Ferrari is a team in a considerable state of flux at the moment. The team principal for the last eight years, Stefano Domenicali, resigned in April after a poor start to the season for the team. This seems to have been caused (at least in part) by remarks made by Ferrari chairman Luca Montezemolo about the need to change the rules. As a replacement Ferrari picked ace salesman Marco Mattiacci, the former CEO of Ferrari North America. According to Montezemolo, the decision was made in full agreement with Ferrari parent Fiat’s CEO Sergio Marchionne, although it was a very odd decision as Mattiacci knew almost nothing about running racing teams. Mattiacci did not have much time but seemed to be doing a fairly decent job, hiring new staff, turning to Sebastian Vettel rather than trying to go on working with Fernando Alonso, who seems to have had some fairly extreme demands. This did not happen until Montezemolo was shovelled out of the way by Fiat boss Sergio Marchionne in September. But then, a few days after the end of the season, Mattiacci was blown out as well and tobacco executive Maurizio Arrivebene was put in charge. This was as odd an appointment as that of Mattiacci. Arrivabene may have been the paymaster for the F1 team for many years, but he had no experience running any racing teams and is not known for his easy character. He was an odd choice for what is a very public role. There was, inevitably, much speculation about why one would appoint a character such as Arrivabene but Marchionne explained it to the Ferrari staff in a letter, saying that “Maurizio brings a unique set of experiences with him. In addition to his long-standing relationship with our team, he has also served on the F1 Commission and is already keenly aware of the challenges we face. He has a thorough understanding of the governance mechanisms and requirements of the sport, the level of competition and the challenges of the circuit. He has also been a constant source of innovative ideas for the revitalisation of F1.”
Be that as it may, one of the strengths of a good leader is to understand what the workforce is doing.
One thing is clear, Ferrari is not short of money. The company revealed a record turnover of $3.15 billion for 2013, with a pre-tax profit of $338.5 million and $1.87 billion in the bank. The firm is unique in that it never advertises its cars in any conventional sense but relies entirely on motorsport to spread the word and excite demand about the latest products. It is difficult to separate the F1 budget from the company results but its F1 operations including engines are reckoned to cost around $440 million (which is about the same level of spending as Mercedes). The company is committed to increasing its R&D spend each year until 2020 at which point it will be spending around $560 million per annum. Much of this is aimed at reducing emissions and thus F1 can be helpful.
Ferrari is the only F1 team that earns serious revenues from its merchandising operations, although the money earned directly from F1 merchandise is also hidden away in the earnings of the Ferrari Stores around the world. It is worth noting that its retail operations, including licensing and e-commerce, have been growing fast and are worth around $62 million a year.
In the past Ferrari used to sell the whole car to Philip Morris and the tobacco firm would then sell the space to others and recoup its investment. That may still happen to some extent as Philip Morris International (PMI) was reported to have agreed a three year deal to cover 2013, 2014 and 2015 at $160 million a year. Some of the other sponsorships may still go to PMI but there is no doubt that Ferrari still gains sizeable revenues from Shell, Santander, WeiChai Power, UPS, Kaspersky Lab and other smaller sponsors. The news that America
Móvil is to join the party with its Telmex, Telcel and Claro brands will add to the pot. Inevitably such a deal will lead to claims that Ferrari has accepted Esteban Gutiérrez as a pay-driver, but in reality the company is not short of cash. In addition to the sponsorships (which are worth between $160 million and $200 million), the team has an advantageous relationship with the Formula One group that brings a minimum of $120 million before any money is paid from the F1 prize fund. The prize money adds another $80-odd million so with special payments and sponsorships the total revenues – without any Ferrari input – is in the region of $350 – $400 million, without including the revenues that comes from customer teams. Although PMI is no longer allowed to have tobacco branding on the cars, it is allowed to enjoy residual benefits from its former deals, which date back to 1997, although the Marlboro logo itself has not been seen since 2007. It can however use the Ferrari logo on its cigarettes and at points of sale and can use the sport for corporate hospitality purposes.
Ferrari is about to go to the stock market and so it does not want an expensive F1 programme dragging down the books, which remain strong. The July to September operating profit of the company was $110 million but these were affected by $17 million which was set aside as part of Montezemolo’s severance package. Fiat said recently that Montezemolo would receive a lump-sum payment $17 million in January in return for agreeing not to compete against Fiat until March 2017 and another $17.5 million payable over the next 20 years. From January to September Ferrari’s profit was reported as being $340 million, so by year’s end this will probably be over $500 million.