FEBRUARY 10, 2009

Bernie and the Germans

Formula One boss Bernie Ecclestone says that he will not be happy if the German Grand Prix follows France and drops off the F1 calendar in 2010. He is not the only one. The Hockenheim circuit is owned by the town of Hockenheim and by the Badischen Motorsport Clubs Hockenheim. Its operations are headed by Karl-Josef Schmidt. He has already warned that unless there is help from the federal government the circuit will not be hosting any more F1 races because of the $6.8m that was lost on the 2008 race. The next race at Hockenheim is not due until the summer of 2010 but Schmidt says that he wants a financial solution in the next few weeks. The regional government of Baden-Wurttemburg came to the rescue of Hockenheim back in 2002 when it provided $13m a major reconstruction of the circuit. Ever since then it has been officially known as Hockenheimring Baden-Wurttemberg. There were further money troubles in 2006 but Hockenheim's mayor Dieter Gummer managed to negotiate a loan of $5.5m loan from the Baden-Wurttemberg state bank, to avoid bankruptcy.

Baden-Wurttemberg is one of Germany's most prosperous states and is the home of automotive companies such as Mercedes-Benz, Porsche and Robert Bosch GmbH in addition to software giant SAP. It has been run since 1953 by the Christian Democratic Union, but the current Minister-President Gunther Oettinger, who has been in charge since April 2004, has long had a hard line, refusing direct financial aid, arguing that private enterprise must step in and that the circuit must improve its financial performance. The track has been expanding its other businesses, marketing itself as an events venue, and even tried to land the $80m stadium which was planned by SAP's Dietmar Hopp for his Hoffenheim soccer club. That deal eventually went to Sinsheim.

The German carmakers say it is not for them to finance the circuit and the public interest in F1 has been weakening since the retirement of Michael Schumacher, despite the efforts of Nick Heidfeld, Timo Glock, Sebastian Vettel, Nico Rosberg and Adrian Sutil.

Gummer remains in charge in Hockenheim and says that the Grand Prix is no longer justifiable. Going to the state is no longer an option as the bank is currently being kept afloat by the state government after taking serious hits in the ongoing financial crisis. The Germans want Ecclestone to reduce his financial demands and they may end up going to the FIA to argue that as a traditional event they need to be protected.

Ecclestone is not keen on any race getting a cheaper deal and says that the German government should subsidize the event. The German government did a great deal to support Germany's bid for the soccer World Cup in 2006, offering guarantees which helped win the deal. It also provided improvements to transport infrastructure estimated to have been worth $4.7bn and direct aid to build stadiums in Berlin and Leipzig, which cost $320m. A report released by the German Institute for Economic Research later concluded that the claimed effects of the World Cup was exaggerated and that the resulting economic growth was negligible. The tournament made a profit of $250m for FIFA, the international soccer federation, and DFB, the German football association, and cafes, hotels and restaurants all cashed in but the resulting income fell way short of the claims.

The German economy went into recession at the end of last year, suffering from the strong euro, high oil prices, the credit crunch and lower demand in the export markets. The government announced a $67bn package of tax cuts and investmen to try to boost the economy but that has done little to help the situation with the economy suffering much more than had been expected. Economy Minister Michael Glos has just resigned and, with an election due in the autumn, Chancellor Angela Merkel is relying on Baron Karl-Theodor von und zu Guttenberg to give the Germans hope for the future.

Spending money on race tracks may not be an important consideration in the circumstances.