November 3, 2023 • 12:44 pm ET
Gulf states are winning sports fans hearts and minds—one sovereign wealth fund at a time
A backlit advertising display for the Mubadala Citi DC Open appeared on a Washington DC bus stop on Fourteenth Street. The annual tennis tournament, colloquially called the Washington Open, wrapped up on August 6. It had been renamed thanks to a sponsorship from Abu Dhabi-based Mubadala Investment Company—an unknown name to most Washington sports fans, but one they may see again. The Gulf Arab states have been turning their efforts and attention to beltway sports, as this newly discovered gold rush of smart investment generates lots of publicity and multiple social media impressions.
Mubadala, the United Arab Emirates’ (UAE) sovereign wealth and investment fund, has a portfolio valued at $276 billion under management. Although 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 probably views these sponsorships as fruitful business investments that yield meaningful political and reputational benefits.
The UAE joins Saudi Arabia and Qatar in their race to highlight their countries as global sporting leaders. In June 2023, Qatar’s sovereign wealth fund became the first foreign sovereign fund to invest in a major US sports franchise.
Saudi Arabia is now set to host the 2034 World Cup, proving that the country is determinedly pursuing global sports investments as part of its diversification strategy and has a desire to become a global sports giant. As a result, more investment into long-standing and cherished American sports institutions is likely to follow from other Gulf countries and Saudi ahead of 2034.
Other countries view investing in American sports teams as having a potentially excellent return on investment. Norway’s sovereign fund, valued at $1.3 trillion, has reduced its sports investments since 2020, but it still owns a small equity share of 1.07 percent in Madison Square Garden Sports, which manages the National Basketball Association (NBA) team the New York Knicks, National Hockey League (NHL) team the New York Rangers, and some of the latter’s minor league affiliates. Since 2022, the NBA and Women’s NBA (WNBA) have allowed such foreign investments so long as they consist of no more than a 20 percent stake and do not include ownership control.
However, it remains an open question on how long these investments will be restricted to non-controlling interests. Currently, the Major League of Baseball (MLB) does not prohibit sovereign investment fund investments in its clubs, nor does the NHL. For now, the National Football League (NFL) prohibits sovereign wealth funds’ investments in its franchises. According to NFL commissioner Roger Goodell, such investments are something they will “contemplate at some point in time.” Major League Soccer’s (MLS) commissioner also said in July that they were also considering the possibility of allowing such investments.
More than just oil
Starting around 2040, revenues from oil are expected to decline in the face of reductions in global demand driven by a higher need for renewable energy. Amid rising interest in international sports, as well as broadcasting and merchandising opportunities, sports clubs offer an opening for investment funds in the Gulf to generate returns. Gulf leaders also want to remodel their countries’ oil-focused images into ones that present as suitable for investing, working, and living. They want to show that they can impact and contribute to world powers—not vice versa. These investments and soft power projections potentially also benefit US teams by increasing their value.
The Mubadala Open tournament happened recently after the announcement that the Qatar Investment Authority had bought 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’s founder and CEO Ted Leonsis has also been in negotiations to buy the MLB’s Washington Nationals.
Saudi Arabia probably made the most significant move in this realm in the past year; the Saudi LIV Golf-PGA Tour merger—now being investigated by Congress and the US Department of Justice over suspicion over the Saudis’ widening role in global sports—marked the $650 billion Saudi Public Investment Fund’s foray into the US sports market.
These kinds of investments are likely to rise, as the region sees them as both politically and economically beneficial. For Gulf countries, US sports franchises offer a limited investment risk with known recurring revenue and a loyal fan and customer base—not to mention the eye-popping valuation increases across all major US sports franchises over the years. Such investments provide Gulf states high-profile media attention and a broader avenue through which to impact world public opinion and mold their country’s brand.
