The answer: It gives it away.

Or at least, that’s what Adult FriendFinder was planning on doing with the Ferrari it bought from founder Andrew Conru. The car was supposed to be awarded to one of the company’s many “affiliates”–tens of thousands of Web sites that refer traffic to Adult FriendFinder for a fee–that won a 2006 “top growth” contest.

Thanks to MediaMemo reader Tommy New for (not so gently) pointing out the contest to me (don’t click on this link unless you’re up for rough language as you read about the online porn business). Another MediaMemo reader tells me that the reason that the company still owns the Ferrari, which was originally valued at $125,000, is that the Web site owner who won the contest took cash instead of the car.

I’m still waiting to hear back from Andrew Conru or Adult FriendFinders’ current management, which just registered the company for a $460 million IPO, to confirm this. But those answers make plenty of sense to me. Affiliates are a key part of the company’s business: It paid out $46.4 million to some 110,000 participants during the first nine months of 2008, according to the company’s prospecttus. That’s nearly 20 percent of its net revenue during that period.

Those payouts are crucial, because Adult FriendFinder’s subscribers, who make up the bulk of its revenues, are always on their way out: Monthly churn hovers around the 20 percent mark. Adult FriendFinder says affiliates help generate about 44 percent of Adult FriendFinder’s business.

Thus, contests and promotions to entice affiliates are standard operating practice at Adult FriendFinder. This month’s contest promises the winner $40,000 and a trip to Los Angeles to hang out with some Penthouse Pets.

So that’s one mystery resolved. Except I still don’t understand why Adult FriendFinder bought the Ferrari from its founder in the first place. I’ll let you know when the company returns my calls.

That’s the story behind yesterday’s filing by FriendFinder Networks Inc., a collection of porn sites and adult networks that wants to raise $460 million via the public markets.

Given that the media industry is in the dumps, the tech IPO market was closed even before the economy’s collapse and that the prospects of floating any kind of offering in the public markets is dicey at best, it would be hard to find a worse time to try this route. But FriendFinder doesn’t have much choice: It has very little cash and a lot of debt.

The details: The money-losing company has $43 million in cash, and $420 million in short-term debt. Some of that debt is already in default and the company has breached loan covenants for some loans as well. Presumably the company can’t find anyone to lend it that much, so it’s hoping that the equity markets step up.

If investors bail it out, almost all of the IPO proceeds will go to paying down that debt. If not… well, that “could have a material adverse effect on our ability to continue as a going concern.”

Anyone still thinking about helping out Daniel C. Staton and Marc H. Bell, who run the company and own more than half of its equity? Read the full registration statement here.

[UPDATE: FriendFinder investors get a bonus: Partial ownership of a $95,000 car the company bought from a founder a couple years ago for $125,000.]