Saudi Arabia Spends Nearly $8 Billion on Gaming Companies in 18 Months
Saudi Arabia has invested almost $8 billion in acquiring stakes and building gaming companies worldwide over 18 months, with the goal of becoming a major player in the entertainment industry. This investment is spearheaded by Saudi-funded Savvy Games Group, taking stakes in prestigious gaming companies such as Austria’s Embracer and U.S.-based Scopely. Riyadh uses its wealth to crash into different industries to create opportunities and increase investments. Savvy Games was founded in January 2022 and wholly owned by the Saudi Public Investment Fund (PIF) worth $650 billion, with Crown Prince Mohammed bin Salman serving as chairman. The Prince has set his sights on transforming Saudi Arabia into “the ultimate global gaming and esports industry hub” within seven years and launched Savvy Games as a driving force to this end. The business unit has received a $38 billion budget to support its ambitious plans.
Deep Dive into Saudi’s Vision
The Saudi Kingdom aims to house 250 game companies and studios, create over 39,000 jobs and have gaming contribute 1% of the Gross Domestic Product (GDP) by 2030. Saudi Arabia plans to make a foray into e-sports through its partnership with China’s VSPO. More deals are also likely to be in the works. The focus on gaming aligns with the Kingdom’s plan to diversify its economy beyond oil. This endeavor has already seen significant Saudi investments in growth industries such as electric vehicle manufacturing. Riyadh’s attempt to acquire Global Soft Power, including sports such as football and golf, has been criticized by some as a diversion from allegations of human rights abuses. Saudi Arabia is competing with gaming giants like Tencent, Microsoft, and Sony, thus driving the talent war and intellectual property. The gaming industry is a multi-billion-dollar industry with vast potentials for the future.
Saudi Arabia’s Gaming Market
Gambling is a favorite pastime in Saudi Arabia, where 70% of the population is under 35 years of age. According to Saudi gambling officials, an equal percentage of citizens identify themselves as gamblers. In Saudi Arabia, Prince Mohammed is an active player, adding to the popularity of gaming in the Kingdom. VSPO has welcomed the prospect of expanding its market in Saudi Arabia, which boasts a vibrant gaming community. Scopely, Nintendo, and Activision Blizzard are also in partnership with the PIF, with the Kingdom offering a sizable investment stake in the gaming industry worth over $200 billion. PwC predicts that video game revenue will surpass $300 billion and constitute more than 10% of total entertainment and media spending by 2026.
Industry Reaction
Some industry players have criticized Saudi’s high acquisitions, and there have been doubts about their readiness to embrace the gaming industry. According to one investor, Saudi Arabia is motivated by a “bend the national strategy. . . and the desire to diversify the economy away from oil and gas,” and this is the principal focus on game acquisitions. While Riyadh’s ambitions are impressive, they may face challenges such as ethical concerns when trying to acquire gaming companies worldwide. According to an industry veteran, the Saudis are willing to pay more than the market price, which could be a deterrent to many developers. Saudi Arabia’s billions have swooped into the perfect time of gaming’s decline as the industry structure is slowing into single digits, and marketing costs have risen.
Summary
Saudi Arabia invests almost $8 billion in gaming companies worldwide, becoming a dominant force in the entertainment industry. Savvy Games was launched in January 2022, wholly owned by the Saudi Public Investment Fund (PIF) worth $650 billion and chaired by Crown Prince Mohammed bin Salman. The Kingdom aims to become the ultimate global hub for the gaming and esports industry within seven years by obtaining a $38 billion war chest. Saudi Arabia’s $650 billion Fund for public investment created Savvy Games to become an instrumental force in fulfilling its ambitious aims through investments worldwide. The Kingdom plans to have 250 game companies and studios, create over 39000 jobs, and generate 1% of the GDP by 2030 in the gaming industry. The rise of gaming in Saudi is due to it being the favourite pastime among the country’s youth, and the strategic focus on building the economy beyond oil. Nevertheless, Saudi Arabia’s extravagant acquisitions have raised doubts about its readiness to embrace gaming as the future for entertainment.
