THE MOLE

The Mole meets Moll

The Mole felt the need the other day for some Parmesan and rather than popping down to Sainsbury's as he might perhaps have done, he decided that he would kill four birds with one stone and set off to visit Maranello, where he wanted to order some tiles for a bathroom Mrs Mole is planning in the converted stables at Mole Manor.

This gave him the chance to stop off at the Panini farm in Modena, which The Mole happens to think produces the best Parmesan that money can buy. The added bonus is that the family owns a marvellous collection of Maseratis which is housed on the farm.

Then there was a problem because trying to decide between lunch at Lauro's in Modena or at the Cavallino restaurant in Maranello is not an easy thing to do. The decision was made for The Mole by his man inside Ferrari, who uses the codename Moll, named after a dead Ferrari star from the 1930s. Moll explained that time was a little short and so it would be easiest to meet at the Cavallino, just opposite the Ferrari factory gates. And there amid the Ferrari memorabilia and the helmets of great men who have long gone from the F1 scene, The Mole caught up with the latest gossip at Maranello.

Il Cavallino is a busy place but big enough to have an anonymous lunch amid the locals, the German tourists and Ferrari nuts from around the world. They talked sotto voce while The Mole watched a man from Essen trying to slip a table napkin into his Schumi rucksack. The bread was, as always, quite delicious. The gnocchi al gorgonzola was spectacular and washed down with a fine Lambrusco di Modena. After a few more courses the speed of the day slowed and The Mole and Moll got into the Il Nocino, a rather dangerous and dark liquor made from walnuts, which is found only in Modena. Moll seemed to have forgotten that he was busy and after lunch they went for a post-prandial perambulation around Maranello.

Life at the Gestione Sportiva is good, Moll reported. The new F2003 GA is very promising and the atmosphere within the team is bubbly. Even the disastrous first three races did not really rattle the conviction in the Via Ascari that all is well this year. Jean Todt is a man who has got them all believing that they are invincible and yet at the same time there is no hint of complacency.

Luca di Montezemolo is engaged in "Project Uomo" which is transforming the Maranello site into a modern efficient industrial complex and creating a pleasant modern working environment for the company's employees. By the time the project is completed in 2005, Ferrari hope to have a complex that will be a world leader in car production. Already Ferrari has invested in a variety of new buildings including the wind tunnel and the Nuova Officina Meccanica. Last summer the Nuova Logistica building for the F1 team was completed. Between now and 2005, the entire project will be completed with the construction of the Centro Sviluppo Prodotto, (Product Development centre) a Nuova Verniciatura (a new Paint Shop), a new company restaurant and a big new complex to house the Gestione Sportiva.

According to Moll, Feng Shui is big in Montezemolo's life and everything will be bamboo and running water. The architects spend their time talking about the factory being a "living entity" and plan for a tree-lined street called the via Enzo Ferrari running through the middle of the complex.

But this all costs money.

Ferrari is doing very well but it could be making more money because most of the profit on the $1.27bn in turnover is disappearing into the racing programme. Profits last year were down to $23m, although this was largely due to the fact that Luca di Montezemolo and Jean Todt took bonuses between them which were worth $22.4m. The profit should have been about $50m but on turnover like that $50m is not a big profit. There are estimates that the Ferrari racing budget may be as high as $330m but these things can be hidden away in research and development budgets and other dusty corners of the accounts. In 2001 there was a massive boost in research and development spending with $225m being pushed in that direction, an increase of 76% over the previous year.

The question, said Moll, is whether such investment can be sustained.

"Does it need to be?" asked The Mole.

"What I do know," said Moll, "is that they are looking at ways to save money."

The Mole pondered this for a moment. It is true that Ferrari no longer has the protection of the Gianni Agnelli, but the death of il Avvocato in January at the age of 81 coupled with the sale of 34% of the business to the mysterious investment bank Mediobanca does not necessarily mean that the company has to make more money. Fiat will retain 51% of the business come what may and so that should curb calls for less money to be spent on racing.

"I don't know about all that," said Moll, "but they are definitely looking at cost-cutting measures."

On the way back to the airport The Mole considered the situation. Luca di Montezemolo says that the company will not build more cars because it wants to retain its exclusivity. To get around this he is developing sales of Maserati models and the result of that is that turnover of the business has gone from $890m in 2000 to $1bn in 2001 and $1.27bn in 2002.

At the same time he wants to move the Ferrari brand into the luxury entertainment business with plans for hotels and theme parks and improved retailing of its merchandising operations including flagship stores in New York, London, Paris, Tokyo, Hong Kong and at least one German city. Montzemolo is looking at high-end merchandise and recently joined the board of the French retail and luxury goods group Pinault-Printemps-Redoute.

In order to fund all this he wants to float the business on the Milan stock exchange with a valuation based on the luxury market rather than as an industrial business. Ferrari is currently valued at $2.3bn but most analysts do not think it is worth that much and say that last year Mediobanca paid too much for the 34% stake in the business which it picked up for $768m.

The danger of cutting costs is that it will affect the competitiveness of the team. Winning races may help to sell more cars but what happens when there is a two and a half year waiting list to buy a Ferrari?

Perhaps, thought The Mole, this is why Ferrari has been so supportive of the cost-cutting measures which have been suggested in recent months by the FIA.

One of the biggest individual costs to the business is Michael Schumacher's salary, which is reckoned these days to be in the region of $40m a year. There are few who doubt that he deserves to be the highest paid driver in f1 but with the downturn in the economy all salaries are falling. There is simply not the money around to be splashing out millions on drivers. Michael and his management obviously do not want to accept less money but an alternative deal may be worth considering. Michael could be paid in shares.

At the same time the team is out looking for more sponsorship. This is not such a difficult task given the success in recent years but the teams is still trying to avoid the cars being cluttered by too many corporate logos. With Marlboro, Shell, Vodafone and Bridgestone there is not much space left although FIAT, Bridgestone, AMD and Olympus have all managed to sneak space on the cars. There is talk of a big new deal with Budweiser, which will possibly come in to replace Marlboro when the tobacco company is pushed out of the sport in a few years from now.

The other area where Ferrari can make a lot of money is by doing the right commercial deal in F1. The team knows that its very existence is of great importance to F1 and has never been shy to ask for money. As a result of that Ferrari gets more money than any other team under the clauses in the Concorde Agreement. The Mole believes that Ferrari also has a private deal with SLEC, the Formula 1 holding company, above and beyond the Concorde Agreement.

This is why the GPWC organisation has recognised the importance of Ferrari in its plan and has offered the Italian team four percent of all F1 income and an up-front payment of $50m. It is not a bad deal.

"If I was Luca di Montezemolo," mumbled The Mole, "I would go back to Bernie Eccclestone and ask for more."

But then he shook his head and muttered something about the dangers of applying logic after a good lunch in Maranello.

Click here to read previous Mole columns: The Mole Archive

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