Saudi Arabia has spent nearly US$8 billion (R$38.5 billion) on acquisitions and increased stakes in gaming companies around the world over the last 18 months, as part of a turbocharged investment spree aimed at becoming a dominant force in the booming entertainment industry.
Saudi Arabia-backed Savvy Games Group led deals, including a significant stake in China’s VSPO, Sweden’s Embracer Group and the US acquisition of Scopely, as Riyadh uses its petrodollar wealth to carve out space in a wide range of sectors.
Launched in January 2022, Savvy is wholly owned by Saudi Arabia’s $650 billion Public Investment Fund (FIP) and chaired by Crown Prince Mohammed bin Salman, who said that his goal is to transform the kingdom into the “ultimate global hub of the gaming and esports industry” in just seven years.
To support its characteristically ambitious plans, Savvy has received a $38 billion (R$183.2 billion) fund.
“It’s a bulldozer approach,” said Piers Harding-Rolls, a games analyst at research firm Ampere Analysis. “The industry in Saudi Arabia is nascent: they literally have to build it from scratch.”
The kingdom aims to become home to 250 companies and game studios and create 39,000 jobs, with the industry contributing 1% of the gross domestic product by 2030. Plans include a foray into esports through the partnership with VSPO.
Officials familiar with the kingdom’s plans say more deals are in the pipeline. According to them, the focus on games is part of an overhaul of the country’s economy to diversify beyond oil, prompting Saudi Arabia to invest in a diverse range of growing industries, such as electric vehicles.
The effort fits in with attempts to acquire global soft power, with the kingdom spending heavily on sports such as soccer and golf, which critics say is an attempt to distract attention from the country’s human rights record.
The gaming strategy has sparked a stir in the industry as Riyadh competes with giants such as Tencent, Microsoft and Sony for top 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, Global General Manager Publishing and Esports at Tencent Games.
Gaming is popular in Saudi Arabia, where 70% of its population of 36 million are under 35. A similar percentage of its citizens identify as gamers, according to Saudi industry officials. Prince Mohammed is an avowed “gamer”.
“It’s an extremely exciting market and partner for us,” said Danny Tang, VSPO’s CFO and Head of Global Strategy. “Saudi Arabia is a very young country with a highly engaged gaming community.”
In addition to the Savvy deal, FIP 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 sector, which NewZoo says is worth $200 billion. A PwC report last year predicted that global video game revenue could exceed $300 billion and represent more than 10% of total entertainment and media spending by 2026.
A generational shift in consumer habits leads some analysts to predict that games will overtake traditional television and become the biggest source of entertainment revenue in the coming years.
“The region has favorable demographics,” said Brian Ward, CEO of Savvy. “When you include the national strategy […] and the desire to diversify the economy away from oil and gas, it is a natural assumption to make investments in games in Saudi Arabia.”
Regional and national governments around the world have long used tax breaks, start-up funding and other incentives to attract talent to the sector, which presents policymakers with an attractive combination of technical innovation and creativity.
However, industry executives say that cash alone may not be enough to win over any developer Savvy is targeting.
For some, the transaction of US$ 5 billion (R$ 24.1 billion) from Scopely only indicated that Savvy would have to pay more to close deals. “Nobody could believe the price they got,” said one industry veteran, adding that Scopely had been “for some time” looking for an outright acquisition or initial public offering.
“They are quite explicit about this: there is a premium for everything associated with them,” this source said, adding that the Saudis were willing to pay above market price. “Nobody is going to move to Riyadh or Jeddah to enjoy the nightlife.”
Saudi Arabia has failed to shake its reputation for human rights abuses, despite Prince Mohammed’s social reforms.
Even after he made changes, such as allowing women to drive cars and attend co-ed concerts, the 2018 murder of Saudi commentator Jamal Khashoggi by state agents prompted many companies to refuse to do business in Riyadh. The US Central Intelligence Agency said Prince Mohammed had ordered the “capture or kill” operation. He denied responsibility.
Businesses have since returned to Riyadh, drawn by the tens of billions of dollars the FIP is spending at home and abroad.
But the government remains under attack from human rights groups for cracking down on critics even as it tries to acquire entertainment assets. The FIP has invested in sports in particular, such as spending £305m (R$1.8bn) to buy Premier League football team Newcastle United, and last week committing around US$3bn (R$14bn) 4 billion) to seal a merger between Saudi Arabia-backed LIV Golf and US-based PGA Tour.
“I don’t think they are an ideal buyer for most game studios,” said one investor. “I’m not sure how much creative environment they’re going to create for the companies that buy.”
The kingdom’s billions may have come to the games at a crucial time. The industry’s growth is slowing to single digits as it can no longer piggyback on the popularity of people playing games on smartphones, which now account for half of the industry’s revenues, and marketing costs have soared.
Private game studios may prefer to sell to Savvy rather than take a complicated path to an IPO, even as reservations about doing business with the Saudi regime on ethical grounds persist.
“Public markets are closed and investors are getting tired,” said one investor. “I’m sure there will be other Scopelys.”
Translated by Luiz Roberto M. Gonçalves
