Saudi Arabia has spent nearly $8 billion in the past 18 months acquiring and building stakes in gaming companies around the world as part of a massive wave of investment aimed at becoming a dominant force in the growing entertainment industry.
Saudi Arabia-backed Savvy Games Group has led the deals, which include a significant stake in China’s VSPO, Sweden’s Embracer Group and the acquisition of US-based Scopely, while Riyadh uses its petrodollar wealth to push its way jobs to a wide range of sectors.
Launched in January 2022, Savvy is wholly owned by the Public Investment Fund of Saudi Arabia and chaired by Crown Prince Mohammed bin Salman. seven years.
To support his typically ambitious plans, Savvy has been awarded a $38 billion war chest.
“It’s a bulldozer approach,” said Piers Harding-Rolls, a game analyst at Ampere Analysis, a research firm. “The industry in Saudi Arabia is on the rise. They literally have to build it from the ground up.”
The kingdom aims to become home to 250 gaming companies and studios by 2030 and create 39,000 jobs, with the industry contributing 1 percent to gross domestic product. 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 range of growing industries, such as electric vehicle manufacturing.
The effort comes alongside efforts to gain global soft power, with the kingdom spending heavily on sports such as football and golf, which critics say is an attempt to divert attention from the country’s human rights record. the country.
Its gaming strategy has created ripples in the industry as Riyadh rivals giants like 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 esports at Tencent Games.
Gaming is popular in Saudi Arabia, where 70 percent of its 36 million inhabitants are under the age of 35. A similar percentage of residents identify as gamers, according to Saudi gambling officials. Prince Mohammed is an outspoken gamer.
“It’s 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 country with a very engaged gaming community.”
Aside from Savvy’s dealmaking, the PIF has bought an 8 percent 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 use its financial clout to build a significant stake in the gaming sector, worth $200 billion according to industry tracker NewZoo. a report last year, PwC predicted that global video game revenues could exceed $300 billion and account for more than one-tenth of total entertainment and media spending by 2026.
A generational shift in consumption habits means some analysts predict that gaming will overtake traditional television to become the largest source of entertainment revenue in the coming years.
“The region is populated by demographics that favor us,” said Savvy CEO Brian Ward. “If you fold in the national strategy . . . and the desire to diversify the economy away from oil and gas, it is a natural assumption to put a lot of investment in Saudi Arabia towards games.”
Regional and national governments around the world have long used tax incentives, seed funding and other incentives to attract talent to the industry, providing policymakers with an attractive mix of technical innovation and creativity.
But industry executives say cash alone may not be enough to convince every developer Savvy could target.
To some in the industry, the $5 billion Scopely transaction merely signaled that Savvy would have to pay too much to win deals. “Nobody could believe the price they got,” said an industry veteran, adding that Scopely had been looking for an exit acquisition or IPO for some time.
“They are quite explicit about it: there is a premium for everything related to them,” said this person, adding that the Saudis were willing to pay more than the market price. “Nobody is going to move to Riyadh or Jeddah for the nightlife.”
Saudi Arabia has failed to shed its reputation for human rights violations, despite Prince Mohammed’s social reforms. Even as he made changes such as allowing women to drive and organizing mixed-gender concerts, the 2018 assassination of Saudi commentator Jamal Khashoggi by state agents prompted many companies to do business in Riyadh. The CIA said Prince Mohammed 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 spends at home and abroad.
But the government continues to be attacked by rights groups for cracking down on critics, even as it pushes further to acquire entertainment assets. The PIF has invested in sport in particular, spending £305 million to buy English Premier League football club Newcastle United and last week pledging an estimated $3 billion to support a merger between Saudi Arabian-backed LIV Golf and to seal the US-based PGA Tour.
“I don’t think they’re an ambitious buyer for most game studios,” said one investor. “I’m not sure how much creative environment they’re going to create for the companies they buy.”
The kingdom’s billions may have arrived at a crucial time. Growth in the games industry is slowing to single digits as it can no longer piggyback on the success of the smartphone, which now accounts for half of the industry’s revenue, and marketing costs have increased.
Private game studios may prefer to sell to Savvy rather than take a winding road to an IPO, even as ethical doubts about doing business with the Saudi regime remain.
“The public markets are closed and investors are getting tired,” says one investor. “I’m sure there will be other Scopelys.”