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The announcement that the British government is investigating a Saudi businessman’s purchase of a 30% stake in the Evening Standard and Independent newspapers has refocused attention on the ambitions of Middle Eastern investors in the UK.
The investor in question, thought to be Sultan Mohamed Abuljadayel, is described as having “strong links to the Saudi Arabian state”.
He acquired stakes in both news outlets through their parent companies, Lebedev Holdings Limited (LHL) and Independent Digital News and Media Limited (IDNM), in separate deals in the past two years.
UK culture secretary, Jeremy Wright, issued a Public Interest Intervention Notice (PIIN) on 27 June, under the auspices of the national security provision of the Enterprise Act 2002, which stipulates “the need for (a) accurate presentation of news; and (b) free expression of opinion” in UK newspapers, in response to concerns that Saudi state ownership may compromise the papers' freedom of reporting.
But any attempt to block stakes in newspapers by Gulf state investment vehicles could lead to legal challenges, particularly if the UK media is a future target for more Middle Eastern wealth.
A change of direction?
A media-buying spree would be something of a departure from the investment strategy wealthy Arabs and Middle Eastern sovereign wealth funds have pursued in the UK to date.
Their approach has largely steered clear of anything with a vaguely political slant, including the British press, opting instead for trophy real estate assets, utilities and, more recently, football clubs.
The guiding philosophy behind Arab investments in the UK, in most cases, appears to be that it is more effective to own politically neutral assets, where the investment is generally welcomed and which provide a broad platform for promoting their brand and leveraging their assets.
Yet the possibility of more Middle Eastern investors taking a stake in British media companies should not be ruled out.
Gulf state governments already control much of their domestic media industries and Saudi Arabia recently began extending its reach into Hollywood’s film sector.
Mindful of the dominance of Qatar's Al Jazeera in the Gulf region, Saudi Research and Marketing Group (SRMG), the Middle East's biggest publishing house, unveiled a partnership in 2017 with US media titan Bloomberg to launch what is now known as Bloomberg Asharq (formerly Bloomberg Al Arabiya) – a multi-platform Arabic-language business and financial news service headquartered in the UAE.
But as the Standard and Independent case has shown, Gulf state sovereign wealth funds are likely to face some opposition to owning sections of the UK media and attract criticisms about press freedom in their own countries, or accusations that they may misuse outlets to promote certain political agendas.
The bigger picture
Like Middle Eastern investment in football clubs, any ambitions wealthy Arabs harbour regarding ownership of British media companies are unlikely to be driven by the prospect of returns through the newspapers’ balance sheets.
In the case of football, the prevailing view used to be that football clubs were bottomless money pits, due to the high overheads and spiralling expense of buying and paying players.
Now, however, there is clear recognition that the rewards of owning a piece of the world’s most popular sport can bring, in terms of influence, exploring new markets and brand recognition, may, if executed correctly, far outweigh the costs of running the club.
And, in the age of television rights, football clubs can generate lucrative profits in their own right.
European Champions, Liverpool, who are currently owned by US company, Fenway Sports Group (FSG), announced record pre-tax profits of £125 million for the year ending May 2018 – a figure they are likely to top in the most recent financial year, given that the club's TV income alone was reputed to be in excess of £250 million.
The sums paid by broadcasters to screen Premiership football clubs are arguably correlated to the amount of money their owners spend on bringing in some of the best player talent in the world.
In the UK newspaper industry, the financial struggles of media groups publishing daily news in a moribund print advertising market and amid fierce competition for online adverts, are well documented.
The Evening Standard, for example, made a pre-tax loss of £11.5 million last financial year and recently announced a wave of job cuts (although since switching to online only, the Independent has recorded some solid profits).
Compared to other asset classes which have attracted Middle Eastern wealth, such as utilities and financial services, which offer healthy returns, it seems clear that, like football, media ownership carries a different objective.
Resistance is facile?
If Middle Eastern investors do step up their campaign to gain a foothold in the UK media, it remains to be seen how long the UK government’s ostensible resistance will last.
Faced with mounting job losses across the media industry and the possible collapse of some British titles, it may be more palatable to accept investment as a lifeline than quibble over its source.
Middle Eastern wealth has played an important part in sustaining English football clubs and turning some middling teams into dominant title contenders, without worrying about profiting directly from their success.
Middle Eastern ownership has also offered some stability in what is an extremely transient ownership market for Premier League and Championship football clubs, in particular.
Where many clubs have changed hands numerous times in the last two decades, the 11-year ownership of Manchester City by Sheikh Mansour – deputy prime minister of the UAE and a member of the Abu Dhabi royal family – represents a bastion of relative constancy and commitment in a largely fickle industry.
The same model could be appealing to the stuttering British media sector, which risks becoming much smaller and more concentrated if investors are not found to sustain its current plurality of titles and angles.
For Middle Eastern investors, and national sovereign wealth funds especially, the payback is an opportunity to re-shape perceptions and direct some of the narrative about their national and wider investment interests.
Of course, if the UK government does move to block a Saudi stake in the Evening Standard and the Independent, this could curtail attempts by other Middle Eastern investors to move in on the British media.
It seems unlikely that Qatari and UAE sovereign wealth funds in particular will have as obvious a need to push for media stakes that may prove unpopular with the UK government, particularly given the extent of their existing UK investments.
But in view of the current economic uncertainty, the UK is expected to continue to embrace Arab wealth in as yet untested industries, as it has in football and in trade.
Coupled with the backlash the government could face if it fails to stem the decline of the British media and the obstacles it may face in legally blocking such investment, it is possible that ministers may in future take a more nuanced view of the situation than their reaction to the Independent and Standard case suggests.
Aymen Khoury is a dispute resolution partner and Middle East specialist at European law firm, Fieldfisher.