The truth about Ferrari's power in F1

Article from ESPN F1

By Christian Sylt and Caroline Reid
April 1, 2013
The rumours about Ferrari having a veto over changes to Formula One's regulations and receiving more prize money than other teams are almost urban myths. No direct evidence has ever been presented to prove them. Until now.


The prospectus for the flotation of Formula One on the Singapore stock exchange reveals that Ferrari has the right to veto regulation changes
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A few weeks ago Italian newspaper Corriere dello Sport shed new light on one of the longest-running rumours in the history of Formula One. It claimed that Ferrari has a veto over any change to F1's regulations and it added that Max Mosley, former president of motor sport's governing body the Fédération Internationale de l'Automobile (FIA), awarded the privilege to the team in 2005 to prevent it leaving. It certainly wasn't the first time that this kind of rumour has been reported but it may well be the last because evidence has come to light which at last proves that Ferrari does indeed have a veto.

F1's new season got underway last month in Australia despite the expiry at the end of 2012 of the Concorde Agreement, the contract which commits the teams to race. This was signed by the teams, the FIA and F1's rightsholder the F1 Group, which is controlled by private equity firm CVC and run by Bernie Ecclestone. The teams lined up on the grid in Australia and the race went ahead as usual largely due to the existence of several crucial contracts.

In 2001 the F1 Group paid $313.6m for the rights to host the 'FIA Formula One World Championship' for 100 years from 2011. The contract which grants the rights is not as well-known as the Concorde but is still important and is called the Umbrella Agreement. It grants the F1 Group the rights to F1 which in turn enables Ecclestone to do deals with circuits and television stations to allow the races to go ahead and be seen.

The FIA draws up the Technical Regulations which the teams must abide by and it also grants them entries to the championship. Without the Concorde, Ecclestone has no guarantee that the teams will attend every race. The Concorde also ratifies the technical regulations that the teams will race under and confirms the commercial terms of their involvement with F1 such as the amount of prize money they will receive. So why did the first two races take place as normal despite the Concorde being unsigned?

The answer is that although the teams have not signed a joint contract with the F1 Group, ten of them have committed separately by signing up to what are known as 'Team Agreements', with all the teams signed up except for Marussia. Each contract runs from the start of this year until the end of 2020 and some confer different benefits to the signatories. Ferrari's is by far the most lucrative.

The extent of Ferrari's power in F1 is buried deep in the 498-page prospectus for the flotation of F1 on the Singapore stock exchange which CVC has said it hopes will take place later this year. On page 179, in the section about the Team Agreements it states that "in respect of Ferrari only, Ferrari may terminate if the regulatory safeguards agreed between the FIA and Ferrari do not allow Ferrari to veto any change to the regulations already announced or introduced (subject to certain exceptions)."


Ferrari has a number of benefits as the longest standing team in Formula One
It proves the rumours to be true but there is more. The prospectus, and reports by financial analysts, also reveal that Ferrari gets more prize money than any other team. The main prize fund is distributed to the top ten teams depending on their position in the standings and it is comprised of 47.5% of the F1 Group's underlying profit which is known as Earnings Before Interest, Taxes Depreciation and Amortisation (EBITDA). The F1 Group's latest financial statements are for 2011 and they show that the main prize fund came to $557.1m.

Page 176 of the prospectus confirms that under the Team Agreements two additional percentages will be shared out. However, crucially, only certain teams benefit from them. The first is "the greater of 7.5% of our Prize Fund EBITDA, and US$100 million (the 'CCB Fund')." The prospectus adds that "The CCB Fund shall be shared amongst the CCB Teams meaning each of the top three Teams determined primarily on Events won in the four seasons prior to 2012."

These teams are Ferrari, McLaren and Red Bull Racing and the prospectus states how much they will each receive from this fund. It confirms that this sees "the Team ranked first receiving 37% of the CCB Fund (with a minimum payment of US$37 million), the second Team receiving 33% of the CCB Fund (minimum US$33 million) and the third Team receiving 30% of the CCB Fund (minimum US$30 million)."

Until the end of last year Ferrari got an additional 2.5% of F1's profits to itself but according to page 176 of the prospectus, and the analysts' reports, this now comes to "the greater of an amount which is capped at 5% of our Prize Fund EBITDA and US$62.2 million."

In 2011, the F1 Group's underlying profits came to $1.17bn on revenue of $1.5bn. This gave Ferrari $29.3m from its 2.5% profit share alone. This year that will treble to at least $92.2m and in addition Ferrari gets a cut in the prize fund comprised of 47.5% of F1's profits.


Luca di Montezemolo was appointed a non-executive director of the F1 Group's ultimate parent company Delta Topco in March 2012
It gets preferential treatment because it is the only team which has competed every year since F1 began in 1950 and has won more titles than any of its rivals. Ferrari is also the only car manufacturer involved with F1 which directly signs contracts with the F1 Group rather than using a subsidiary company to do so. This gives recourse directly to Ferrari itself if the contract is breached whereas a subsidiary company could easily be shut down.

So important is Ferrari's status as the longest standing team that it even has control over the race weekend. Page 177 of the prospectus reveals that the F1 Group has "agreed to give to the Longest Standing Team, if it is a manufacturer of GT racing cars, a right of first refusal to run an international motor sport series for its cars as a support event (i.e. to be included in the track programme of an Event as a support event to the World Championship) on terms and conditions no less favourable to the Longest Standing Team than those granted to other entities."

