What Ferrari's finances tell us about F1

At Spa, while discussing Formula One Management's latest financial results (see below) with a team executive, he recalled that this column's annual analysis of team finances had previously been published in the run-up to the Belgian Grand Prix, and asked when the latest (third) edition was due.

It was explained that publication had been delayed to October as all British-based teams are required to file their financial statements by the end of September (for the previous financial year), and as such it was logical to publish once such information was available. That said, collating data on three teams - Ferrari, Toro Rosso and Sauber - remains challenging due to their being domiciled in territories that do not demand full accounting disclosure.

However, in F1 nothing remains secret, and the truth ultimately outs - as it would have in any event now that Ferrari is on target to list on the New York Stock Exchange in early 2016, and is thus required to provide full operating disclosure. What do that prospectus and analysis of Ferrari's finances show?

According to the rated Wall Street research institution Bernstein Research, Ferrari spent around $440million on its 2014 F1 programme, made up of $220million in sponsor income, $180million in FOM revenues and $40m in in-house marketing contribution - as close to AUTOSPORT's 2014 numbers as makes no difference when Euro-Dollar-Sterling cross rates are factored into the equation.

F1 made up around 15 per cent of Ferrari's 2014 revenues ($3billion), on which it turned profits of $428million. Surprisingly, merchandising (of licensed products), although highly profitable, contributes just five per cent of turnover - so much for the zillions of red caps doffed across the globe - while 80 per cent of revenues and almost 90 per cent of profits are generated by the road car division.

For this reason, Bernstein disputes Ferrari's self-styled description of it being a "luxury brand" rather than a car manufacturer. Equally intriguing, though, is that Ferrari revenues/profits have doubled since 2005 - the season that marked the end of the Scuderia's F1 hegemony...

Off-track, Ferrari's success has grown since 2005 © XPB

Fiat/Ferrari boss Sergio Marchionne, who intends pushing annual car production to a sliver under 10,000 units - up from the current self-imposed level of 7000 - in order to maximise revenues while qualifying for the (US) emissions concessions granted to low volume manufacturers, reckons Ferrari could be worth as much as $11billion once it hits 10,000 units, generating $1.1billion in profits.

Bernstein's current valuation is, though, more realistic at $4billion, being about 10 times 2014 earnings, and it considers estimates of $10billion to be "wild" and of $6billion as "generous" - which puts recent valuations of up to $10billion placed on FOM (which, like Ferrari, is a candidate for listing even if certain events recently conspired against an IPO on at least two occasions) into stark (and humorous) perspective.

According to the Formula One Group's latest filings - more specifically those for Formula One World Championship Ltd, the company primarily charged with exploiting the commercial rights to the FIA Formula 1 World Championship - the sport turned over $1.35billion* in 2014, with earnings before income tax, depreciation and amortisation of $260million.

According to sources, Delta Topco, FOG's ultimate holding company majority controlled by venture fund CVC Capital Partners, is required to honour loan repayments of around $250million per annum - not only did CVC's Fund IV indirectly fund the original purchase of the commercial rights via loans, but a variety of loans have been entered into since - an amount that roughly equals FOWC's profit (before EBITDA).

Any wonder, then, that CVC refuses to entertain demands for increased revenues from cash-strapped teams - it would appear to be not so much a matter of refusing to accede to demands, but simply being unable to without breaching its banking covenants despite the sport's annual turnover of over a billion bucks.

Year-on-year (2013/14) income is up five per cent despite the number of races (19) remaining static, with profit up eight per cent - suggesting efficiency improvement brought about primarily by calendar rationalisation and reduced travel/freight costs.

Increases in revenues are attributed primarily to upscaled Spanish and Middle East TV contracts, with replacement of the troubled Indian and Korean races by well-funded rounds in Austria and Russia further contributing - through increased hosting fees and reduced logistics costs. Revenue per race jumped from $57.1million to $59.4million.

Calls for smaller teams to receive greater revenues have been unsuccessful © LAT

Although there are further companies in the Formula One Group, such as, for example, the GP2 operation and entities such as Formula One Travel, which boost both turnover (by around $300million annually) and thus EBITDA, the bottom line is that applying Bernstein's Ferrari earning's measure to FOG would result in an IPO valuation of no more than $3billion - or a third that punted by certain FOM disciples.

Gratifying for this column is that FOWC's reported total 2014 payments to the teams collectively of $860million, which is within two per cent of the figure exclusively revealed by AUTOSPORT in May. This would indicate that this writer's sources were again on the money when they provided their best estimates of team revenues.

As for future valuations: Ferrari's pending IPO is again instructive, for the company intends growing turnover by around 50 per cent (7000 to 10,000 units annually, with exponential increases in profitability due to improver overhead and fixed cost absorption), and it appears highly unlikely that FOG will be able to follow suit. In fact, if shrinking TV ratings and declining spectator figures ratings be the measure...

However, as always in F1 the devil lurks in the detail, and there appears an intriguing paragraph in FOWC's return, namely:

"In July 2013 FOWC and further companies within the [holding group of companies] entered into a further agreement with the FIA pursuant to which the FIA committed to enter into a new Concorde Agreement for the period to 2020, on request [emphasis added], and to continue to operate on substantially the same terms as the 2009 Concorde Agreement."

Not only does this clause substantiate what this column has long contended, namely that no Concorde Agreement currently prevails, but it also begs the definition of "substantially the same terms as the 2009 Concorde Agreement", given that the Heads of Agreement document signed in Hungary in July 2013 makes provision for the contentious Strategy Group and controversial Constructors Champions Bonus payments - neither of which were enshrined in the earlier agreement...

The bottom line is that nothing is either sacred nor secret in Formula 1, or at Ferrari, and that regardless of denials and whatever misinformation may be sowed about the place, the truth eventually outs.

*Despite being incorporated and domiciled in England and Wales, FOWC and the majority of its sister entities report their results in US Dollars.