Interesting paperwork

Paperwork is generally dull, but there are times when it is worthwhile. The recent Ferrari IPO means that the firm now has to give a lot more detail than previously and so the Q3 results that appeared yesterday provide some interest, particularly as they indicate a sum of money that come under the heading “sponsorship, commercial and brand” for the nine months to September 30. There is a note that states that this number includes the net revenues earned by the 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”. This means that in nine months the company earned $355 million from the above. If one extrapolates that to an annual figure one arrives at $473 million. Not all of this is directly related to Formula 1, although the sport obviously drives the merchandising, licensing and royalty income, but it is fair to say that whatever the case, the company is getting an F1 programme free of charge. Small wonder the firm is happy to veto any change to that scenario.

51 thoughts on “Interesting paperwork

  1. Wow! That is incredible, how can anyone compete against that sort of F1 budget? Just goes to show what a great job Williams did last year to beat them!
    Thanks for the insight Joe.

    1. Well, one memorable line from ‘Rush’ was given to Niki Lauda’s fictionalized self, set at a Fiorano test: “It’s amazing – all these facilities, and you make a piece of crap like this.”

      Happens to all the best (richest) ones, too.

      1. I don’t think Enzo would be happy with his cars finishing on the lowest step of the podium most of the time. The team has two drivers with 5 titles and 62 wins between them, which is a long way better than any other current team, yet the team is still a long way off a Championship challenge. As for F1 to be happy, what is needed most is a genuine Championship battle, the current domination era is driving too many fans away. The money distribution is a far lesser problem right now.

  2. You’d think Maranello might forego some that loot they get for promoting Marlboro to the vulnerable. But no, it’s all about prostrating ourselves before the effigy of Il Commendatore, Enzo, wishing to be recognized as worthy. Ferrari needs to F off.

  3. So what? Ferrari is earning money on F1? That’s good! Some people are earning money on F1 , Bernie anyone? Or Toto? Or RB and some people at RB’s… Other people are loosing money.. Again, so what? The same in football basketball…

    1. But do the people who make money in the other sports, do so because they receive a disproportionately larger slice of the cake to everyone else, while also holding their governing body by the balls?

    1. What we do see here is that the income from F1 is nearly 5 times the supposed Budget of Williams. Consider that they aren’t 5 times faster than Williams, and it becomes easy to understand who is doing the better job.

      I’ve never been in favour of budget caps, purely because I believe it would create the potential for other series to compete with Formula 1 and challenge its position as the pinnacle of Motorsport. But it appears the cars these days could be a lot faster with more freedom in the rules. 1 thing the current “cost saving” rules have done is make everything less flexible in terms of choice, set up etc, which favours those who can spend more on the things we don’t see, like data analysis, simulation, wind tunnel developments etc. Whats needed is an approach that put the cars on track more through race weekends, meaning budgets are spent on things the paying audience can enjoy, not what happens behind closed doors on the factory.

      1. The thing is, the figures in this article only give a partial snapshot of the situation and perhaps creates a misleading image – most people seem to be automatically assuming that all of that figure of $473 million comes solely from Scuderia Ferrari, which is not the case.

        That extrapolated figure of $473 million, as explicitly stated by Ferrari and by Joe, includes a number of separate revenue streams from outside activities that will be going through Ferrari S.p.A rather than Scuderia Ferrari.

        Based on historic statements from Montezemolo, merchandising revenue alone could account for around $70 million of that figure. Equally, I would presume that the figure would include revenue derived from the sale and maintenance of cars prepared for GT racing – even without a factory team, Ferrari has a sizeable presence in that category and will probably be generating a modest, but noticeable, amount of revenue from that division.

        For what it is worth, Williams have generally reckoned that Scuderia Ferrari has an annual budget of around £250 million, or around $375 million – a figure that would seem plausible in light of the figures quoted in Ferrari’s quarterly results if you take out the distorting effect of things such as merchandising, non-F1 motorsport expenditure and other commercial deals that are not going through Scuderia Ferrari.

        Given that Williams has an annual expenditure of around £120 million a year, based on their 2015 interim results, that would put the difference in budgets closer to a factor of two – a far lower multiple than your figure of 5.

  4. Very interesting paperwork indeed. It also points out a major weakness in Formula 1 and their ability to market and brand. It is generally accepted that F1 (Bernie and company), and at least the richer teams, are marketing machines and know how to line their coffers.

    But in contrast, the American Football *University* team of Texas A&M which is not even a perennial top team, was able to generate $400M annual revenue from Jersey sales when they had their star quarterback. And that is a mid-pack American football university team.

    Are you telling me that the most dominant brand in F1 motorsport could do no better? Someone needs to be fired.

    1. Are you sure about that A&M looks to have peaked at $119 million total revenue so I’m not sure where you get $400 million on jersey sales alone? The biggest teams in the NFL are into the billions but that’s total revenue from all sources.

  5. Good pick-up Joe.
    Is there a chance that some or all of their F1 costs are allocated to R&D allowances instead?
    I know financial information for the purposes of IPOs need to be very clear – but there is a theoretical argument for some of its F1 operating costs to be accounted for in a more creative way.