Ferrari's chairman Luca di Montezemolo also benefits directly from having steered the manufacturer to success in F1. He has been granted an option on a 0.25% stake in F1 if it floats and in March last year he was appointed a non-executive director of the F1 Group's ultimate parent company Delta Topco.

Di Montezemolo now has a say in shaping F1's future as he sits on its remuneration and nomination committees. The former approves the policy for determining how much directors get paid and the latter recommends which directors should be re-appointed. Ecclestone's contract has no fixed term so it falls outside the remit of the nomination committee which goes to show that there are limits to Ferrari's influence after all.

Ferrari's veto over the regulations is at the top of the list of its benefits and it is here to stay until the end of 2020 at least. The Team Agreements should eventually be replaced by a new Concorde Agreement which the FIA has repeatedly said will soon be signed. The prospectus confirms that the same terms will carry over from the Team Agreements and "once the New Concorde Agreement has been entered into, the individual Team Agreements will fall away."

Although there is no doubt about whether Ferrari has a veto, the next matter of great speculation is sure to be whether it has used it.

© ESPN EMEA Ltd.

 

"It's good to be the king".

 

Sure is

 

This is old news if you've been around F-1 for any lenght of time.
Ferrari is the only thing that keeps F-1 - F-1. with out Ferrari its just another series.

 

Correct. Bear in mind also that Chris Sylt writes for spitpuss.com and they simply detest all things Ferrari.

 

My response to the article...... So?

 

They both need each other and that is a good thing

 

Ditto

It is sad enough that a soft drink manufacturer is now the dominating force in a motorsports competition.

 

No its actually sad Ferrari have not been able to defeat them. Yet.

 

It's not about Ferrari but about the fact that a soft drink company trumps such stellar racing names as Ferrari, Lotus, McLaren, Renault, Mercedes, Sauber and Caterham. Companies, which only exist to build cars and/or go racing. That's what bothers me.

 

Once it was a posh fashion designer, and the world keeps going around.

 

Bennetton was / is posh?

 

Before I take time to read the article, can someone assure me it's not an April Fool's joke? I typically don't believe anything that was written on 4/1/XXXX.

Thanks in advance.

 

I think it depends on how you look at it. Ferrari aren't losing to Red Bull the energy drink.... they are losing to Adrian Newey the car designer who happens to work at a team that Red Bull owns. They employ some of the best people in the sport on all levels. It isn't like Red Bull Racing is comprised of soft drink engineers and staff from the bottling plant. On top of that, Red Bull does some seriously cool stuff in all forms of sports, so it's a little shortsighted to think of them as just a soft drink company.

 

So if Alonso has veto in Ferrari and Ferrari has veto in F1, then Alonso is running the series!

Haha sorry couldn't resist that one!

 

There's quite a few comments attached to the end of the original article claiming just that..... However, I think it's legit and that they "sneaked" it out on 4/1 is just a coincidence. As Tom noted, it's long been strongly suspected that Ferrari had at least limited veto power. Extra money has been known for a long time.

That it's now detailed in a prospectus is something I've been waiting for for a while - I'd love to get my hands on all ~800 pages - I'd bet there's quite a lot of "stuff" we've never been privy too previously...... FWIW, I searched CVC's site, but nothing there - Anyone know how to acquire a copy? Is it/should it be online somewhere?

+1 to all.

So they happen to get the $ from overpriced sugar water. So what? Mateschitz is about as close to a "sporting philanthropist" as we've seen in a long time. He even helped Bernie out by buying the Baby Cans when needed. Long may he continue to support not just F1 but all the other stuff.

Question; Did you (T12) have the same hatred towards, say, Bar? They're just a cancer stick maker after all. Or Leyton House? (Never did know what they did! ). Or any one of many others that aren't car makers?

Cheers,
Ian

 

I like yer thinking!.......

I'd like to see the details; It does note "veto power subject to certain restrictions" - What the hell are the restrictions I wonder?

Cheers,
Ian
The link; The truth about Ferrari's power in Formula One | Ferrari | F1 features | ESPN F1

 

Interesting article. I knew there was a lot of money in F1, but I didn't realize just quite how much there really is.

 

They didn't bother me since they weren't successful (Benetton being an exception but I looked at them as the team they just took over).

In addition Red Bull really rubs me the wrong way as they support all the new "sports" and games (e.g. X-games). That's probably a generation issue, but I just don't like it.

 

Indeed...... And remember these #'s are only the Bernie pot..... Nothing to do with any sponsorship $ of course.

One of the biggest bargains in the history of the world.... Bernie & the Lunatic stitched *everyone* up with that one...... Having said that, Bernie did offer them a slice, which they declined and he took all the "risk" (for it was a big risk at the time) himself.....

S-w-e-e-t-!

Cheers,
Ian

 

Thinking more on this, there's gotta be "severe" restrictions; Someone commented on the original article;

He makes a good point......

Cheers,
Ian

 

Beautifully stated. A trip to Hangar 7 in Salzburg will convince most of this in person.

 

Either this story is bogus or Ferrari are not using their power wisely because they still haven't won a championship since 2008.

 

Dunno about "bogus" - For sure the rumors of "limited" veto power have been around long enough & everyone already knew they get extra money.

Thinking yet more eek, the double diffuser row was something they couldn't veto - The rules were set and they'd all agreed (even though Ross told 'em they'd ****ed up) so nothing they can do there.

AFAIK, they all also agreed to outlaw testing - Ferrari whined, but went with it.

Cheers,
Ian

 

If they veto a rule change it affects everyone equally, not just them. Having said power does not really give them an "advantage" over another team per-se, because everyone has to abide by the same rules.