Newcastle United, PIF and how nation states leave government regulator toothless

Startling news from San Francisco this week where, according to court documents, it turns out that Newcastle United chairman Yasir Al-Rumayyan is absolutely not divisible from the state of Saudi Arabia and should be considered part of it, at all times.

That was the position adopted by legal counsel for Saudi’s Public Investment Fund (PIF)-backed breakaway LIV Golf competition in its dispute with the PGA Tour, and one can see why that might seem expeditious. But as the corporate duvet is tugged in one direction it is, unfortunately for those whose job it is to maintain coverage, too small to cover the whole.

Popping out the other end is Newcastle’s PIF ownership which is absolutely divisible from the Saudi state. How do we know? Because PIF lawyers told the Premier League so in legally-binding assurances that are fast becoming some of the most talked-about legally-binding assurances in English football history. Will we see replica legally-binding assurances on sale in the Newcastle club shop? Or the originals afforded their own cabinet in the National Football Museum? Too early to say but these LBAs are currently engaged in some seriously heavy-lifting.

Instead, consider for a moment, the position as outlined by the US lawyers for Al-Rumayyan. Neither he nor PIF were, according to documents, “ordinary third parties subject to basic discovery relevance standards”. They “cannot be compelled to provide testimony and documents” unless pertaining to the most serious part of the case. “The parties agree that PIF is a ‘foreign state’ within the meaning of the [US] Foreign Sovereign Immunities Act. PIF therefore presumptively has immunity in US courts.”

It does not sound like an entity that is committed to subjecting itself to the scrutiny of the sovereign government in which its assets are located. Which brings us to last week’s government white paper on reforming governance of British football that aims to do exactly that. One might say the PIF question is the first tough fixture for this rookie manager regulator – at the very least an interesting test of credentials before it becomes law in some form. Yet looking through the proposals it is hard to find anything that could do the job.

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There are fresh requirements to seek out a club’s “ultimate beneficial owner” – which already exists in the current test. Also for a regulator to determine whether the individual in question is a “politically-exposed person” [PEP]. As a government minister serving an absolute monarchy, one would have to say that Al-Rummayan is in the running for PEP-status as defined by the Financial Conduct Authority. Although the white paper goes on to say that suitability to be an owner would not be judged on the basis of being a PEP.

The message is obvious: there is no way that government regulation can reach into the ownership of clubs owned by nation state entities as easily as it can clubs with more conventional ownerships. As the case in San Francisco suggests, there are immunities that PIF believes it can call upon under US law – and why not British law too? That might also be the case for a Qatari ownership of Manchester United however delicately constructed the separation between state and individual. So too Abu Dhabi and Manchester City.

As the Premier League has learned with its investigation into City’s financial arrangements, it has been obliged to fight in the high court for the right to apply its own rules. City deny all the charges brought by the Premier League.

The problem with the government’s quest to regulate football has been clearly demonstrated within a week of its publication: it can only ever regulate part of it. The nation state-owned clubs – or the clubs owned but individuals with surprisingly close connections to the ruling powers of nation states – are beyond its reach. The danger is obvious: that those without the shelter of sovereign immunity will be held to much higher levels of transparency than others.

Football moves so swiftly that already one wonders how a government regulator plays catch-up. Amanda Staveley, a British national with a small stake in Newcastle, wondered aloud this week whether her club might also pursue a “multi-club” structure. The City Football Group have already pioneered that, with the mothership in Manchester now part of a global system of 12 clubs in which CFG either owns outright or retains a stake.

How does a new regulator cope with that? There is no mention in the white paper of how government might regulate an English club at the heart of a global multi-club system. Although as well as the stated aims of player development, and commercial growth there is undoubtedly another side to the multi-club system. That being a scope to spread payments around the network. The additional danger is that the potential for a multi-club system to turn into a multi-bankruptcy system is made that much greater for its interdependency.

The tendency of the proposals is to look at the past rather than the future. “The recent situations at Chelsea and Derby County,” say the government, “have highlighted how many clubs are just one ‘shock’ – a geopolitical shift, a failed gamble for promotion, or a disinterested benefactor – away from a crisis.”

They speak, of course, of Roman Abramovich, whose acquisition of Chelsea 20 years ago was approved by the government of the time. As was the rest of the Russian money flowing into Britain before and after 2003. The subsequent geopolitical shock was in part the British government’s decision to change their stance on Russian investments after the invasion of Ukraine. Yet this huge policy U-turn is repackaged as football’s problem.

As for standing in the way of takeovers, on the basis of human rights records, or a closeness to despots, that has never been on the table for a government regulator. Tracey Crouch MP, the author of the original review from which the proposals flowed, has been careful not to say that she would have recommended blocking PIF’s takeover. The response from government at the time was that a regulator would not deviate from the government foreign policy. That policy says that Abu Dhabi, Qatar and Saudi are trusted trading partners.

Instead of rewriting history, it might be more instructive to try to project how the nation state takeover of clubs will look 20 years from now. There have been enough lessons in the week since the launch of the white paper to suggest that these owners might be less keen to subject themselves to the kind of transparency that will be expected. Which will only mean that government will end up regulating some – but not all – of football.