Carmakers Gear Up for F1 Stake Battle

Michael Schumacher's Ferrari paymasters are revving up their engines threateningly but Formula One's top teams are not yet ready to blaze away to a rival circuit, industry analysts said on Thursday.

The car makers grabbed the headlines on Wednesday when they threatened to launch a racing series to rival the glamorous Formula One, a flying circus of fortnightly races that attract an estimated global TV audience of 300 million viewers.

Not surprisingly, TV rights are at the centre of a complex battle between German media companies Kirch and EM.TV on the one hand, and the car makers on the other. Somewhere in the middle is Bernie Ecclestone, the British motor enthusiast and entrepreneur who built Formula One into a big business.

Industry sources told Reuters late on Thursday that Kirch had offered Formula One car makers a 25 percent stake in SLEC, the company which controls the commercial rights to Formula One racing.

The Kirch media empire, run by reclusive Bavarian Leo Kirch, has also offered the car makers veto rights in any major decision to move broadcast of the motor sport away from free TV, the sources said.

Kirch and its partner German media rights group EM.TV recently paid almost $1 billion to buy a further 25 percent stake in SLEC, lifting their stake to 75 percent.

Kirch first got a piece of the motor racing action when it rescued EM.TV last February after the group had overstretched itself with a spending spree that included buying the company behind the Muppets.

The remaining 25 percent of SLEC is in the hands of the Ecclestone family. SLEC indeed takes its name from Ecclestone and his wife Slavica, reflecting the grip which 70-year-old Ecclestone held on the sport before trying to realise its value in recent years.

Now, the car makers want a slice of SLEC in order to help control how races are screened.

Pay TV Option?

Car makers such as Fiat, which owns Ferrari, BMW AG, Renault and DaimlerChrysler fear that Kirch will ultimately migrate Formula One coverage to pay-per-view television rather than free-to-air networks.

That would deprive the car makers of the mass television audience for their brands and also upset the sponsors who help to bankroll an investment of up to $1 billion annually.

"The fear is that Kirch's number-one priority would be to pump up his pay TV operations," said Juergen Pieper, auto analyst at Bankhaus Metzler in Frankfurt.

"The car makers obviously want to present their cars and brand names to as wide an audience as possible."

Germany's Sueddeutsche Zeitung reported that Kirch had also offered the car makers a veto right in decisions over the number of Formula One races, their geographic location and "decisive changes in (Formula One) TV policy away from free-to-air TV".

Wednesday's threat to break away from Formula One is seen as a flexing of muscles as negotiations over the size and cost of any stake in SLEC reach a crucial stage. The car makers are saying that without them there is no Formula One content to put on the television screen.

Kirch, one of Germany's biggest private TV companies with pay and free stations, insists that talks with the car makers are continuing and points out that the auto companies are tied in to competing within Formula One until 2007 under the so-called Concorde Agreement.

Motor racing industry sources say, however, that it would be perfectly feasible for teams such as Ferrari, the BMW-backed Williams team, Renault's Benetton and DaimlerChrysler's McLaren, to transfer their top drivers to a rival circuit.

There are enough racing tracks, and the companies could strip Formula One of its value by running second-string teams in the established championship, which dates back to 1950.

However, a web of sponsorship and television deals would make such a move a legal minefield and most observers agree that the car makers are not ready to make a dramatic exit.

"It's a threat. They want their part of the whole business," said Pieper.

"It's all about a power struggle over the size of the stake in SLEC and what they might have to pay for it," he added.