Ferrari's right to reply

01/03/2010
NEWS STORY

The F1 world is still coming to terms with Ferrari's recent outburst which branded the debacle that is USF1 and Campos "the legacy of the holy war waged by the former FIA president."

The Italian marque held nothing back claiming that USF1 has the "impudence to claim that everything is hunky-dory" and that Stefan GP are "Serbian vultures" who "picked the bones of Toyota on its death bed." You may be wondering what right Ferrari has to hand out such stinging criticism but, as a recent report in the Financial Times written by Pitpass' business editor Chris Sylt reveals, the Italian team has more invested in F1 than any other car manufacturer involved in F1.

F1's teams are run by private limited companies and, in all but one case, they are the signatories to the Concorde Agreement rather than the car manufacturers and billionaires which ultimately own them. The upshot of this is that if the owners decide to pull their teams out of the sport, the companies which sign the Concorde can be put into liquidation leaving F1's boss Bernie Ecclestone with little recourse to pursue their parents. It is for this very reason that you haven't heard about any lawsuit from Ecclestone against Toyota despite the car manufacturer quitting F1 after it signed the Concorde. There was no way to stop them from going and Ecclestone admits it.

"You can't [prevent more teams from leaving]" Ecclestone told the Financial Times. Under the Concorde Agreement the teams receive a 50% share of F1's profits as annual prize money and this totals around £330m ($500m). However, Ecclestone was so keen to get the teams' owners to sign the Concorde (so he could pursue them for damages if they pulled out of F1) that he offered them a 60% share if they did this. But in perhaps a telling twist, the teams' owners turned down this additional money despite facing some of the hardest financial conditions ever on record.

This additional 10% is thought to be worth at least £33m to each team over the five-year duration of the Concorde so the fact that their owners turned this down in favour of the flexibility of leaving the sport penalty-free may well give a good indication of their long-term commitment. All but one of them that is.

The only manufacturer which directly signs the Concorde is Ferrari as it does not run its F1 team through a separate subsidiary. In recognition of its historical status and commitment Ferrari receives an increased share of F1's spoils and, as came out last year, it has also had a veto over the introduction of new regulations to the sport.

So Ferrari really does put its money where its mouth is when it comes to F1 and for this reason alone it can talk with some authority when commenting on teams which cannot even get a car to a test session. In contrast to USF1 and Campos, if Ferrari flees the sport then Ecclestone could chase the car manufacturer itself for damages, something which none of its peers agreed to do. Yet although the additional 10% would have made it easier for the other car manufacturers to stay in F1, Ecclestone never expected them to sign up directly.

"The manufacturers won't commit," he says adding that there are two reasons for this. The first is that "they don't know what they're going to do next week," and the second is that if the manufacturers were to commit directly they would have to allocate on their balance sheet the cost of participating in F1 for the duration of the Concorde and this sum would not get board clearance.

"Can you imagine going to the board and telling the board that they've got to give a five-year guarantee to pay £200m. So on their balance sheet they've got to put a billion... they won't," he says.

The financial pressure on the manufacturers should be lessened by a cost reduction programme which was agreed before the signing of the Concorde and is due to be implemented over the next few years. Ecclestone says that "it is not in the Concorde Agreement that's been signed... the teams are doing it amongst themselves." With the incentive to cut costs coming directly from the teams, rather than being mandated by a contract, there may be a greater chance that they will stick to it. It could stop the departure of teams which were already on the edge but USF1 and Campos may well be too late to save.

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Published: 01/03/2010
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