Although Gulf investments in sports are not new in Europe, US sports franchises are arguably more diverse than Europe’s and offer no risk of relegation—unlike European football clubs in Union of European Football Associations (UEFA) leagues—which makes the valuation of US teams exceedingly high. From 2012 to 2021, the average value of an NBA team increased by 387 percent while the average value of an NHL team increased by 207 percent. The result is that US sports franchises are primarily viewed as “recession-proof,” outpacing the growth of the S&P 500—a US stock market index made of 500 of the largest public companies—from 2004-2012.
Gulf Arab sovereign and sub-sovereign wealth funds will likely continue pursuing an investment strategy on acquiring sports teams, especially as Saudi prepares to host the 2034 World Cup. Increasing their ties with governing bodies and securing major sponsorship and broadcasting deals will likely give them significant returns, media rights, and international attention.
A new field of competition
Gulf states now have a stake in two major DC sports teams and the city’s only major tennis tournament. By buying into the power of US live sports and mature markets, these investments tie the countries’ image to recognizable cultural world products and reflect the Gulf states’ beliefs that these are good growth opportunities.
One big question is whether US regulators will scrutinize these deals more, especially controlling stakes in US teams when they inevitably happen. The Committee on Foreign Investment in the US (CFIUS)—the interagency committee that examines national security implications of foreign acquisitions of US companies—could 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 that the US government should consider if they want to give CFIUS those powers or create a new review mechanism.
Increased attention from sports investments could bring reputational challenges to foreign and US businesses operating in the Gulf; mainly regarding associated political, social, and labor rights. Additionally, increased attention will also bring potential challenges for Arab Gulf governments, and the increased scrutiny placed on the 2022 FIFA World Cup in Doha is likely to be repeated on World Cup 2034 host Saudi Arabia and other Gulf countries as these investments increase.
But these investments aren’t going anywhere. Any resistance in US sports leagues to controlling stakes and foreign ownership will likely dissipate in the next decade or two if such investments turn effective and productive and ownership rules continue to change, albeit slowly. Expect Gulf countries to increase their investments in US sports teams while trying to play up their economic benefits and impact in the community (as they’ve done in the United Kingdom (UK)).
In the UK, research conducted by New Economy Manchester reported a return on investment of 1.63 per British Pound earned from Abu Dhabi United Group-owned Manchester City’s City in the Community—a program that benefits individuals with disabilities. The same study reported a return on investment of 1.98 per British Pound for Manchester City’s Kicks program, which helps reduce anti-social behavior and crime among youth—something that cities like DC desperately need further investments in. Nevertheless, others, including Amnesty International, argue that Manchester City is being used as an exercise in “sportswashing,” allowing a nation with a record of human rights abuses to project a positive image of itself on the world stage, given the immense international advertising platform that the Premier League provides. They posit that, by investing in the emotional power of football clubs and East Manchester, Abu Dhabi has been trying to win hearts and minds by instrumentalizing sports.
If competition for stakes in major US sports franchises and tournaments is the Gulf states’ next competition front in the US, the next domino to fall could be the MLB—especially if Leonsis and Monumental Sports buy the Nationals. Such a sale would put three major Washington sports teams (the NBA, NHL, and MLB) and NBC Washington Sports under Monumental, providing a huge platform and opportunities for growth and partnerships to the Qatar Investment Fund in the nation’s capital. It remains to be seen what next move the Saudis will make on the US sports-investment front as they continue on their path to becoming a global sporting powerhouse.
One thing is certain: more competition is likely to be seen among Gulf countries known as the biggest shapers of world sports, with each vying to have the most popular US team in their portfolio. Fans will care most about their teams winning, but they will—perhaps unwittingly—be taking part in another rivalry contested half a world away.
Joze Pelayo is an associate director at the Scowcroft Middle East Security Initiative. Follow him on Twitter: @jozemrpelayo.
Further reading
Image: Aug 4, 2023; Washington, D.C., USA; Maria Sakkari (GRE) serves against Leylah Fernandez (CAN) (not pictured) on day seven of the Mubadala Citi DC Open at Fitzgerald Tennis Stadium. Mandatory Credit: Geoff Burke-USA TODAY Sports