Soccer superstar Cristiano Ronaldo’s move to Saudi club Al-Nassr and the kingdom’s growing investment in the sport could have ripple effects across Europe and the US, pundits have told CNBC.

Ronaldo’s two-and-a-half-year contract, reportedly worth up to 200 million euros ($212 million) a year including commercial deals, will make the 37-year-old the highest-paid footballer in history, and the highest-paid athlete in the world.

For context, Ronaldo’s individual annual earnings will exceed total staff wage costs for around half of the English Premier League’s clubs. The former Real Madrid, Manchester United and Juventus star claimed earlier this week that the “unique contract” suited his status as a “unique player”.

Ronaldo’s contract with Manchester United was terminated in November after he criticized the club and its manager, Erik ten Hag, in an explosive interview.

The Portuguese striker’s move comes as Saudi Arabia reportedly prepares a possible joint bid to host the 2030 World Cup, following the Saudi Public Investment Fund’s buyout of historic Premier League club Newcastle United in late 2021.

The Financial Times reported in October that the Saudi PIF had committed more than $2 billion in sponsorship deals in the first eight months of 2022, most of which focused on domestic football leagues.

Author and football finance expert Kieran Maguire told CNBC on Thursday that Al-Nassr’s signing of Ronaldo was not an attempt to rival the major European leagues, but was a “marketing exercise” that will allow the kingdom to diversify its commercial appeal beyond natural resources, given the size of the player’s individual profile.

“If you look at the social media following someone of Cristiano Ronaldo status, it’s much bigger than that of an individual football club,” said Maguire.

“Saudi Arabia has a young population, so it will attract that generation. There are economic benefits, there are political and social benefits, and the financial costs are completely irrelevant.”

Manchester United and Liverpool in Saudi sights?

The takeover of Newcastle United by the Saudi PIF has drawn criticism across the footballing world – viewed as an attempt to whitewash the country’s reputation against the backdrop of a poor human rights record.

A group called NUFC Fans Against Sportswashing emerged in protest against the takeover, but after watching their club endure a prolonged period of mediocrity, many Newcastle fans cheered the investment in hopes of becoming a competitive force in England and beyond.

Just 15 months after the deal was completed, the club is third in the Premier League, sandwiched between the perennial giants Manchester City and Manchester United.

Saudi officials have consistently denied allegations of sports laundering in their various sporting activities, and the Newcastle takeover consortium led by British businesswoman Amanda Staveley insists the PIF is independent of the Saudi government.

However, PIF forms the basis of the Saudi economic project and the Vision 2030 program. Statements in which King Salman bin Abdulaziz and Crown Prince Mohammed bin Salman praise the progress of the PIF appear in the annual accounts.

The PIF owns 80% of the club, with the remaining 20% ​​split between Staveley’s PCP Capital Partners and RB Sports & Media. The PIF has been contacted for comment.

Ownership controversies have also surrounded Premier League champions Manchester City (owned by the Abu Dhabi United Group) and French champions Paris Saint-Germain (owned by Qatar Sports Investments).

After observing other state-sponsored takeovers over the past decade, along with the success of Qatar’s contentious FIFA World Cup in December, Maguire suggested Saudi Arabia could expand its football portfolio in two ways.

“PIF could take a similar path to the UAE by having the City Football Group and going for a multi-club ownership model where you basically have a mother ship and have a lot of satellites,” he suggested.

Aside from its flagship club Manchester City, ADUG’s City Football Group now owns nine other clubs across four continents with consistent branding and resource availability.

“From a financial point of view, that actually turns out to be quite successful because you can have continuity in terms of culture and philosophy at clubs, you can transfer players to help them develop, and then you can start selling them at higher prices.” prices, so it’s proven to be a pretty smart model these days,” Maguire added.

Alternatively, given the number of wealthy individuals in Saudi Arabia likely to be interested in building on the Newcastle United takeover, he suggested other high-profile clubs could be in Riyadh’s sights.

Both Liverpool and Manchester United, arguably the two biggest clubs in England in terms of global profile, have publicly stated they are open to investment and possibly even a full sale.

“[The Saudis] I’ve seen the positive reaction from Newcastle fans – there are two clubs that publicly want some form of investment in Liverpool and Manchester United and no disrespect to Newcastle United, they are much bigger fish,” he said.

“Sports investment is attractive. You don’t necessarily get a substantial return on investment given the high prices they are likely to pay for a club of that size, but the non-financial return on investment as we’ve seen in both the Etihad (home of Manchester City) as PSG is positive.”

Individual star-signing model could threaten MLS

Credit rating agency DBRS Morningstar suggested that Ronaldo’s move to the Saudi Pro League and the country’s apparent intentions could jeopardize the credit risk profiles of European and North American clubs.

“In Europe, as players’ costs at football clubs are linked to their revenues, increasing individual salaries, driven by foreign demand, can reduce the quality of the team over time. This could have long-term implications for the on-field results, brand values ​​and viewership for teams unable to grow revenue and reinvest in their squads,” said DBRS Morningstar Senior Vice President for Sports Finance Michael Goldberg.

Saudi investment has disrupted professional golf in the form of LIV Golf, a breakaway league from the traditional PGA Tour that used Riyadh’s deep pockets to attract some of the game’s biggest names.

However, Goldberg suggested that luring a handful of superstars into a team sport competition in the twilight of their careers would not be enough for Saudi Arabia to attract a critical mass of fans, as the quality of the game was still significantly lower. would be lower than in top sport. European competitions.

The Saudi model poses a greater threat to the US, he noted, as Major League Soccer (MLS) has a long-running strategy of attracting aging star players to build interest and viewership. To this end, each club may sign three players whose compensation package is excluded from the team’s salary cap.

For example, Italian winger Lorenzo Insigne left Serie A team Napoli to join Toronto FC in 2022, becoming the highest paid player in MLS history with a reported annual salary of $12.4 million. This pales in comparison to the mammoth contract signed by Ronaldo.

“The SPL could well outnumber MLS clubs and could threaten an important aspect of the MLS business model. While the overall quality of play in the MLS has increased rapidly through investment in player development, coaching and designated players, the quality gap between them and the SPL is much narrower than that of the SPL relative to the European leagues,” said Goldberg.

As such, DBRS Morningstar believes the SPL’s financial strength and willingness to target star players from European leagues, who would otherwise consider the MLS, could negatively impact the credit profiles of North American clubs.

Goldberg expects Saudi investments to pose greater immediate risk to individual sports such as golf, tennis, mixed martial arts (MMA) and racing.

European wage inflation

European clubs have continuously increased transfer fees and player salaries over the past decades to attract and retain top talent and remain competitive.

Goldberg suggested that Saudi investment in individual players could increase players’ salaries, but European football body UEFA recently introduced rules stipulating that no club should spend more than 90% of its annual income on wages, transfers and agency fees by 2023. further reduce it to 70% by 2025.

“If revenues do not continue to grow, wage costs for European clubs will be capped. In this scenario, higher individual player salaries over time could lead to reduced squad quality and a competitive disadvantage against teams outside Europe,” said Goldberg.

“Any negative impact on on-pitch results, brand values ​​and viewership would also affect the credit profiles of European football clubs, and those clubs unable to generate revenue and reinvest in their squads would be most exposed.”