Ferrari Most financially secure of current teams
After the unfortunate departure of Toyota from Formula 1 in November 2009 and Honda a season earlier in 2008, Ferrari will start at the head of the 2010 economic Formula 1 grid when the World Championship begins in March.
Last season and in the events immediately following it, the budgetary excesses of F1 teams have been brought to light as F1 manufacturer started leaving the sport. In what many think was a hasty move, the FIA welcomed to F1 several outfits that may or may not even make it to the grid in March.
Teams like USF1 and most recently notable the Campos Meta team as well as Virgin have all raised insider speculation on their ability to compete in F1 based on their financial situations. One looking for investors and the other hastily management changes with the start of the season just around the corner.
Regardless of the newcomers ability to stay in F1, steps are now being taken by all the competitors to cut spending, Ferrari included.
So what exactly is it that makes Ferrari the financial leaders in the economic game of grand prix racing?
History, sponsorships, great positioning and as a result a stingy check book to name a few.
In fact, Ferrari during their entire 60 year history of F1 participation have spent just 891 million pounds out of pocket where as rivals Toyota have spent 1.3 billion pounds in just 8 seasons. How’s that for a figure?
Let’s take a look back a bit at the spending. There has been a lot of talk about just how much the sport costs. Many however, have been confused at what spending actually means to each team (and we’re not attempting to make it clearer). How much does the ‘manufacturer’ actually spend out of their own pocket?
Over the past five years, the Japanese manufacturers alone spent 1.8 billion pounds on F1, a figure very similar to the overall combined out of pocket investment of Ferrari, McLaren Mercedes, Renault and BMW; and people wonder where the Japanese teams have gone.
According to Formula Money a publication that compiles numerous statistical data relating to Formula 1, during the last five years alone, F1 manufacturers cumulatively spent a total of 3.1 billion pounds on the sport!
All this, in the wake of a world economic downturn consequently resulting in several F1’s departures. All this make Ferrari with a reported budget of just under 200 million pounds out of pocket, the economic powerhouse of Formula 1.
Why? Let’s take a look at some advantages.
Ferrari is it’s own team, manufacturer, designer, spender etc. McLaren for example will have to acquire engines from Mercedes which has been estimated to cost millions. There’s a good portion of their budget.
Ferrari on the other hand, will sell their engines to customer teams like Sauber and repay a good chunk of their own investment on engine development.
The scuderia is economically the most powerful team, thanks to agreements reached with sponsors, FOM (organizer of the competition) and contributions from parent Fiat, which contributes around 20 thousand euros to the F1 team for every Ferrari sold. Ferrari sales have been on the up or steady for the past few years, even during the recession hit world. Ferrari’s sales haven’t increased, but they haven’t fallen either, like those of Honda and Toyota.
Marlboro the title sponsor will pay about 100 million according to some industry sources to run a simple bar code somehow said to represent the company brand. On first glance this investment might seem crazy, but be aware that the health laws of many countries prevent the advertising of tobacco and those with the checkbook, Philip Morris will take what Ferrari offer.
Then, with or without the help of Alonso, there is the arrival of banking giant Santander which has secured it’s presence on the Ferrari car for the next five years by agreeing to an annual contribution of 40 million euros.
The agreement with Acer, whose logo appears on the side of the rear wing is around 10 million euros.
In addition, Ferrari has the contribution of top Abu Dhabi firms such as Etihad, Mubadala (which owns 5% of team) and Aldar, who contribute 30 million euro in sponsorship.
Meanwhile, Shell besides also being the fuel and lubricant supplier for the team also support the teams participation in events such as the Ferrari World Finals and provide around 35 million euros per year.
All these sponsor logos on the car bring in (conservatively) 185 million euro annually and then there’s the contribution of parent Fiat. But wait! There’s more.
Let’s not forget the other sponsorships, as Bridgestone which although does not have a corporate image on the car, pay Ferrari for using their car in marketing campaigns. Then there’s the little guys Alice and others.
Ferrari on top of their financial sponsorship also benefit from their official suppliers which make their own expenses that much more ‘bearable’; Magneti Marelli, OMR, SKF, Europcar, Iveco, NGK, Puma, Tata Consultancy Services, Brebo, BBS, SELEX Communication, Technogym, Schumberth and Microsoft.
Moreover, only Ferrari has extra agreements with FOM. The team president Luca Cordero di Montezemolo is the only owner with a special clause in the distribution of F1 income. For the next four years, the team is guaranteed a bonus compared to other teams of around 50 million. How?
This agreement was reached in 2005, when there was speculation about the creation of a breakaway series similar to what threatened to occurred last year. At the time, the prime stake holder in F1, venture capital firm CVC (which has 75% of Formula 1, while the remaining 25% is owned by Bernie Ecclestone), called for a study to analyze the importance of the Ferrari brand in F1.
Fortunately for Ferrari, this could not have occurred at a better time as Ferrari was riding the media success generated by the Ferrari Shumacher era. The study concluded (not surprisingly), that Ferrari was much more important than previously thought and had more value than the competition itself. Loosing Ferrari meant disaster for CVC and F1 and an agreement was made. Ferrari agreed to remain in F1, while at the same time halting any hope of a breakaway by other teams.
All the teams entering the Formula 1 world championship are entitled to a percentage of F1 profits from the competition in terms of their finishing results. It is estimated that achieving a world title in F1 nets 50 million euros.
Other revenue from FOM is distributed by the number of years a team has competed in Formula 1, race wins and titles over those years. In this section, Ferrari is the clear leader and has participated in the championship continuously since the first competition was held in 1950.
There’s always a perk to being Ferrari. Why spend on taking the team out to dinner? There’s no need, when Philip Morris invites the media and treats everyone to a weekend of royal festivities like the recently held winter Wroom event at Modonna di Campiglio in Italy. Ferrari gained some nice media attention, using the time to officially announce it’s Jan 28 car launch in Maranello, introduced their new driver two time world champion Fernando Alonso and answered a score of reporter questions that in turn generated a flurry of Ferrari articles.
So why would Ferrari be pro cost-cuts? Well let’s ponder for a minute. Looking at the above, it’s not hard to see, that Ferrari are in great shape when it comes to F1 financially, and the more the cost of the competition comes down with the introduction of various rules and or spending restrictions Ferrari may actually at the end of a season without even winning the title, MAKE money on their biggest marketing tools, which has thus far for 60+ years, been an investment.