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Tuesday, September 11, 2012

Middle Eastern soccer investment: clubs skyrocket or dive




By James M. Dorsey

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 (PSG) steady march towards regained glory. But when it’s bad, it’s really bad as is evident from the struggles of Portsmouth FC, Malaga SC and Servette FC trying to cope with the aftermath of a Middle Eastern investment gone wrong.
Portsmouth, financially bankrupt and relegated from the premier to the third league after two acquisitions by Arab owners with little real interest in the club, is facing the question whether it wishes to give Middle East investors a third chance.

The club’s administrators, PKF (UK) LLP, announced this week that a group of unidentified Middle Eastern investors had become the third bidder for debt-laden Portsmouth in competition with the Portsmouth Supporters Trust and former club owner Balram Chainrai's 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," Reuters news agency quoted a PKF spokesman as saying.

Dubai-based magazine Arabian Business said the investors had put $20.4 million on August 30 into an escrow account held by Dubai Bank.

A winner of the English Football Association Cup in 2008, Portsmouth was relegated in 2010 after it was slapped with a ten-point penalty for going into administration.

The difference between a Middle Eastern investment that pays off the club and one that can deepen its problems appears to be whether the investor is institutional or a member of a Gulf royal family with a strategic interest in the acquisition or a whimsical, opportunistic businessman operating on his own irrespective of the fact whether he is also a member of a royal family.

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 emirate’s key economic entities, quickly emerged as the real buyer of Manchester city after the acquisition was initially fronted by United Arab Emirates billionaire businessman Sulaiman al-Fahim, whose subsequent acquisition of Portsmouth sent the struggling club off the deep end. Similarly, PSG was purchased by the Qatar Sport Investment, the Gulf state’s premier sport investment vehicle.

These soccer investments by Qatar and the UAE serve to increase the small Gulf’s states international prestige, enable them to punch internationally above their weight, build sports as an economic sector that enhances tourism and makes them key nodes in the world’s sports infrastructure and provides leverage for further business opportunities. Qatar moreover has identified sports as a key pillar of a national identity it is trying to forge. The strategy is long-term and is reflected in the two states’ approach towards their sport investments.

By contrast, Mr. 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, Mr. Al-Fahim sold 90 per cent of his stake to Mr. Al-Faraj whose equally brief reign effectively put the company definitively on the road to humiliation and administration.

Like Portsmouth, Malaga is experiencing the travails of a businessman who has taken on more than he has wanted or is able to bite even if it is in better shape than the English club. Malaga went through a high acquiring numerous players after it was acquired in 2010 by Sheikh Abdullah Al-Thani, a member of the Qatari royal family. The acquisitions helped the club qualify for the Champions League for the first time in their history.

The writing was nonetheless on the wall when soon after its qualification when players initially were not paid and the club was forced to start selling some of its most valuable assets. With a debt of 90 million euros, Malaga too could be relegated and may have to forfeit competing in the Champions League.
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 who acquired it in 2008. It filed for bankruptcy earlier this year. Mr. Pishyar, who managed the club on a shoe string, tried unsuccessfully to attract government funding by last year 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.

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.

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