The Legal Pitch’s latest article, co-written by Kayleigh Jenkinson, and founder Adam Smith, explores the collapse in the sale of Newcastle United earlier this year. The piece will look at the logistics of the failed deal, its reason for its collapse and touches on political influence in the takeover.
The Deal
In July this year, the collapse in sale of Newcastle United made headlines following Saudi-Arabia’s PIF (Public Investment Fund) ‘pulling out’ of the deal, despite being a part of a consortium with PCP Capital Partners and Reuben Brothers respectively.
The initial contract was agreed in April of this year, with owner Mike Ashley agreeing to sell Newcastle for £300 million, after purchasing the club for £174 million back in 2007. However, following a lengthy deliberation period by the Premier League, Crown Prince Mohammed bin Salman was forced to pull out of the takeover.
The PIF planned to invest more than £250m over the next five years into the club, alongside a significant investment in the local community - news that will do little to soften the blow felt by many Newcastle fans.
The failed deal comes years after protests against Mike Ashley from the Newcastle fans. Ashley, owner of Sports Direct, has done little to raise the spirits of the Magpies over the course of his 13-year stint. Renaming St James’ Park to the Sports Direct Arena, losing managers Rafa Benitez and Chris Houghton at key points in the clubs history and ‘drawing the money out of Newcastle’, are some of the many reasons that this failed takeover will be a sore spot for one side of the North East.
In order to understand the failure of the deal, we must look at the Saudi-owned company, PIF, and their failed legal relationship with the Premier League and World Trade Organisation (WTO).
(Photo from www.goal.com)
What is PIF?
The PIF is Saudi Arabia’s Sovereign Wealth Fund, and is among the largest sovereign wealth funds in the world, with total estimated assets of $382 billion. In short, it is a Saudi state-owned investment fund.
Over the lockdown period, whilst the rest of the world were preparing for a recession and a deficit-encroached economy, the PIF and other SWF’s were looking for investment opportunities, especially in the health and technology sectors. In May this year, the fund purchased minority shares in major U.S companies, including Boeing, Facebook, Citigroup and Disney. Its growth can also be cited in the plans for the PIF to open offices in both London and New York.
This type of investment proves that the purchase of Newcastle United would have merely been an opportunity for bin Salman to advance his economic ‘empire’, supported with varying other purchases as aforementioned. The sheer wealth supported by the PIF however, can be seen as one of the downfalls of the company, in the failed purchase of the ‘Toon Army’.
Premier League opposition/Contractual Significance
As shown, the sale of Newcastle to Saudi investors would not be easy, facing opposition from a variety of sources. The Premier League's concerns have stemmed from a variety of grievances, including Saudi’s concerning human rights records, as well as its handling of its TV piracy. Such issues would not cooperate with the image of the EPL, and could easily have affected the Premier League as a business, who arguably do not need an increase in monetary assets.
Outside of the PIF’s issues, in order to purchase an English club, potential investors will be subject to ‘The Premier League’s Owners’ and Directors’ Test’.
Such a test outlines requirements that would prohibit an individual from becoming an owner or director of a club. According to the official PL website, these include ‘criminal convictions for a wide range of offences, a ban by a sporting or professional body, or breaches of certain key football regulations, such as match-fixing’. With the PIF investing 80% of the funds for the takeover, the PL took an extensive period of time to consider this in the context of a Saudi-backed consortium.
In contractual terms, in 2017, following disquiet over the backgrounds of new club owners, the Premier League tightened its rules to bar potential owners if they had committed an act in a foreign jurisdiction that would be considered a criminal offence in the UK, even if not illegal in their home territory.
This would suggest that any offences outside of the English jurisdiction would apply in the English Legal System, upon purchase of a Premier League club, and thus, under the Owners’ and Directors’ Test, the PIF would be unable to follow through with the purchase of Newcastle if such criminal convictions were proven. This criminal activity was highlighted via UEFA and FIFA in joining the Premier League in expressing concern regarding Saudi Arabia’s support for BeautQ - a pirate service that illegally streamed football matches.
There thus remained the question as to whether the PIF had actually been convicted. The World Trade Organisation stated that the Saudi company had ‘infringed’ on international trading arrangements by supporting the illegal streaming network BeautQ, despite claims that such company was in liaison with beIN Sports. Even with no official criminal conviction, this WTO ruling proves difficult for the Premier League to approve of a deal where the prospective owners had legal proceedings filed against them.
There, however, still remains the question as to whether the Saudi takeover could have legally taken place. The Premier League seemed to initially support the takeover of Newcastle, seemingly drawing parallels to the purchase of Manchester City by Sheikh Mansour back in 2008, drawing ‘no red flags’ and supporting ‘certain approval’. Thus, the outside influence of the WTO clearly prevented the PL from allowing the takeover to contractually proceed; without any definitive criminal conviction, PIF should have been able to meet the legal standards outlined in the Owner’s and Director’s Test.
Political Opposition to PIF
Activists, such as Amnesty International, have applied pressure by describing the Newcastle takeover as an attempt to “sportswash” the country’s poor human rights record. Similar accusations have been levelled at the Abu Dhabi-backed ownership of Manchester City.
Although not a legal point of view, it is important to understand the political aspects of the failed takeover; the ramifications of an investment for MP’s in the North East would have been huge, hence a move for greater parliamentary involvement.
Pressure from Labour MPs grew, where they encouraged the government to ‘take a role’ in scrutinising the takeover of Newcastle, however by June the government had announced that they were distancing themselves from making any decisions regarding the takeover. Political tensions between MP’s can be cited through many of those who represent constituencies in the North East pushing for the deal to be approved, due to the investment that was to be made in the local area. The government ultimately stepped down from intervening in the decision,allowing the EPL to take full control of potential legal ownership. British financier Amanda Staveley, who headed the consortium, stated the decision to pull out was "awful" as there would have been investment of £250m into the club and the surrounding area.
Conclusion
We can expect to see greater interest in British sport by the Gulf States over the coming years in a bid to diversify their investment portfolios. This interest will call for greater legal expertise to deal with the plethora of issues that may occur in future deals. The collapse of the sale of Newcastle United shows how great the authority of the Premier League is. It will be interesting to see the extent of issues Sovereign Wealth Funds experience when diversifying their investments, and how/if these are overcome. It is also important to note that The Owner’s and Directors’ Test, set out by the PL needs greater clarification on legal grounds as to whether a proposed criminal conviction (e.g. WTO’s statement against PIF) should account for a criminal conviction in the English jurisdiction, in relation to a takeover bid.
This article was co-written by Kayleigh Jenkinson and Founder of The Legal Pitch, Adam Smith