Ferrari Contemplates Exit from Formula One, Could Save $119 Million/Year

Ferrari (RACE) could be leaving Formula 1 (FWONK) at the expiration of their contract following the 2020 season. RACE, F1’s oldest team (67 seasons), opposes the organization’s plan to introduce a new version of its engine to the racing series and its intention to redistribute prize money beginning with the 2021 season. The introduction of a new engine will increase RACE’s expenses and a balancing of prize money would likely cost the company its guaranteed annual bonus payment ($94 million/year). Ferrari Chairman Sergio Marchionne has been quoted as saying an exit would be “totally beneficial” to Ferrari’s bottom line.

Howie Long-Short: There is a narrative that should RACE pull out of Formula 1, the company would see an increase of $119 million to its bottom line; the team’s annual deficit. I don’t believe the number is nearly that high. Marchionne has already said that if the company were to leave F1, it would join another racing circuit. Even if you believe F1 R&D is irrelevant to the development of Ferrari street road vehicles (and theoretically draw the expenditure down to $0), competing on another circuit is going to require some level of R&D capital. An exit from F1 may reduce the required spend, but it doesn’t eliminate line item.

Fan Marino: Red Bull team principal Christian Horner is calling Ferrari’s bluff saying, “they’ll bluster that they don’t need Formula One, but what other form of motor racing is going to give Ferrari the platform that Formula One does? I think when the music stops they’ll be there.” He may be right as to the latter, but Ferrari doesn’t need F1 as a marketing platform; and certainly, not like F1 needs Ferrari. As well-respected motorsport journalist Peter Windsor recently said “the key to everything in Formula 1 is keeping Ferrari happy and part of the programme. Without Ferrari, Formula 1 is just another motor racing championship”. In that scenario, Ferrari would form its own racing circuit (and likely not miss a beat).

Ferrari on track for £100m boost in profits if team leaves Formula 1

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Author: John Wall Street

At the intersection of sports & finance.

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