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Withdrawal from F1 would boost Ferrari by 100m

NEWS STORY
18/11/2017

Announcing his unease with the proposed engine regulations for 2021 and subsequently threatening to withdraw his team from the sport, when asked how he would feel about being the man who took Ferrari out of Formula One, Sergio Marchionne gave an unexpected answer.

I'd feel "like a million bucks because I'll be working on an alternative strategy to try and replace it", he said. "A more rational one, too."

While Christian Horner was quick to dismiss the threat to quit as "bluster" analysis of Ferrari's most recent financial filings suggests Marchionne might not have been exaggerating the situation.

While the precise details of Liberty Media's plans to level the playing field for the teams have yet to be revealed, it is well known that this will include a more even distribution of the prize pot and the scrapping of the various bonuses paid to certain teams.

It is well documented that Ferrari receives an annual historic bonus of around 80m every single year, leading to a situation whereby last year it received 160m, 40m more than world champions Mercedes. Indeed, poor old Manor was entitled to only 40m and subsequently went into administration.

Being a division of the car company, the Ferrari F1 team, unlike the majority of its rivals, doesn't file accounts, however, analysis of the parent company's accounts for the year ending 31 December 2016 are revealing.

According to a report in The Independent, "the single biggest expense is found in the 450.7m research and development costs which the filings say 'mainly include the research and development incurred for the Formula 1 racing activities'. This alone comes to 12.2% more than the total costs of the engine department and F1 team operated by Mercedes."

Furthermore, "the main component of research and development costs expensed related to the research and development performed for the Formula 1 racing car". Assuming this to be in the region of 75% of the total, this suggests a figure of around 338m not including salaries and the costs of running the team.

With Ferrari, like Mercedes, thought to be spending around 80m on staff - of which a fair proportion goes to drivers Sebastian Vettel and Kimi Raikkonen - and running costs of an estimated 55m, you are looking at a total spend in the region of 473m.

However, pulling the plug on its F1 programme wouldn't mean that said 473m could go straight into the piggy bank, because these costs are partially offset by prize money, sponsorship deals and the income from engine leasing to rival teams.

Ferrari, the car manufacturer, brought in 432m from "sponsorship, commercial and brand" in 2016, comprising "net revenues earned by our Formula 1 racing team, through sponsorship agreements and our share of the Formula 1 World Championship commercial revenues, and net revenues generated through the Ferrari brand, including merchandising, licensing and royalty income".

With the likes of Shell and Santander on board, the team's sponsorship tally comes to an estimated 167m, while engine leasing deals work out at around 15m per team, with Ferrari supplying three - Haas, Sauber and Toro Rosso - in 2016.

Combined with the 160m in prize money this leaves a deficit of 101m which was absorbed by the parent company.

Bottom line, as Marchionne suggests, withdrawing from F1 would mean the parent company would not need to cover the deficit - a deficit which will increase should Liberty tinker with the prize money arrangements as it plans to.

However, as Ferrari's filings make clear, this is not a clear cut decision, for though the research and development is all about the F1 team, it is "considered fundamental to the development of the sports and street car models and prototypes".

The Italian manufacturer claims that this is because technical developments in F1 will in time make their way to its road cars; "examples include steering wheel paddles for gearshifting, the use and development of composite materials, which makes cars lighter and faster, and technology related to hybrid propulsion.

"Our road cars (especially our sports car models) have benefited from the know-how acquired in the wind tunnel by our racing car development teams, enjoying greater stability as they reach high speeds on and off the track."

Furthermore, F1 is seen as the main marketing campaign for Ferrari, which doesn't advertise its cars in the same way as traditional manufacturers, hence the willingness to cover that 101m deficit.

On the other hand, being established as one of the world's most renowned manufacturers, with a logo and brand known throughout the world, the Italian company knows it no longer needs F1 to raise its profile... the fact that it continues to flourish despite not having won the championship since 2007 being a point in hand.

Indeed, under 'risk factors' in said filings, Ferrari states that "the company that owns the Formula 1 business was recently acquired by new owners and it is uncertain whether and how the arrangements relating to the participation of Ferrari and the other competing teams in the championship may change in the future".

Which suggests that Marchionne's comment was perhaps more than just "bluster".

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READERS COMMENTS

 

1. Posted by Spindoctor, 24/11/2017 18:23

"@Tombstone
I don't recall seeing anything on mainstream TV, nor in the papers (UK) about Ferrari's "threat" to leave F1, so it garnered them pretty few column-inches that I saw...

