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Let’s pretend, for a moment, that you created a widget or service and it cost you $300 to make or provide. You determine that you could make a really good widget or provide a really good service and a few other folks believed you so they invested money in your company to do just that.

Now in order to provide a return on investment (ROI), you decide that the price people should pay for your widget or service is $1,200. Sure, it’s a 75% margin but you think people will like it and a there is a history of people paying for it so off you go. Start the negotiating.

Over time you find that some markets stop paying or aren’t capable of paying that much for your widget or service. However, you discover that there are other markets you have not been to that are willing to pay $1,200 for your widget or service and you take your product or services there instead.

I give you Azerbaijan.

Today it was announced that Formula 1 boss Bernie Ecclestone may have agreed to a deal for a possible race there in 2015 or 2016. Ecclestone said:

“We’re going to Azerbaijan,” Ecclestone told the Daily Mail. “The people out there are talking about holding a race in 2015. That may be a bit soon – unless it’s at the end of the season; that’s a possibility. But 2016 is more likely.”

Sure, it isn’t the only new market for Formula 1 and working from my horrible analogy above, Korea, China, Malaysia, Singapore, Sochi Russia, Austin Texas, are all contributory to the new market, new opportunities scenario that Azerbaijan is apparently taking part in.

While many fans raise their arms in befuddlement, you have to remember that taking F1 to markets willing and capable of paying for the races either on their own merit or through government subsidies is and has been going on for some time now. Like India and South Korea, time will tell if Azerbaijan can continue to foot the bill for a F1 race. Also, like New Jersey, saying you’re doing it and actually cutting a check to Formula 1 are two different things.

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An F1 fan since 1972, NC has spent over 25 years in the technology industry and as a CTO, he focuses on technology integration in commercial workspace design, AV systems integration, digital media strategies, technology planning, consulting, speaking, presenting, sales, content strategy, marketing and brand building.
  • peterriva

    If Bernie thinks ANY team can survive going there… partners of ours filmed there, “That was the most corrupt and thieving nation we ever filmed in. Every one of our crew was robbed, cheated and held up. Prices quoted in contracts were trippled and even worse, contracts were put on the ground and spat on as a means to renegotiation. And these were government civil servants (who also wanted kick backs).”
    Inexperienced production? Not on your life. 65 countries and counting and Azerbaijan was the worst by far.

    • Steve

      Peter Riva, thanks for your words of wisdom. Much appreciated.

  • Clay

    Perhaps, but when places like France, with a very developed car culture and high standard of living (i.e. people should be able to afford entertainment) are unable to afford hosting a race, when Spa (Spa!!) struggles to make ends meet and now reports of shaky finances for the German GP, one may wonder if things went a bit too far. Particularly since the money doesn’t seem to make it to the teams, who can’t make ends meet either. I’m sure it’s also a lot cheaper for the teams to ship the ‘circus’ to Azerbaijan rather than have the transporters drive to France or Germany. I get that F1 needs to make money, but now it’s just being greedy.

    And the future seems to be… pay drivers (not necessarily the best drivers,) teams that struggle financially, suppliers thrown under the bus and a calendar that starts to read more like the index to an Amnesty International report rather than jet set destinations. Demonstrations in the Middle East before races? Sochi will fix that. But wait, if you sign now, you get to visit not one but two former USSR klepto-states! The irony is that these countries want to host races for a boost of respectability akin to hosting the Olympics, but cheapen it so much that the prestige is right up there with hosting the Eurovision singing contest.

    It’s getting harder and harder to enjoy this sport. Worse, it’s getting harder and harder to even care about it any more.

    • Acidik

      This sums it up nicely! 10/10

  • Steve

    Peter Riva, thanks for your words of wisdom. Much appreciated.

  • stvsxm

    300 cost vs 1200 payment is a 300 % margin ( you make 900 … 3 x what it cost you ) just by the way… not 75 %

    • I think that’s markup, not margin. A 30% margin on $100 gives you a total of $142.86. In the example I gave of $300 cost and $1,200 sell price, $900 is the gross margin from the sale. Margin and markup in sales are two different things.

