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?

Autosport (UK) - - CONTENTS - By Di­eter Rencken, Spe­cial Con­trib­u­tor

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”

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