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Saudi Sports Teams – What’s the Economic Case?

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Written By
Dan Buckley
Contributor Image
Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.
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Updated
Oct 2, 2023

The economic case for Saudi Arabia’s investment in sports teams and stars can be analyzed from various angles.

Saudi Arabia’s investment in sports teams has drawn widespread skepticism because sports teams usually aren’t the most profitable investments – even among famous teams in countries with a long history and media coverage of the sport.

However, the benefit of sports teams at a country level can be very different than their value for an individual ownership group.

And even for an individual owner, the benefits of a sports team are often in the so-called “synergies,” where the team can be used as a leverage point for other strategic goals.

Below are some of the key points that outline the economic rationale behind this strategy:

 

Key Takeaways – The Economic Case for Saudi Sports Teams

  • Diversification of the Economy
  • Job Creation
  • Boosting Consumer Spending
  • Enhancing Global Image and Tourism
  • Infrastructure Development
  • Increased Tax Revenue
  • Leveraging Financial Reserves
  • Cultural Transformation
  • Youth Engagement and Empowerment
  • Health and Wellness
  • Innovation and Technology Development
  • Women’s Empowerment
  • Soft Power Enhancement
  • Urban Development

 

Let’s look in more detail.

Diversification of the Economy

Saudi Arabia has been working to diversify its economy away from oil, as part of its long-run initiatives.

Investing in sports teams and stars can help in building a robust sports and entertainment industry, contributing to economic diversification.

Job Creation

A thriving sports industry can create numerous jobs, both directly within the industry and indirectly in supporting sectors.

This can lead to a reduction in unemployment rates and increased household incomes.

Most Saudi Arabians are still employed in the public sector, so this can reduce dependence on the state for job creation.

Boosting Consumer Spending

Successful sports teams and events can attract significant consumer spending.

This can stimulate the economy by increasing sales in various market segments, including hospitality, retail, and tourism.

In other words, there can be many second-order benefits.

Enhancing Global Image and Tourism

High-profile sports investments can enhance Saudi Arabia’s global image and attract tourists.

The popular term is “sportswashing.”

Increased tourism leads to additional spending and investment in the country, further boosting the economy.

Infrastructure Development

Investments in sports often necessitate the development of related infrastructure.

This can lead to improvements in transportation, hospitality, and other sectors, fostering overall economic development.

Increased Tax Revenue

The growth of the sports industry and related sectors can increase tax revenues.

This additional revenue can be used to fund public services and infrastructure projects.

Leveraging Financial Reserves

Saudi Arabia has substantial financial reserves, primarily from its oil wealth.

The spending on sports stars and teams, while notable, is a small fraction relative to these reserves, representing a strategic investment without significant financial risk.

But it doesn’t necessarily just stop there…

Investing in sports can have a multitude of multi-order effects that go beyond the immediate economic impact.

Here are some of the potential (i.e., they might be more aspirational and/or longer-term) multi-order effects of sports investment in a country (that aren’t just limited to Saudi Arabia):

Cultural Transformation

The influx of international sports stars and events can contribute to a cultural transformation, fostering a more open and inclusive society.

This can lead to enhanced international relations and a more diversified, tolerant societal structure, which can indirectly contribute to social stability and innovation.

Youth Engagement and Empowerment

Investments in sports can inspire and engage the youth, providing them with opportunities and role models.

This can lead to a reduction in youth unrest, increased youth participation in productive activities, and the development of a more skilled and motivated workforce.

Health and Wellness

A thriving sports culture can encourage more widespread participation in physical activities among the population.

This can lead to improved public health, reduced healthcare costs, and increased productivity and longevity.

Innovation and Technology Development

The sports industry often drives innovation in various fields, including sports science, medicine, and technology.

This can position Saudi Arabia/a country as a hub for innovation and technology development, attracting talent and investment in these sectors.

Women’s Empowerment

Yes, Saudi Arabia doesn’t have the best track record, but as a general idea, investment in sports can also include a focus on women’s sports, contributing to women’s empowerment and gender equality.

This can lead to broader societal benefits, including increased educational and economic opportunities for women.

For example, in many countries, women (and, of course, men as well) are able to get scholarships based on their sports talent, which pays fully or partially for their education and helps their future careers.

Soft Power Enhancement

Successful sports teams and events can enhance a country’s global image and so-called soft power.

This can lead to increased diplomatic leverage, attracting foreign investment and better international collaborations.

Urban Development

Infrastructure development related to sports can contribute to comprehensive urban development.

This can lead to improved quality of life, attracting talent and investment, and helping sustainable urban growth.

Conclusion

Saudi Arabia’s investment in sports teams and stars is a strategic move aimed at economic diversification, job creation, boosting consumer spending, enhancing the global image and tourism, infrastructure development, and increasing tax revenue.

The spending on this sector is a calculated investment that leverages the country’s substantial financial reserves for long-term economic growth and diversification.

Even if the bet on domestic sports isn’t very successful, it’s not a huge bet all things considered.

So even if Saudi Arabia’s sports scene never takes off and is worse than anyone expected it’s not a big loss.