Ferrari’s (NYSE:RACE) F1 Budget Tops $570-M

Ferrari’s (NYSE:RACE) F1 Budget Tops $570-M

Ferrari’s (NYSE:RACE) F1 Budget Tops $570-M

$RACE

Ferrari (NYSE:RACE) is F1 auto racing’s most famous team and as such has the biggest racing budget. But, in the Maranello outfit’s latest financial statements contain the revelation that its research and development costs are actually reversing.

In the past Ferrari’s finances were private. This started to change in Y 2012 when F1 planned to float on the Singapore stock exchange and produced a prospectus which lifted the secrecy on the prize money paid to its Scuderia Teams.

On the F1 money table Ferrari, McLaren and Red Bull Racing share a guaranteed annual prize fund of at least $100-M in addition to the performance-based payments which are open to all the other teams.

This is because they are Constructors’ Championship Bonus (CCB) teams, the Top 3 based on races won in the 4 seasons prior to Y 2012.

The Scuderia gets its own dedicated prize as well as the CCB Fund. It gives Ferrari at least $62.2-M annually in return for being F1’s longest-standing team having been racing in it since the start of the F1 championship series in Y 1950.

This guarantees Ferrari at least $92.2-M annually with the performance-based payments driving its total prize money to an estimated $190-M in Y 2016.

In contrast, MercedesAMG was paid $53-M less even though it won the championship.

F1’s new owner Liberty Media (NASDAQ:LMCA) wants to halt the inequality, as there is a correlation between the racing teams’ budgets and their chances of success.

In Y 2016 its CEO Greg Maffei said that one of its objectives is to have “much more fairness in prize money” which benefits the 2nd tier, but could see the end of the iconic Italian racer’s bonus.

HeffX-LTN learned Monday, that FIA plans presented to the racing teams before this month’s Bahrain Grand Prix reportedly involve cutting Ferrari’s bonus by half with just $40-M due to be paid in recognition of its historic status and an additional $10-M going to each engine manufacturer.

As well as facing a fall in prize money there is the engine issue

Ferrari’s on track costs are to rise as F1 is due to introduce a new version of its 1.6 liter V6 engine in Y 2021.

It will be cheaper for teams to lease, but will cost manufacturers Ferrari and MercedesAMG more as they will have to design it. It is a hot point for Ferrari as it has failed to win the title since the V6 was introduced in Y 2014.

These sticky issues have brought threats that Ferrari will pull out of F1 in Y 2021 when its contract to race expires. Chairman Sergio Marchionne said last year that quitting would be “totally beneficial to the P&L” and it is no exaggeration.

Unlike most of its rivals Maranello outfit does not file financial statements for its F1 team as it is a division of the auto maker rather than a separate corporation. However, when Ferrari floated on the NYSE in Y 2015 its filings finally gave a glimpse of the working of its racing department.

Last year it was revealed that the Company’s largest expense is in the research and development costs which came to $536.90-M in Y 2016.

Ferrari is a public company and almost all of the other F1 teams which are private corporations. Its Y 2017 annual report was recently released and includes the note that there was “a decrease in research and development expenses for Formula 1 activities.”

That has not hurt Ferrari’s on track performance. Lead driver Sebastian Vettel won the 1st 2 races of the season and finished in the Top 10 at Shanghai last Sunday, he leads the drivers’ championship.

Like MercedesAMG, Ferrari is likely spending nearly $100-M on staff with more than 50% of it going on payment of Mr. Vettel and his team-mate Kimi Räikkönen. And the annual expense for running the team comes to an estimated $70-M bringing Ferrari’s total F1 costs $571.1-B.

Those expenses are partially offset by about $190-M of prize money and income from sponsorship and selling/leasing its engines to other teams. The price of an annual engine lease comes to $20-M and in Y 2016 Ferrari supplied 3 teams, it supplies more now.

Ferrari reported that it generated $514.1-M of revenue from sponsorship, commercial and brand in Y 2016, saying this “includes 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.”

The F1 team’s sponsorship take comes to an estimated $220-M

Counting the beans

The Company’s total annual F1 income is about $470-M leaving it with a deficit of $101.1-M which is absorbed within the manufacturer’s total costs and likely marked as advertising.

If The Scuderia ankled, F1 would lose its main attraction. John Malone’s Liberty has 3 years to turn round this situation and ensure that Ferrari remains, as Ferrari is F1 to the fans around the world.

Symbol Last Trade Date Change Open High Low Volume
NYSE:RACE 122.64 16 April 2018 0.21 122.49 122.83 122.24 171,932
HeffX-LTN Analysis for RACE: Overall Short Intermediate Long
Neutral (0.05) Neutral (0.08) Neutral (0.06) Neutral (0.01)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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