The Saudi Arabian government is betting $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, through its Public Investment Fund, wants to become a big player in the $184 billion global gaming market. After focusing initially on the esports industry, which has been struggling, the fund’s subsidiary, Savvy Games Group, is now looking to develop, publish and acquire top-tier games and support a gaming industry in Riyadh.

“We are now more of an esports company than a games company,” Savvy Chief Executive Officer Brian Ward told Bloomberg News in an interview at the Game Developers Conference. “What we’re doing this year is focusing more on game publishing and development.”

Savvy’s plans are ambitious in a crowded market where longstanding players like Electronic Arts Inc. are laying off employees. But the fund has already made multibillion-dollar investments in gaming companies like Nintendo Co., Tencent Holdings Ltd. and Activision Blizzard Inc. 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 esports businesses or develop new IP together,” Ward said. The fund in February increased its stake in Nintendo to 8.6%, becoming the largest outside shareholder.

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 Corp., 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, according to analysts at Niko Partners. That’s about 58% of the population, compared with the US’s 66%. By 2026, the games market in the Middle East and North Africa is expected to grow by 56% to $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 the consulting group Kantan Games Inc. “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 after acquiring ESL, an esports tournament company, and merging it with gaming platform Faceit as part of a combined $1.5 billion deal. In March, ESL Faceit Group acquired esports technology company Vindex for an undisclosed sum.

After a boom in 2018, when esports received a record $4.5 billion in investment, the industry faced a reckoning in 2022 as investor and sponsorship funds dried up. Many esports 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, according to market researcher Newzoo.

One of Savvy’s divisions is a company that builds gaming and esports venues — a business many esports organizations, 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 isn’t yet profitable, Ward still has faith in the esports industry’s ability to make money by consolidating smaller players. “The engagement in esports is still off the hook,” Ward said. “It’s fantastic. It’s just that the monetization doesn't match the engagement.” He compares his ambitions to the marketing push that led F1 to become mainstream.

Ward said there likely aren’t any more big esports acquisitions in Savvy’s future. He does hope publishers will turn to Savvy to run their esports operations in the Middle East. An employee with knowledge of operations at Activision, which governs large-scale esports leagues, said the company isn’t in discussions with Savvy about competitive gaming operations in Riyadh. A spokesperson for Riot Games Inc. 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: “A skill gap remains for domestic talent” in the country. Closing that gap “will take time as the country needs to introduce new policies to support education and training.”

A faster path to Savvy’s “ultimate objective” to help the country become a global entertainment hub by 2030 is to acquire studios or publishers, including internationally, Ward said. Electronic Arts would be “too big” for them — Savvy has about $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 localize and publish about eight games, half of which are released. Ward said he’s taken meetings with nearly every big gaming publisher over the last year, including at GDC in San Francisco.

Saudi Arabia remains controversial among esports 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 esports for the region said at the time.

Savvy took an 8% stake in video-game holding company Embracer Group AB in 2022, which also led to an outcry. 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 4.3%, however analysts expect 2023’s crowded release calendar to resuscitate the business.

Critics have described Savvy’s esports 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 esports 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.”

Kantan Games’ Toto points out that China’s controversial government hasn’t hurt gaming giant Tencent’s international expansion strategy. The Saudi Fund has already invested in beloved gaming companies like Nintendo, he says. “Will people really buy less Switch games?”

(Corrects PIF stake in April 5 story after the firm amended its own filing in June 2023)