  6. Joe, given the money Ferrari are making as a result of F1 participation and now that the suits are in control of the company more than ever, PLUS they have shareholders sniffing about the books and looking for money, would there not be a rationale for some sort of budget gap being in Ferrari (Fiat’s) commercial interest – i.e. they’d not only be getting a F1 programme for free, but make a pretty significant profit on it?

  7. That is crazy, but, paint me as being silly, but couldn’t they agree to a price cap of say 200 mill and bank the rest?

  8. “…but it is fair to say that whatever the case, the company is getting an F1 programme free of charge.”

    Ferrari has been upstreaming revenue to FIAT since Montezemolo applied the merchandising lessons he learned managing the 1990 World Cup Italia.

    The F1 program is self-liquidating, i.e. the Ferrari brand is leveraged to generate additional revenue (which costs money to execute), it’s not “free of charge”.

  9. Must be embarrassing being a Ferrari fan… all that money and they’ve still only won it 7 times (of which 2007 was inherited) out of 16 attempts!

  10. Joe: “Not all of this is directly related to Formula 1, although the sport obviously drives the merchandising, licensing and royalty income, but it is fair to say that whatever the case, the company is getting an F1 programme free of charge.”

    Your notional $473 million includes *engine design* along with chassis design and driver fees. We all know that F1 is opaque regarding costs, and this number doesn’t help us to break down the numbers. Who pays a Ferrari driver — the team or a sponsor? If a driver is paid by a team sponsor, $473 million goes a bit further.

  11. I’m a wee bit baffled by Marchionne wanting to go public with Ferrari. It means making finances public and adds fuel to the fire of the filing by Sauber and Force India in the European Court suit.

    Fiat/Chrysler has a market cap of around $20 billion, with assets approx of $140 billion with liabilities of $115 billion. Marchionne is shrewd cat but he overplayed his hand by believing Ferrari was work $10 billion. The market thought it was worth half and he got a $4 billion valuation for it. But is it really worth the headache of public and share holder scrutiny? Buying the stock is like owning a Ferrari key fob while owning a Fiat 500. I imagine we’ll be see prancing horse SUVs and baby prams in the not so distance future.

    As you suggest Joe, getting an F1 program for free is a neat trick but it did expose the fact that Ferrari has a legacy veto and maybe Bernie has lost the plot with Ferrari being the 800 lb gorilla when it comes to NOT wanting any meaningful changes.

  12. It begs the question that should the status quo change for whatever reason how sustainable Ferrari position is within F1, or if nots it position its competitive situation? – if suddenly $200 million disappears from the payment pot, you can’t imagine the new shareholders are going to be too happy at making up the short fall.
    There seems to be no contingency in Marchionne thinking,

  13. Coming from a generation who were virtually given T shirts from teams such as Ferrari perhaps any fan reading your article may at last finally realise the extent to which they are being ripped-off. An ordinary ‘official’ t-shirt will cost around 45€ (they can be a lot more), I mean, WHAT! I know this is universal problem in all sports now and it will continue to be so until stupid people stop buying the stuff. It’s advertising everyone – it should be no more than a fiver, if that!

  14. I’m not sure why one should be surprised about Ferrari’s income and/or decision on vetoing engine changes. F1 is mainly about money. Wasn’t it Frank Williams who said it was a sport for 2 hours on a Sunday and a business the rest of the time.

    Ferrari is a business just trying to maximise its success within the law and rules, like all businesses do. Mostly, businesses are not moral or immoral, they are amoral, ie morals don’t really come into it.

    Providing they don’t see any decision as being so detrimental to F1 it is actually risking serious detriment to themselves, they’ll do whatever necessary.

    It’s a dog eat dog world.

  15. Has anyone considered the idea that the 355M$ income is from the Ferrari global company. Which means F1 and Automotive.
    The note “net revenues generated through the Ferrari brand, including merchandising, licensing and royalty income” goes down that road. If it is the case, and probably is, the part generated from F1 is considerably lower than 355M$. Also you do not in all the comments consider the shear size of revenue from merchandising which leaves F1 direct revenue to a much lower level. Anyway, until you don’t see all the numbers, especially in this case, comments or analysis on this subject are not very relevant.

  16. So, the main contention point is that Ferrari F1 is getting a lot of money out of F1. But, Joe, have you seen how many white lettered words they have on the red bodywork of their cars? Ferrari is a force in F1 and it seems a lot more people/companies want to be with Red Army, rather than with McLaren, for instance. Also, can Ferrari exist without F1 revenue? Sure. Can F1 do without them? Probably. But there is no reason for them to quit, is there?

    Anyway, Joe, can you tell the reason why Manor is in F1? I can see why Merc, McLaren Honda, RB Renault, Ferrari are there. I am sure Frank, Peter and Gerard are there, as well, not to lose money. It is plain where the money comes from into F1. The question is, why do you think the money is not distributed on merit in F1? There is quite a formula on who gets how much for each championship point. And who gets further privileges after winning alot of championships ala RBR. Then, BE, knows that people gather to watch red cars race, but not the manors. Ultimately, F1, looses too much without Ferrari. And hence they get their share. The balance will shift if teams like Merc, McLaren, Williams and RB with Renault decide against Ferrari. Good luck on all of them agreeing and coming to terms on new balance in F1 sans Ferrari.

  17. Why does everyone assume Ferrari spends all of the revenue on their F1 budget? I suspect they spend much less than the revenue generated leaving themselves with a huge profit.

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