Dieter Rencken: political animal
…spread diseases, so the old saying goes. Will Ferrari’s latest threat to quit Formula 1 spread contagion throughout the sport?
IT WAS ONCE SAID: “WHEN GENERAL MOTORS sneezes, the New York Stock Exchange catches a cold.” Could the same analogy be drawn about Ferrari and Formula One Management, after Ferrari threatened to exit F1 unless the post-2020 regulations are to its liking?
True, GM was one of the biggest companies in the world back then. But, make no mistake, Ferrari is currently flying high, delivering more cars than ever before and boasting its highest market capitalisation (and profit) since listing in October 2015. Ferrari is listed not on NYSE but NASDAQ (ticker: RACE), but so too is F1 under the Liberty Media umbrella (with the rather less elegant FWONK), potentially creating a case of double jeopardy.
Thus Ferrari president and CEO Sergio Marchionne’s recent threats, uttered after FOM unveiled its post-2020 vision, should be taken seriously, not least by F1’s commercial custodian. At the heart of the dispute lie three critical issues: a revamped governance procedure under which Ferrari would lose certain privileges; the technical make-up of Formula 1’s post-2020 regulations; and, finally, the “cost saving” or “budget capping” proposals as Liberty attempts to get costs in order, to justify reduced payouts to teams so as to bolster its own bottom line.
Ferrari competes in F1 in order to gloss its reputation as maker (and/or licensee) of utterly desirable objects. Its hi-tech, luxury image enables the company to attract premium partners, and it does not advertise in the traditional sense: F1 is the brand’s marketing platform. Dumbed-down technology and budget caps simply do not fit that business model.
There is, though, no doubt that Ferrari occupies a very special place in F1 history, so much so that the two are symbiotic, and have been since the Italian team contested the first world championship season back in 1950. Indeed, it is said that Ferrari is F1 and vice versa. While that stretches the point, the fortunes of both brands are indisputably intertwined.
When did Ferrari withdraw from sportscars to concentrate on F1? Mid-1970s. When did F1’s popularity first take off? Ditto. When did F1’s appeal start to ebb? Mid-1990s. When were Ferrari’s fortunes at an all-time low? Ditto. When were F1’s TV ratings at their highest? Not coincidentally, when Ferrari ruled the roost during the noughties.
Notwithstanding four-time champion Lewis Hamilton’s social-media activities, the predominant colour in the grandstands is scarlet, not Mercedes silver, while Ferrari’s merchandising areas are generally triple the size of its nearest competitor. Wander around airports, and check out the show cars. When last did you see a Force India or a Williams?
These are trends that cannot be ignored, for all that various other dynamics have influenced F1’s popularity over the years. Talk to hedge funds about F1 share pricing, and inevitably their first question is: “What is Ferrari’s future?” Do they check Mercedes, Red Bull or Mclaren? Ferrari, as a globally recognised marque with premium associations, peripherally concerns them; the rest, not a jot.
When Marchionne issued his threat, the (anticipated) reaction was ‘same old, same old’, for Ferrari is no stranger to pulling this trick. In 1987 Old Man Enzo went as far as building an Indycar in protest against impending regulations that mandated V8 engines, causing the FIA to lift its restrictions. Renault’s glorious V10s and wailing Ferrari V12s (and later V10s) were the result of the Scuderia’s forceful lobbying… Thus, to many the threat was Marchionne ‘crying wolf’ in time-honoured fashion, prompting fans and websites across the world to leap onto gung-ho platforms and suggest Liberty should call Maranello’s bluff; the sooner the better.
This, though, overlooks one essential factor. Both FOM and Ferrari are now listed companies, and thus at the mercy of shareholders. Their successes are no longer measured in eyeball ratings or championships won, but via stock-market indices – and Liberty knows full well its share price will tank if Ferrari walks. Equally, Ferrari’s could rise or fall, depending upon how significantly the markets weigh its F1 participation.
Such has been the impact of Liberty’s October 31 announcement on both valuations that already Liberty shed 10% over the past week, while Ferrari’s share price rose marginally, then dropped before rebounding.
As Marchionne pointed out in a call to investors, Liberty may have factored a possible Ferrari exit into its scenario planning – failure to do so would constitute serious breaches of fiduciary responsibility – while Ferrari would have made a similar calculation. When Marchionne threatened to invoke Ferrari’s veto in 2015, the FIA and FOM backed off.
Two powerful forces are in stand-off, their positions dictated by their respective share prices – with F1’s very future being at stake. Sneeze, cough.
“Enzo Ferrari went as far as building an Indycar in protest against the FIA”