THE Saudi Arabian government is betting US$38 billion on the country’s potential to become the next hub for the video-game industry. 

As part of its strategy to diversify its economy away from oil, Saudi Arabia is looking to become a big player in the US$184 billion global gaming market. Its Public Investment Fund (PIF) focused initially on the e-sports industry, which has been struggling. Now, its subsidiary, Savvy Gaming Group, is looking to develop, publish and acquire top-tier games and support a gaming industry in Riyadh.

At the annual Game Developers Conference (GDC), Brian Ward, chief executive officer (CEO) of Savvy, said: “We are now more of an e-sports company than a games company. What we’re doing this year is focusing more on game publishing and development.” 

Savvy’s plans are ambitious in a crowded market where long-standing players such as Electronic Arts are laying off employees. But the fund has already made multi-billion-dollar investments in gaming companies, including Nintendo, Tencent Holdings and Activision Blizzard. Ward plans to leverage those connections to build Savvy’s business.

“We would like to use those investments to begin to work with these companies, and ask how we can work together on publishing in (the Middle East and North Africa), run their e-sports businesses or develop new IP (intellectual property) together,” he said.

The PIF in February increased its stake in Nintendo to 8.3 per cent, becoming the company’s largest outside shareholder. 

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Saudi Arabia has almost no footprint in global game development. The country’s rapidly increasing population of gamers led Ward – a former executive at Electronic Arts, Activision and Microsoft – to move to Riyadh and lead Savvy. “Part of our mandate is to help partners and other companies come to Saudi and choose Riyadh over some other place, to establish a publishing business or distribution business to serve the region,” he said.

There are approximately 21 million gamers in the country, said analysts at Niko Partners. That is about 58 per cent of the population, not far below the US’ 66 per cent. By 2026, the games market in the Middle East and North Africa is expected to grow by 56 per cent to US$2.79 billion. 

“It makes total sense for a forward-thinking government to focus at least a certain part of their investment scope on the sector,” said Serkan Toto, CEO of consulting group Kantan Games.

“Saudi Arabia acts with a sense of urgency here, and wants to be in as many meaningful deals as possible – ahead of other countries that might jump on the bandwagon later.”

In 2022, Savvy made a splash in the competitive-gaming world by acquiring ESL, an e-sports tournament company, and merging it with gaming platform Faceit as part of a combined US$1.5 billion deal. Then, in March this year, ESL Faceit Group acquired e-sports technology company Vindex for an undisclosed sum.

After a boom in 2018, when e-sports received a record US$4.5 billion in investments, the industry faced a reckoning in 2022 as investor and sponsorship funds dried up. Many e-sports companies experienced layoffs or shuttered, failing to turn a profit on the tens of million of fans who may watch the events online but spend very little money for the industry, said market researcher Newzoo.

One of Savvy’s divisions is a company that builds gaming and e-sports venues – a business that many e-sports organisations, including Comcast Spectacor’s Philadelphia Fusion – have veered away from, over concerns that players may not engage with digital gaming competitions the way their parents did with other sports events.

While ESL Faceit is not yet profitable, Ward still has faith in the e-sports industry’s ability to make money by consolidating smaller players. “The engagement in e-sports is still off the hook,” he said. “It’s fantastic. It’s just that the monetisation doesn’t match the engagement.”

Ward compares his ambitions to the marketing push that led Formula 1 to become mainstream.

He said there likely will not be any more big e-sports acquisitions in Savvy’s future, but he does hope publishers will turn to the company to run their e-sports operations in the Middle East.

An employee with knowledge of operations at Activision, which governs large-scale e-sports leagues, said the company is not in discussions with Savvy about competitive gaming operations in Riyadh. A spokesperson for Riot Games declined to comment.

Now, Savvy is focused on building up resources and clout in game development and publishing. One of its five operating companies is a studio that employs about 45 people. Started about a year ago, Savvy Games Studios plans on first developing a mobile game, and then a console game. Although Ward hopes it will eventually grow into a top-tier studio, he admits that “building a game studio from scratch is super hard”.

Daniel Ahmad, director of research and insights at Niko Partners, said that a “skill gap remains for domestic talent” in Saudi Arabia. Closing that gap “will take time, as the country needs to introduce new policies to support education and training”.

Ward said that a faster path to Savvy’s “ultimate objective” – helping Saudi Arabia become a global entertainment hub by 2030 – is to acquire studios or publishers, including internationally. Electronic Arts would be “too big” for them – Savvy has about US$13 billion to invest in acquiring a game publisher – although Ward would consider taking another public game publisher private. 

Through Nine66, what Ward calls the company’s “ecosystem builder”, Savvy has signed up to localise and publish about eight games, half of which are released. Ward said he has taken meetings with nearly every big gaming publisher over the last year, including at GDC in San Francisco.

Saudi Arabia remains controversial among e-sports professionals and gamers due to the government’s association with human rights abuses. In 2020, Riot Games ended a partnership with Neom, a city in development there, after an enormous backlash from employees, contractors and fans. “We moved too quickly to cement this partnership and caused rifts in the very community we seek to grow,” Riot Games’ director of e-sports for the region said at the time.

Critics have described Savvy’s e-sports initiatives as “sportswashing”. Ward said the allegation “somewhat baffles me because it implies that we’ve got an underlying agenda that’s different from building a games and e-sports company”. Savvy would “absolutely” hire an LGBTQ or Jewish person to lead a game studio in Saudi Arabia, he said, adding that “we have on our executive team members of the LGBTQ community and women”.

Savvy took an 8 per cent stake in video-game holding company Embracer Group in 2022, which also led to an outcry.

Embracer’s CEO Lars Wingefors said that there are “only a handful of players in the world” who could provide sufficient capital over the long term. In 2022, sales for the global video-game industry fell by 4.3 per cent. But analysts expect 2023’s crowded release calendar to resuscitate the business.

Kantan Games’ Toto pointed out that China’s controversial government hasn’t hurt gaming giant Tencent’s international expansion strategy. The PIF has already invested in beloved gaming companies including Nintendo, he noted.

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