Ferrari's R&D costs reverse

Ferrari has revealed that its research and development costs for 2017, when it designed its 2018 car.

It’s no secret that whatever its form, Ferrari usually walks away with the biggest slice of the prize pot, mainly due to its historic bonus.

While the British based teams have to file annual accounts, Ferrari is one of the several foreign team that has no obligation to do so.

However, all that changed when, in 2015, the Italian company was floated on the New York Stock Exchange and its filings were finally laid bare.

In 2012, when F1 was set to be floated on the Singapore Stock Exchange, the prospectus revealed that, courtesy of the Constructors’ Championship Bonus (CCB), Ferrari, McLaren and Red Bull were a guaranteed to share a prize fund of at least $100m in addition to the performance-based payments open to the other teams. The CCB was due to the fact that the three teams had won races in the previous four seasons.

“The Team ranked first receiving 37% of the CCB Fund (with a minimum payment of US$37 million),” revealed the prospectus, “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).”

Consequently, Ferrari received $30m along with the historic bonus awarded for being the sport’s longest-standing team, which means at least $62.2m annually.

This, in addition to the performance-based payment, meant the Italian outfit pocketed around $190m in 2016, while champions Mercedes were paid $53m less despite winning both championships.

Putting aside the Italian team’s unhappiness with the proposed engine rules for 2021 and all the talk of “entertainment”, “DNA” and “purity”, Liberty’s plans for the futures of the sport, revealed last week in Bahrain, which would see Ferrari‘s bonus reduced to $40m and an additional $10m which would be awarded to all the manufacturers, are what really has the Maranello outfit reconsidering its future in the sport.

Last year, it was revealed that Ferrari‘s single biggest expense is R&D which came to €509.6m ($536.9 million at the rate on the filing date of 31 December 2016), the period which covered the research and design of the team’s 2017 car which was to ultimately challenge Mercedes for the title(s).

Company filings subsequently revealed that “the main component of research and development costs expensed related to the research and development performed for the Formula 1 racing car”, which, assuming a figure of around 75% gives an R&D expenditure of around $402.7m excluding the team’s salaries and running costs.

2017 filings however, which cover the design of the current 2018 car, reveal a “decrease in research and development expenses for Formula 1 activities.”

According to Forbes, like Mercedes, Ferrari is thought to be spending around $98.4m on staff – with Sebastian Vettel and Kimi Raikkonen accounting for around half of that – while the annual running costs are in the region of $70m bringing its total F1 costs to a staggering $571.1m.

This is partly offset by the $190m prize money, then there is the $514.1m generated from “sponsorship, commercial and brand” as in 2016, which “includes net revenues earned by our Formula 1 racing team, through sponsorship agreements and our share of the Formula 1 World Championship commercial revenues, and net revenues generated through the Ferrari brand, including merchandising, licensing and royalty income.”

Again using 2016 as an example, taking all into account, including engine deals with customer teams, Ferrari‘s income that year was around $470m from F1, leaving it with a deficit of around $101.1m which was absorbed by the company’s total costs.

While some would argue that were Ferrari to withdraw from F1 it would no longer need to cover the deficit, the fact is that Ferrari needs F1 as much as F1 needs Ferrari.

It remains to be seen whether both parties can convince one another of the fact.