Indeed F1 itself is pretty much a minority interest, and I doubt the average punter (nor the guys with cash to buy) would loose interest in Ferrari were it to walk away from this increasingly irrelevant (as a Sport) one-ring circus."

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2. Posted by Tombstone, 20/11/2017 20:11

"How much publicity would ferrari get if they were no longer able to garner column inches by blustering about threatening to leave Formula One?"

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3. Posted by Editor, 20/11/2017 12:08

"@ Isprivate

The 100m mentioned in the article is the deficit covered by Ferrari (the difference between its income from F1 and the costs associated with F1) NOT its $100m guaranteed prize money bonus. The two are completely different points and YOU have confused them.

For the record YOU have provided the evidence which supports the supposed "common misconception" of "British journalists" so, by your own argument it isn't a misconception at all! What is the point in you wasting your effort typing that something is a misconception when you go on to provide the evidence for it? That's just laughable.

You say that Ferrari's LST payment comes to 68M (it's actually $70.8M so your source is obviously out of touch though it is close enough) and that the CCB payment is 35M (it's really $31.9M which again proves that your source is not an insider). You're clearly not very good at maths because 68M plus 35M comes to 103M so you have provided the evidence which supports the alleged "common misconception" that "Ferrari is taking some ~100M GBP/USD/E". Do you enjoy contradicting yourself?

As for splitting the money paid to Ferrari and Williams that's all very well and good but it isn't relevant to the article. What it shows is that Williams could lose out if Liberty goes ahead with its plans to balance the prize money which is perhaps not its intention. Why not take to social media and rally against Liberty Media about this?

Oh and, for the record, F1's turnover (not "turnaround") is $1.8bn NOT $3bn."

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4. Posted by mds167, 19/11/2017 17:24

"@Isprivate Thank you for the breakdown, much appreciated. As you say, where would that end up..."

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5. Posted by Uffen, 19/11/2017 2:53

"They don't need F1 to justify or realize R&D for road cars. Why not do the road car R&D directly, instead of waiting for it to trickle down? If it ever does. "

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6. Posted by Isprivate, 18/11/2017 22:02

"Oh, and one more thing. F1 turnaround is ~3bn USD (1.8 direct, 1.3 indirect). 68M out of 3BN is some 2% Considering Ferrari's fanbase is roughly 30%, 68M comes as a very modest reward... "

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7. Posted by Isprivate, 18/11/2017 21:51

"@mds167: I meant just simple math: take Ferrari their 68M and split it among the teams. It make some 6.8 for each team. Take Williams their 10M and split it among the teams, it will make 1M for each team. All in all (not reflecting M's and RB's shares), Williams would take 7.8M instead of current 10M. But, guess where the money for "historical bonuses" will end when stripped off the teams like F/M/RB/W;)"

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8. Posted by mds167, 18/11/2017 17:05

"@Isprivate, Apologies, I s'ppose I was lumping in the 'LST' $68m payment in the same column as the $10m Williams get for the heritage payment. Oops, as Ferrari don't have a heritage payment, splitting it across the two teams would give Ferrari $0.5m. Regardless, get rid of them both..."

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9. Posted by mickl, 18/11/2017 15:38

"Le Mans and sports car racing disappeared down the toilet didn't it when Ferrari cancelled their works team."

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10. Posted by Isprivate, 18/11/2017 13:48

"it's a common misconception spread by british "journalists" that Ferrari is taking some ~100M GBP/USD/E. In fact, Ferrari's share as a Long-standing team is 68M USD, CCB (constructor's championship bonus) some 35M USD. Needless to say Mercedes and RB take some 35M each and Williams some 10M. People don't realize funny fact that if both Ferrari and Williams historical money would be split evenly, Williams would take even less than now..."

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11. Posted by Giraffes, 18/11/2017 13:38

"What is the cost of advertising in just about every country in the world being constantly mentioned for a six to ten hour period at prime time? Must be worth something. All that merchandising must be worth something as well as additional exposure. As for the R&D some of it will benefit the Car divisions both Ferrari and Fiat and as such would be carried out regardless. Ferrari pulling the plug would not benefit Fiat $100m as they would have a lot of redundancy payments etc as well as loosing substantial expertise for the parent company."

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12. Posted by mds167, 18/11/2017 12:25

"Remove the historic payments, let them go. More freedom to create a cheaper, more sustainable formula. Leave the door open for them to come back if they want to play again in the future.

Remove Ferrari and make it cheaper, perhaps we'd see more manufacturers come in to compete? "

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