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How not to lose gracefully…
June 14, 2014 by Joe Saward
Luca Montezemolo says (again) that Formula 1 is not working and claims that it is declining because the FIA has “forgotten that people watch the racing for the excitement. Nobody watches racing for the efficiency”.
Montezemolo might see himself as a campaigner for true sport, but there are a few things which are wrong with his arguments. Firstly, Ferrari’s only real option if it wants to have any exposure in the sport is to go Le Mans, where the key to success is… efficiency.
If the overall viewing figures of Formula 1 are falling it is because the commercial rights holder is putting some of the sport’s biggest TV markets behind pay-walls. Fans are objecting and rather than paying, they have either ceased to watch F1, or have found nefarious ways to acquire satellite signals that allow them to watch the racing, albeit with foreign commentary. This is easily overcome by using radio commentary instead.
The pay-TV deals are successful financially and the sport is pulling in more cash than ever, although finding sponsors is not easy, particularly as the teams are competing with the Formula One group in this respect, as it is keen to squeeze more money out of the sport by maximising the revenues from the trackside advertising.
However, if Montezemolo is going to argue for better sport, he needs to look at the situation he is arguing from. Lest we forget, Ferrari has negotiated a financial deal with the Formula One group that means that no less than five percent of the total revenues of the sport go straight to Maranello. And this is before prize money is even calculated. It is not easy to put that into real numbers because the revenues of the sport of hidden away in accounting gobbledygook, but the accepted number for 2013 is around $1.7 billion, following on from $1.5 billion in 2011 and $1.6 billion in 2012.
Whip out a calculator and this will tell you that Ferrari must be getting around $85 million just for turning up each year at the races. The fact that this is not widely known is because two and a half percent of the money comes from the half of the revenues that is allotted to the teams; and the other two and half percent comes from the money that goes to the Formula One group, with all of its financial gymnastics involving loans, dividends and so on. This is why the Formula One group now says that the teams are getting more than half the money. There are believed to be special “incentive” deals for Red Bull and Mercedes as well although these seem to have been fixed payments to get them to sign up to the bilateral agreements that have replaced the old Concorde Agreement.
Now, add the $85 million to the usual share of the prize money “schedules”, the payments from which depend on how well a team does in the Constructors’ Championship – which range from around $100 million for the winner to $50 million for the 10th placed team – and one arrives at a situation where one can see that Ferrari always comes out on top in terms of finance, even if it finishes last in the Constructors’ Championship!
In addition the Italian team has the right to veto the introduction/modification of any technical or sporting regulations (except for safety requirements). Ferrari is entitled to exercise this right of veto only if the exercise of the right of veto is not prejudicial to the traditional values of the Championship (whatever the hell that means) and it reasonably considers that the new regulations are likely to have a substantial impact on its legitimate interest, another essentially meaningless legal phrase. This veto is not new and dates back to January 2005 when Ferrari was granted the right until the end of the 2009 Concorde Agreement (in December 2012).
Think about that for a minute: this means that, one way or another, Ferrari agreed to the switch to the new engine regulations, or at least did not use its veto rights.
I like Ferrari, in principle. It has history and generates passion that adds value to the F1 World Championship. Having said that Ferrari exploits that in its merchandising, earning far more than all the other teams in this respect (while not working with them, of course). All things considered F1 and its fans look after Ferrari far too well. You have to take your hat off to Montezemolo for getting people to agree to all of this, but I personally believe it should stop. Ferrari depends on Formula 1 as much as Formula 1 depends on Ferrari and thus there is no reason for the Italian team to be treated so favourably. No team has a divine right to make money or to stop rules being changed. It is just unfair and I would love to hear from a lawyer as to why it is not anti-competitive because from where I am sitting it would seem to give Ferrari a massive advantage over the opposition.
I also don’t see any possible justification for Ferrari claiming, as it has done in the past, that it is only a small manufacturer and cannot compete with the big-spending majors. Ferrari announced earlier this year that its revenues rose five percent in 2013 to a record $3.16 billion and it posted a pre-tax profit of $500 million. The company even said that it has a cash pile of $1.87 billion, despite an increase in research and development spending.
When one considers that the company, despite all these advantages, has not won a title in five years and is currently third in the Constructors’ Championship, fighting for the place with minnows such as Force India, McLaren and Williams, one has to say it is a pretty poor effort. I fear that the buck for this must stop at Montezemolo’s office door. He is the man in charge and he is not backward in coming forward when there is success to be enjoyed. Thus when there is pain to be endured he must be the man standing up and taking the slings and arrows.
Deep down honest people know that winning with an unfair advantage is not winning at all and this is why they strive to compete on a level playing field. I think Ferrari should do the same.