      In my $100 example, you derive margin by dividing by the inverse of 30% so it would look like 100/.70 to get 142.86. hope that makes sense. :)

  • It does bring a conversation to the front, Clay, about whether the series finances are sustainable from a sanctioning point of view. You could blame the TV revenue split with teams but in the end, I still come back to how much CVC is putting back into F1 versus how much they are taking out of F1. I think if the 50/50 or 60/40 deal were made a tad more realistic, perhaps the sanctioning fees could be reduced. just a hunch.

    • Clay

      Sure, but CVC is right to expect an ROI from their purchase. I don’t so much begrudge them that as their over-monetizing in the short-term return and killing the goose that lays the golden egg.

      • Agreed, I think it’s certainly reasonable to expect a return…no doubt about that. I agree with you on the fact of short term too. ultimately maximizing the revenue is the goal, regardless of how much the percentage split is. The question might be whether that revenue stream at that level is sustainable given the impact it has had on the players involved. Pay drivers, lost races and yet the level of competition is massive and to compete at that level takes serious capital. A tough equation.

        I think this is where a guy like Bernie thought about the long-term as a racer at heart. CVC may not be looking at re-investment and less gain to support a long-term goal. In short, it was/is Bernie’s life…it’s CVC’s investment.

  • Rapierman

    I think, before Bernie decides on anything, he’d better find out if any spot on the planet is going to glow nuclear green via Putin.

  • Tom Firth

    Hmm,The Baku World Challenge has drawn enough controversy itself and that’s no way near the level of exposure that an F1 race would bring.

    I can see it happening as it is that continuous F1 cycle at the moment that Todd mentions with circuits dropped 3-4 years later.

  • Joseph Simmons

    When I first heard about Azerbaijan! My thoughts were WTF is the old man thinking? Then I looked at the declining state of sports attendance at NBA, NASCAR, and NFL in past couple of years. The sports model seems to moving to providing content to fill the empty hours on the variety of sports network or tv channels. So are we getting to a point, where it doesn’t really matter if you are racing at Monza, Spa, Austin, or god forbid Azerbaijan. CVC coffers are still being filled by the licensing fee, tv revenue, and promoters fee. Sure there will be few butts in the seats in Sochi and Azerbaijan. However, our appetite for racing will be satisfied for those 19 – 22 races via Brighthouse Networks or any other pay per view service.

    • Do you feel the balance between revenue streams of live event attendance and broadcast are growing much more distant and therefore the only thing that really matters is the TV broadcast rights, fees, sanctioning fees and advertising? It’s always been that way, I know I’m being obvious here, but has the difference between them become so much that focusing on the live, butts-in-seats portion of the equation is really becoming an issue?

      If so, would it be feasible that venues, promoters etc would all start to demand a portion of the TV revenue from the event hosted at their facility? Of course FOM wouldn’t go for such an arrangement but if organized, I wonder if the venues would make a good case for having more of the track advertising revenue or a portion of the TV revenue generated?

      • Joseph Simmons

        I would agree with all your statements! Especially, the promoters have the site where the performance takes place with all the risks too. Potential revenues that live streaming and pay per view events can generate could be enormous commercially.
        Someone has done the numbers about the smartphone generation who want content via a device. Let’s face it, F1 is probably losing more viewers by death than gaining viewers in the key demographic; males between 18 -35! Are they willing to travel to Azerbaijan to watch a F1 race? Or prefer to open up their tablets or smartphone to stream the event?

  • AntioBob

    She I started reading this article, starting with: “Let’s pretend, for a moment, that you created a widget or service…” I thought you were going to suggest an app or program that would randomly generate obscure locations around the world. Kind of like a Magic 8 Ball… “Computer, where should my wife and I go for our anniversary?” Answer: Mogadishu

    “Computer, where should we have an F1 race next year?” Answer: Azerbaijan