Leo+Kirch

That's not all, folks
LEO KIRCH, one of Europe's most powerful media moguls until his empire collapsed in 2002, is making a comeback at the age of 81. He used to run the Kirch Group, whose network of interlocking companies owned five free television stations, a pay-TV company, the biggest library of German films and an agency that sold the rights to sporting events. Outside television it had 40% of Axel Springer, which publishes Bild, Germany's most popular newspaper, and control of SLEC, then the operator of Formula One motor racing. “The Lord giveth, and the Lord taketh away,” he said, philosophically, after his company went under in Germany's biggest post-war bankruptcy.

Since then, Mr Kirch has shut himself away in his office and worked all hours of the day, according to those who know him. He has diabetes and problems with his eyesight, and most people thought he was putting all his energy into suing Deutsche Bank, which he has accused of pushing his empire into insolvency in 2002. But Mr Kirch was quietly manoeuvring. In September he took a 11.5% stake in EM.Sport Media, a media firm. On October 9th, to everyone's amazement, he announced a big deal with the German Football League (DFL). In reality, says one of Mr Kirch's colleagues, “he's never been away.” Click here to find out more!

Like Rupert Murdoch, another ageing media mogul, Mr Kirch reckons the future lies in new media. He and former colleagues have agreed with the DFL jointly to sell media rights for football games in the two top divisions for six years from 2009. He has promised the DFL at least €500m ($715m) a year in revenue, a big improvement on the €420m or so that it expects to make this year by selling television rights. Mr Kirch believes he can boost the DFL's returns by selling football not only to live pay-television channels but also as ready-made packages of content for mobile and internet firms. He, of course, stands to profit handsomely. According to press reports, his company will get 90% of the first €100m the football fetches above €500m, and 51% of anything above that.

Many Germans regard Mr Kirch as the father of superstar football. It was he who first put big money into the pockets of managers and players. Some football fans, of course, wish he hadn't. Supporters of FC Kaiserslautern, for instance, which fell from the first division and now faces relegation from the second, believe that he spoilt their cheery local team, giving it delusions of grandeur and leading it to buy players and a stadium far beyond its means. But among leading football managers the old gunfighter seems to have kept his magic. Only one of the DFL's 36 first- and second-league clubs, HSV Hamburg, is said to be opposed to the DFL's new deal. How not to impress the bank manager

Germany's monopoly commission, the Bundeskartellamt, favours change in the handling of football rights because at the moment, Premiere, a pay-TV firm, owns all the rights until 2009 and has a near-monopoly. But the Kartellamt is still expected to examine whether the deal with Mr Kirch will encourage or discourage innovation. A bigger problem for Mr Kirch is how to obtain a bank guarantee, which the DFL requires. Most lenders are still smarting from his spectacular collapse, which left debts of around €6.5 billion. The insolvency proceedings are still dragging on: the liquidator has recovered over €1 billion from asset sales and paid out €300m. Despite this unfinished business, Commerzbank, Germany's second-biggest bank, is thinking of giving him a guarantee.

A bank that probably will not is Deutsche. Mr Kirch's lawyers have filed claims totalling €3.5 billion against the bank. They argue that remarks by Rolf Breuer, who was then spokesman and chairman of the group executive committee, in February 2002, pitched the Kirch Group into bankruptcy. Mr Breuer had said that the group would have trouble raising money on the same terms that it had before. Several courts have dismissed the claims, and a criminal case against Mr Breuer was dropped last month in Frankfurt. But the Federal Supreme Court in Karlsruhe ruled in January 2006 that Mr Breuer's remarks may have damaged one company in the Kirch Group, PrintBeteiligungs GmbH, to which Deutsche Bank had made a €1.4 billion loan.

In some ways, the new venture gives a strong sense of déjà vu. As with Mr Kirch's former empire, his name seldom appears on any documents. The company which made the deal with the DFL is Sirius, a subsidiary of KF 15 GmbH & Co KG, a name based on the address of Mr Kirch's office in Munich. His wife, Ruth, and his long-time business partner, Dieter Hahn, are named as owners. And Mr Kirch seems to be trying to build a complex network of companies, as before. His 11.5% stake in EM.Sport Media is separate from his deal with the DFL, but EM.Sport Media is a likely bidder for some of the football rights jointly marketed by DFL and Sirius.

The cast of characters deployed in the companies around Mr Kirch's new deal reads like a “Who's Who” of his former comrades: Werner Klatten, chief executive of EM.Sport Media, and Rainer Hüther, a director there, both worked for Kirch Group companies. Christian Seifert, managing director of DFL, was an old sparring partner of his at MGM and other media firms.

The question now is whether Mr Kirch can really squeeze more cash out of football by delivering content for internet sites and mobile phones. Even on old-fashioned pay-television, the jury is out on how much money is to be made from live league football. Premiere ended up owning all the rights, after all, because Arena, a rival rights holder, failed to win enough viewers and had to give them up. If football's exclusivity is diluted by internet and mobile-phone deals, pay-television firms may bid less. Observers are wondering if history will repeat itself: might Mr Kirch overreach himself again?

To read the original article published on 25 October 2007 click **[|here]**.

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