in governance and international commercial arbitration, initially explained that protecting capital in the sports sector needs a road map inspired by international experiences, and the first pillar of this road map is strict due diligence, which is a prior financial and legal measure to review previous obligations, and it is the governing standard in the English Premier League (EPL) to ensure that the investor does not run into inherited debts. Qudsi adds that the second pillar is strict organizational separation, that is, isolating the management of a football company. Completely refrain from honorary interventions, and activate independent boards of directors with a clear matrix of powers, and Qudsi goes on to confirm that the third pillar lies in the Capital Market Authority’s oversight of listed companies, by subjecting sports companies to the strict transparency obligations applicable to joint-stock companies, and linking audit committee reports directly to the authority; Similar to the standards governing international clubs listed on financial markets, such as sports companies listed on the London and New York Stock Exchanges, which closes the door to abuses and provides an attractive environment for foreign funds, she concludes her talk with the fourth pillar, which is compliance with sustainability and financial efficiency controls, by requiring clubs to set a maximum limit for wage expenditures not to exceed 70% of actual revenues, which is the same regulatory solution adopted by the European Football Association (UEFA) as an advanced alternative to financial fair play, in parallel with the formulation of Flexible performance contracts for human assets, and localization of disputes through local arbitration mechanisms to reduce international judicial costs. Qudsi concludes that the Kingdom today provides a solid legislative environment that protects intellectual property and the flow of capital, provided that the clubs are led by the mentality of listed companies… not by the emotion of the stands.

At a time when sports clubs, which were considered competitive institutions aiming to achieve championships, are witnessing a radical transformation in the modern economy to become economic and development assets capable of reshaping the economic activity of cities. From this standpoint, the success of investment in Saudi clubs must be measured by their ability to generate added economic value for the surrounding area, in addition to their direct operational returns. When the club turns into a place brand linked to the city, it becomes a center of attraction for investments, events, sports tourism and consumer spending. This results in what is known in the regional economy as the “multiplier effect.” Spending extends from match tickets to hotels, restaurants, transportation, retail, entertainment, and support services. The presence of an economically strong club increases the city’s attractiveness for investment, housing, and work, and enhances its ability to attract talent and competencies. Accordingly, the future of the clubs offered for investment must be linked to a broader development vision that makes them part of the local economy, a catalyst for urban growth, and a contributor to diversifying the economic base of cities, in line with the goals of the Kingdom’s Vision 2030 in developing the sports economy and raising its contribution to the local product.

Commercial asset pricing

In his reading of the expected effects of local and international investors on the market value of sponsorship rights for the Saudi League in all its levels, the sustainable development expert and head of a specialized center for research and studies, Engineer Dr. Sattam Al Saad, believes that the entry of local and international investors will lead to a re-pricing of commercial assets related to Saudi football, most notably sponsorship, advertising and commercial broadcasting rights. Al Saad explains that the market value of sponsorship rights is based on future growth expectations, the level of media exposure, the strength of the competition’s brand, the size of the audience, the extent of its interaction and loyalty, and with the increasing international presence of the Saudi league, the high quality of competition, and the improvement of the regulatory and legislative structure, sponsorship rights will gradually move from the local pricing stage to the regional and international pricing stage, and global investors also view sports as a long-term media and investment asset, which raises the valuations of sponsorship contracts and commercial partnerships. From an economic standpoint, the increase in the number of investors increases the demand for commercial rights, which pushes their market value to rise according to market rules. Al Saad points out that this effect may go beyond the Roshen League to include the first and second division leagues and Sunni competitions, once its commercial identity is developed, its public appeal is enhanced, and its ability to attract sponsors and investors is increased.

Regarding the non-traditional alternative investment channels that the investor must activate to achieve the desired returns, Al Saad confirms that the real challenge facing the sports investor today is to discover new sources of income, based on the knowledge economy, the experimental economy, and intangible assets. Global experiences prove that the clubs with the highest value are the most capable of diversifying their financial flows, and not necessarily the most successful. Among the most promising channels, according to Al Saad’s vision, is investing in sports tourism, developing the areas surrounding stadiums, and transforming clubs into entertainment destinations operating throughout the year. The digital economy also opens wide opportunities through private media platforms, sports data analysis, digital services directed to fans, membership and loyalty programs, and e-commerce. Sports academies are also considered one of the most important long-term strategic assets. Because it combines talent creation and financial returns. In the near future, Dr. Al Saad expects the growth in the importance of e-sports, sports artificial intelligence, and fan experience technologies, as they are investment areas with high growth rates globally. Al Saad concludes his speech by stressing that the most successful investor during the next decade will be the one who deals with the club as a multi-sectoral economic platform that combines sports, media, technology, tourism, real estate and entertainment, and not just a team participating in a seasonal tournament. The real value of clubs in the twenty-first century is built off the field as much as it is built on it.

The stadium’s surroundings…a smart neighborhood

In the same direction, Dr. Ali Muhammad Al-Hazmi, an expert in international economics, strategic planning and human capacity development, said: If we look at the clubs proposed for investment through the eyes of the international economy, we will discover that they are not clubs in their traditional sense. In essence, it is “soft infrastructure,” similar to ports and airports, but it exports feelings and identity instead of goods. Here begins the transformation from a stadium to a motor.

The sustainable financial question is not “How much will the club profit from the match?” Where the question brings us: “How does the club make one riyal circulate seven times in the city?” Al-Hazmi explains that the internationally successful clubs do not sell 90 minutes, they sell “stay time.” When the perimeter of the stadium is transformed into a smart neighborhood that includes academy student housing, rehabilitation clinics, workspaces for sports startups, and an event theatre, you are no longer building stands, you are building a “closed capital cycle” that we can call the green circle model. The ticket buys coffee, the coffee pays rent, the rent funds a scholarship for a young man in the academy, and the young man becomes a player who is exported abroad with a dollar return. Here the club is no longer a consumer of the budget, it has become a local development bank that conforms to the concept of financial sustainability.

From a strategic planning perspective, the biggest mistake is pricing sponsorship rights based on “how many views?” Al-Hazmi believes that today’s international investor is buying something more expensive that lies in “emotional loyalty statements.” The Saudi audience is not a transient audience as some believe. It is a hereditary audience that is passed on from father to son. This authenticity gives the sponsor a “long-term contract of trust” that does not exist in volatile markets. Therefore, the price of sponsorship rights will jump in all levels of the league, not only because the technical quality has become higher, but because the investor understands that a second-tier club in an industrial city has higher “social capital” than a European club in a saturated city, and here Al-Hazmi speaks clearly: The future value of sponsorship is equal to the number of hearts, in addition to the depth of loyalty, multiplied by the ability to digitally transfer, and this is the equation that must not be overlooked when we deal with the privatization of clubs.

He pointed out that the most dangerous and important investment is waiting for the return from winning. Here, Al-Hazmi emphasizes that financial sustainability begins when we invest in “non-fallible assets.” What is it? The first of these lies in the academy as a human sovereign fund. Graduating three foreign professional players annually is equivalent to exporting human oil with a higher return and longer sustainability. Comes with a sports patent. Any club that develops a training method, qualification technique, or AI performance analysis model can license it globally. Here the club transforms from a technology consumer into a knowledge exporter. The most important is “audience bonds,” where Al-Hazmi proposes the idea of ​​financing the development of the stadium with bonds that the fan himself buys with a return linked to the number of attendees, and thus the audience becomes a financial partner, not just a consumer, and this is the strongest guarantee of sustainability.

Ali Al-Hazmi

Layan Qudsi

D. Sattam Al Saad