Additional Piece
Saudi’s Gaming Expansion: Opportunities and Challenges
Saudi Arabia has invested heavily in gaming to boost its entertainment industry and diversify its economy beyond oil and gas. The nation’s diversification strategy is a significant drive to identify and expand potential domestic and international investment opportunities across different industries such as gaming and renewable energy. However, in creating a gaming hub, the Kingdom faces challenges and opportunities.
Diversification Strategy
Saudi Arabia is the world’s largest producer of oil, with its oil industry accounting for 87% of the national revenue 40 years ago. In the wake of falling oil prices, Saudi Arabia seeks a sustainable alternative to maximize economic growth. A significant aspect of this is the Kingdom’s diversification plan for its economy, where it identifies new sectors for investment and allocates financial resources towards said sectors. This expansion involves a particular focus on gaming and its potential revenues.
Opportunities in the Gaming Industry
Saudi Arabia’s investment into gaming presents potential opportunities for game developers and investors. The Kingdom plans to initiate a foray into e-sports and aims to become dominant in the global gaming industry within seven years. Gaming experts suggest that by investing in gaming businesses, Saudi Arabia is positioning itself to capture opportunities in the current generation’s interests while exploring e-sports as a growth industry. The investment will also seek benefits from the gaming industry’s expansion to virtual and augmented reality as a part of the future of gaming.
Challenges in the gaming industry
Saudi Arabia’s dive into the gaming industry raises questions about its readiness to engage the industry fully. Ethical concerns remain a crucial challenge. Saudi Arabia is widely criticized for human rights violations, which could make it difficult to acquire gaming companies worldwide. There are also concerns about rising costs and fierce competition from established gaming giants such as Tencent, Microsoft, and Sony. The gaming industry is an expensive enterprise, and the costs of entry into the market are rising. Industry experts suggest that building a well-performing team, marketing, and production expenses could pose significant challenges to entering the market.
Conclusion
Saudi Arabia’s investment into gaming is a significant drive towards diversifying its economy beyond oil and gas. The expansion strategy aims to grow the industry while becoming a dominant force in the global gaming market. This presents opportunities for game developers and investors while offering potential revenues for Saudi Arabia. Nevertheless, Saudi Arabia’s acquisition strategy, ethical concerns, rising competition from big industry players, and rising costs make engaging the gaming industry a tricky task.
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Saudi Arabia has spent nearly $8 billion acquiring and building stakes in gaming companies around the world over the past 18 months as part of a mad investment rush aimed at becoming a dominant force in the entertainment industry growing.
Saudi-backed Savvy Games Group spearheaded the deals, including a significant stake in China’s VSPO, Swedish group Embracer and acquisition of US-based Scopely, while Riyadh uses its petrodollar wealth to make inroads into a wide range of industries.
Launched in January 2022, Savvy is wholly owned by Saudi Arabia’s $650 billion Fund for public investment and chaired by Crown Prince Mohammed bin Salman, who said his goal was to transform the kingdom into “the ultimate global hub for the gaming and esports industry” in just seven years.
To back up his typically ambitious plans, Savvy received a $38 billion war chest.
“It’s a bulldozer approach,” said Piers Harding-Rolls, a game analyst at Ampere Analysis, a research firm. “The industry in Saudi Arabia it is nascent: they have to literally build it from scratch”.
The kingdom aims to become home to 250 game companies and studios and create 39,000 jobs with the industry contributing 1% of gross domestic product by 2030. Plans include a foray into e-sports through the partnership with VSPO.
Officials familiar with the kingdom’s plans say more deals are in the works. They say the focus on the game is part of an overhaul of the country’s economy to diversify beyond oil, leading Saudi Arabia to invest in a diverse set of growth industries such as electric vehicle manufacturing.
