Hoop Dreams In A Hockey TownMichael Goldstein
Poor John. Not only has John Bitove Jr., 34, wagered a sizable chunk of his family's food and beverage fortune on a pricey NBA expansion team, but also he has rolled his dice in Toronto, where history is hardly on his side. The first National Basketball Assn. game ever, in 1946, featured the New York Knickerbockers against the Toronto Huskies. The Huskies lost 68-66. One year later, the team folded its tent.
John Jr. and his four siblings equally split ownership of Bitove Corp.'s holdings, which include Toronto's airport and Skydome concessions and all seven of Canada's Hard Rock Cafes. So they aren't hurting for cash. Still, launching the Toronto Raptors will cost about $300 million, with the franchise fee alone running $125 million--more than three times the setup cost for the most recent expansion teams, the Orlando Magic and Minnesota Timberwolves in 1989. Even with their "bargain" $37.5 million fee, the Timberwolves have been a disaster on the court and on the balance sheet, a cautionary tale about pushing hoops in a hockey town.
And Toronto isn't just a hockey and baseball town--it's a town used to winning. The Maple Leafs have bagged 13 Stanley Cups and the Blue Jays took the World Series in 1992 and 1993. If precedent is any guide, the Raptors will likely lose three-quarters of their games over the first few seasons.
So how do you sell (probably losing) basketball to Toronto? For starters, Bitove has tapped an NBA legend, Isiah Thomas, also 34, as general manager. Already, he is the Raptor's primary marketing tool: An appearance on The Late Show with David Letterman was one of his first tasks. Despite Thomas, luring fans won't be a layup. The Raptors, like the other new team, the Vancouver Grizzlies, filled its roster from the expansion draft. "You get all the other teams' waste, which you try to turn into gold," says Thomas. "Do we have chemistry? Probably not. Model citizens? Probably not."
WELL-CONNECTED. If Bitove does have an ace in the hole, it's business. "Toronto is a huge corporate market," says Rick Welts, the NBA's executive vice-president. Many top U.S. corporations have their Canadian offices in Toronto, "with wholly separate ad budgets and profit-and-loss statements," Bitove says. "We're Canada's entertainment, media, financial, and automotive capital--Detroit, Los Angeles, and New York all in one." Of 104 luxury boxes that rent for up to $130,000 a year, 74 already have been leased for 10 or 15 years a pop. Also, the Raptors have lined up deals with Sears, Bell Canada, Shoppers Drug Mart, Air Canada, and NBA stalwarts such as Nike. And Ford Motor Co. of Canada signed a 12-year, $34 million deal with the Raptors.
Bitove's do-it-yourself business philosophy should help, too. "The days of just signing your players, selling everything for a rights fee, and hoping you sell out is over in sports," says the caffeine-charged Bitove, who caught basketball fever as an undergrad at Indiana University. "To not take the team and leverage it into so many more business opportunities is a mistake."
So instead of a regular TV deal, the Raptors have leased 135 hours of airtime. They will also bear the cost of studio production, sell the ads--and pocket the profit. Instead of paying rent, the Raptors intend to build their own $120 million stadium, the Air Canada Centre, with entirely private financing, including 17,000 ticket licenses--one-time fees of up to $8,000 that give the holders the right to buy (and sell) one season ticket every year. As his own landlord, Bitove hopes to maximize his family's concession-business experience, as well as book summer downtime.
Bitove, a lawyer and the family's chief dealmaker, strategically selected his partners. The Bank of Nova Scotia holds 10% equity; it helps with currency hedging. "That's one of the problems being a Canadian franchise--we took a hit of $6 million to $10 million on franchise fees alone when our dollar fell," Bitove says. Another shareholder is a former Ontario premier, David Peterson. Political problems have already cropped up. For example, the Province of Ontario balked when the NBA insisted that it remove basketball from its lottery. The government relented after the Raptors endowed a $4 million charitable foundation and the NBA kicked in $1 million more for medical research.
Bitove is even canny enough to play to Toronto's diversity, which includes a substantial Italian and Croatian population. On the team's roster is an import from the Italian league and a seven-foot Croat.
Maybe not-so-poor John after all.