13 June 2023

Saudi Arabia has spent almost $8bn acquiring and building stakes in gaming companies across the globe in the past 18 months as part of a turbocharged investment spree with the aim of becoming a dominant force in the growing entertainment industry. Saudi-backed Savvy Games Group has led the deals, including a significant stake in China’s VSPO, Sweden’s Embracer Group, and the acquisition of US-based Scopely, as Riyadh deploys its petrodollar wealth to muscle its way into a diverse range of sectors. Launched in January 2022, Savvy is wholly owned by Saudi Arabia’s $650bn Public Investment Fund and chaired by Crown Prince Mohammed bin Salman, who said his aim was to transform the kingdom into “the ultimate global hub for the games and e-sports sector” in just seven years. To back his characteristically ambitious plans, Savvy has been given a $38bn war chest. “It’s a bulldozer approach,” said Piers Harding-Rolls, games analyst at Ampere Analysis, a research company. “The industry in Saudi Arabia is nascent: they have to build it literally from the ground up.” The kingdom aims to become home to 250 gaming companies and studios and create 39,000 jobs with the industry contributing 1 per cent to gross domestic product by 2030. The 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 pipeline. They say the focus on gaming is part of an overhaul of the country’s economy to diversify beyond oil, leading Saudi Arabia to invest in a diverse set of growing industries such as electric vehicle production. The effort fits alongside attempts to acquire global soft power with the kingdom spending heavily in sports such as football and golf, which critics say are an attempt to distract attention from the country’s human rights record. The gaming strategy has created ripples in the industry as Riyadh vies 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, general manager of global publishing and global e-sports at Tencent Games. Gaming is popular in Saudi Arabia, where 70 per cent of its population of 36mn is under the age of 35. A similar percentage of its citizens identify as gamers, according to Saudi gaming officials. Prince Mohammed is an avowed gamer. “It is 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 highly engaged gaming community.” Separately to Savvy’s dealmaking, the PIF has bought an 8 per cent holding in Nintendo, making it the Japanese company’s largest outside investor, as well as holdings in Activision Blizzard and Ubisoft. Officials say the kingdom wants to leverage its financial clout to build a sizeable stake in the gaming sector, which, according to industry tracker NewZoo, is worth $200bn. A PwC report last year predicted global video games revenue could surpass $300bn and account for more than a tenth of total entertainment and media spending by 2026. A generational shift in consumption habits means some analysts predict gaming will overtake traditional television to become the largest source of entertainment revenue in the coming years. “The region is populated with demographics that are favourable to us,” said Brian Ward, chief executive of Savvy. “When you fold in the national strategy . . . and the desire to diversify the economy away from oil and gas, it’s a natural assumption to be making a lot of investments in Saudi Arabia towards games.” Regional and national governments around the world have long used tax breaks, start-up financing and other incentives to attract talent to the sector, which offers policymakers a compelling mix of technical innovation and creativity. But industry executives say cash alone may not be enough to win over any developer that Savvy might target. To some in the sector, the $5bn Scopely transaction merely indicated that Savvy would have to overpay to win deals. “The price they got, nobody could believe it,” said one industry veteran, adding that Scopely had been looking for an exit acquisition or to do an initial public offering “for some time”. “They are pretty explicit about it: there is a premium for everything associated with them,” this person said, adding that the Saudis were willing to pay above the market price. “Nobody is going to move to Riyadh or Jeddah for the nightlife.” Saudi Arabia has been unable to shake its reputation for human rights abuses despite Prince Mohammed’s social reforms. Even as he made changes such as allowing women to drive and mixed-gender concerts to be staged, the 2018 murder of Saudi commentator Jamal Khashoggi by state agents prompted many companies to balk at doing business in Riyadh. The CIA said Prince Mohammed had ordered the “capture or kill” operation. He denied responsibility. Businesses have since returned to Riyadh, lured by the tens of billions of dollars the PIF is spending at home and abroad.

But the government remains under attack by rights groups for rounding up critics, even as it pushes further into acquiring entertainment assets. The PIF has invested in sports in particular, such as spending £305mn to buy Premier League football club Newcastle United and, last week, committing an estimated $3bn to seal a merger between Saudi-backed LIV Golf and the US-based PGA Tour. “I don’t think they are an aspirational buyer for most games studios,” said one investor. “I’m not sure how much of a creative environment they are going to create for the companies they buy.” The kingdom’s billions may have arrived at a pivotal moment in gaming. Growth in the games industry is slowing to single digits as it can no longer piggyback on the success of the popularity of people playing on smartphones, which now account for half of industry revenues, and marketing costs have climbed. Private games studios may prefer to sell to Savvy than take a tortuous path to an initial public offering, even as reservations linger about doing business with the Saudi regime on ethical grounds. “The public markets are closed and investors are getting tired,” said one investor. “I’m sure there will be other Scopelys.”