The effort comes alongside attempts to acquire global soft power that have seen the kingdom spend heavily on sports such as football and golf, which critics say are an attempt to divert attention from the country’s human rights record.
The strategy game has created ripples in the industry as Riyadh competes with giants such as Tencent, Microsoft and Sony for the best talent and intellectual property.
“Saudi Arabia is making its mark on the gaming industry and the growth of the global gaming industry as a whole,” said Vincent Wang, general manager of global publishing and global esports at Tencent Games.
Gambling is popular in Saudi Arabia, where 70% of its 36-million-year-old population is under the age of 35. A similar percentage of citizens identify as gamblers, according to Saudi gambling officials. Prince Mohammed is an avowed player.
“It’s an extremely exciting market and partner for us,” said Danny Tang, VSPO’s chief financial officer and head of global strategy. “Saudi Arabia is a very young nation with a very engaged gaming community.”
Separately from Savvy’s deal, the PIF bought an 8% stake in Nintendo, making it the Japanese company’s largest outside investor, as well as stakes in Activision Blizzard and Ubisoft.
Officials say the kingdom wants to leverage its financial clout to build a sizable stake in the gaming industry, which, according to industry tracker NewZoo, is worth $200 billion. A relationship PwC last year predicted that global video game revenue could exceed $300 billion and account for more than a tenth of total entertainment and media spending by 2026.
A generational shift in consumer habits means some analysts predict that games will overtake traditional television to become the largest source of entertainment revenue in the coming years.
“The region is populated by demographics that are favorable to us,” said Brian Ward, chief executive officer of Savvy. “When you bend the national strategy. . . and the desire to diversify the economy away from oil and gas, it is a natural prerequisite to make a lot of investments in Saudi Arabia towards gaming.”
Regional and national governments around the world have long used tax breaks, seed funding and other incentives to attract talent to the industry, which offers policymakers an attractive mix of technical innovation and creativity.
But industry executives say money alone may not be enough to win over any developer Savvy might target.
To some in the industry, the $5 billion Scopely transaction simply indicated that Savvy would have to overpay to win deals. “The price they got, nobody could believe it,” said an industry veteran, adding that Scopely had been looking for an exit acquisition or to do an initial public offering “for some time.”
“They’re quite explicit about it: there’s a premium to everything associated with them,” this person said, adding that the Saudis were willing to pay more than the market price. “No one is going to move to Riyadh or Jeddah for the nightlife.”
Saudi Arabia has been unable to shrug off its reputation for human rights abuses despite Prince Mohammed’s social reforms. Even as it has made changes such as allowing women to drive and organizing mixed-gender concerts, the 2018 murder of Saudi commentator Jamal Khashoggi by state agents prompted many companies to refuse to do business in Riyadh. The CIA claimed that Prince Mohammed had ordered the “capture or kill” operation. He denied responsibility.
Businesses have since returned to Riyadh, attracted by the tens of billions of dollars the PIF is spending at home and abroad.
But the government remains under attack from rights groups for rounding up critics, even as it goes further into the acquisition of entertainment assets. The PIF has been investing in sport in particular, spending £305m to buy English Premier League football club Newcastle United and, last week, pledging around $3bn to seal a merger between Saudi-backed LIV Golf and the US-based PGA Tour. .
“I don’t think they’re an ambitious buyer for most game studios,” said one investor. “I’m not sure how much creative environment they will create for the companies they buy.”
The kingdom’s billions may have arrived at a crucial moment. Growth in the gaming industry is slowing into single digits as it can no longer build on the success of the smartphone, which now accounts for half of industry revenues, and marketing costs have risen.
Private game studios may prefer to sell to Savvy rather than take a tortuous path to an initial public offering, though reservations remain about doing business with the Saudi regime on ethical grounds.
“Public markets are closed and investors are getting tired,” says one investor. “I’m sure there will be more Scopelys.”
https://www.ft.com/content/f172f599-d5ef-430c-b036-e3932d04e888
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