German government pushing for F1 sale

THE Suddeutsche Zeitung newspaper is reporting that the Kirch media group is under pressure from the German government to sell off its non-core assets to avoid being swallowed up by a foreign media business. The major asset in question is the Formula One group of companies in which Kirch holds a 75% stake. Kirch has paid $1.88bn to date for his F1 investment: $586m to EM.TV; $987.5m to the Ecclestone Family and $312m to the FIA. He still has to come up with more money to repay the $1bn which was loaned to the Formula One group in the form of a Eurobond issue back in 1999. The ultimate investment in F1 will thus be something like $2.9bn. Although Kirch has acquired the commercial rights to the Formula 1 World Championship for 100 years, he has not got an agreement with the F1 teams beyond the end of 2006 and so in effect his potential to earn back the money investment is currently restricted to a five-year period. With the current revenues F1 will pay him back about $750m in that period.

The problem for Kirch is that no-one is going to pay anything like the sum he invested in F1 because it is now clear that the F1 teams are not going to work with the Kirch Group unless they get a considerably better financial deal than is now the case. The automobile manufacturers say they have no need for Kirch and will start their own series in 2007. The only option is for Kirch to agree to take a much smaller cut of the profits - which will mean it would be several decades before his investment in F1 begins to make a profit.

In the circumstances he cannot expect to get much more than $1bn for F1 (if that) although the car manufacturers might agree to pay that much to secure the 100-year deal with the FIA. Alternatively they could wait and do a deal with the FIA once their Grand Prix World Championship series took over from Formula One.

Kirch therefore seems to have an asset which is not worth very much...

Chancellor Gerhard Schroder, who comes up for election this year, is watching developments closely - not least because of the number of people who are employed by Kirch.

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