Middle Eastern investment: Clubs skyrocket or dive
When the going is good, it’s really good. Just witness Manchester City’s rise from the doldrums to win the Premier League on the back of Middle Eastern oil dollars and Paris Saint Germain’s steady march towards glory in France.
However, when it’s bad, it’s really bad. The struggles of Portsmouth, Malaga and Servette, all battling the aftermath of Middle Eastern investment that has gone wrong are testament to that.
Portsmouth, financially bankrupt and relegated from the Premier League to the third tier after two acquisitions by Arab owners with little real interest in the club, are facing the question as to whether they wish to give Middle East investors a third chance.
Administrators, PKF (UK) LLP, announced this week that a group of unidentified Middle Eastern investors had become the third bidder for the debt-laden club.
They are in competition with the Portsmouth Supporters Trust and former club owner Balram Chainrai's (pictured) Portpin. PKF said bidders had until Friday to submit their final offers.
"We have received an initial offer from a Middle East-based group and are currently awaiting clarification of financial issues," said a PKF spokesman to the Reuters news agency.
Dubai-based magazine Arabian Business claim the investors had put $20.4m into an escrow account held by Dubai Bank on 30 August.
Portsmouth are wise to be wary. The FA Cup winners in 2008 were relegated from the Premier League just two years later, after being slapped with a 10 point penalty for going into voluntary administration.
The difference between a Middle Eastern investment that pays off and one that can deepen problems appears to be whether the investor is a member of a Gulf Royal Family, with strategic interest in the acquisition or is a whimsical, opportunistic businessman operating on his own.
Sheikh Mansour bin Zayed bin Sultan Al Nahyan, a member of the Abu Dhabi Royal Families, who sits on the board of several of the kingdom's key economic entities, quickly emerged as the real buyer of Manchester City after the acquisition was initially fronted by UAE billionaire businessman Sulaiman al-Fahim.
Similarly, PSG were purchased by the Qatar Investment Authority, the Gulf state’s premier sovereign wealth fund.
Key players in the infrastructure of world sport
These soccer investments by Qatar and the UAE serve to increase their international prestige, enabling them to punch internationally above their weight and build sport as an economic sector, enhancing tourism and providing leverage for further business opportunities.
Qatar, who will host the FIFA World Cup in 2022, has identified sports as a key pillar in the national identity it is trying to forge.
The strategy is long-term and is reflected in the approach of these Gulf states towards their sporting investments.
By contrast, Sheikh Sulaiman al-Fahim, upset by having been pushed aside by the Abu Dhabi Royals, moved swiftly in April 2009 to take control of Portsmouth after beating a rival bid by the club’s CEO Peter Storrie, who was backed by Saudi property tycoon Ali Al-Faraj.
Barely five months later, however, Sheikh Suleiman sold 90 per cent of his stake to Mr. Al-Faraj, whose equally brief reign effectively put the company on the road to humiliation and administration.
Like Portsmouth, Malaga is experiencing the travails of a businessman who has taken on more than he wanted or is able to bite, even if they are in better shape than the English club.
In 2010, they were on a high, signing several new players after being acquired by Sheikh Abdullah Al-Thani, a rogue member of the Qatari Royal Family.
The investments helped Malaga qualify for this season's Champions League, the first time the club has managed this in their history.
The writing was nonetheless on the wall as, soon after qualification, players were initially not paid and the club has since been forced to sell-off its most prised assets; notably, Santi Cazorla to Arsenal.
With a debt of 90m euros, Malaga might be in the group stages of the Champions League but face long struggles ahead of them.
Geneva’s Swiss Super League club Servette FC and Austria’s Admira Wacker haven’t fared much better.
Servette is on the brink of collapse after Iranian businessman Majid Pishyar acquired the club in 2008.
They filed for bankruptcy earlier this year.
Pishyar, who managed the club on a shoestring, tried unsuccessfully, to attract government funding by appointing Robert Hensler, a former top civil servant for the canton of Geneva, as vice-president.
His earlier efforts to salvage Admira, his first European acquisition, failed too.
Servette’s problems come on the heels of the bankruptcy in January of Neuchatel’s Super League team Xamax whose Chechen owner was arrested on charges of fraud and financial mismanagement.
The lesson is obvious: Middle Eastern investors can be an enormous asset but make sure they have a long-term strategic view rather than one that is driven by individual vanity or personal satisfaction.
By James M. Dorsey
James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore and the author of the blog, The Turbulent World of Middle East Soccer.