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Marketing a Sports Franchise in Toronto

As an avid reader of Canadian Business, I stumbled across an interesting article recently.

Columnist Andy Holloway was examining the financial viability of the Toronto Blue Jays and how they fit into the grand scheme of their owners, Rogers Media Inc. As most Jays fans know, even with a $25 million increase in payroll from last season, the Jays will once again this season, finish on the outside of playoffs looking in. With last night's victory over the Red Sox the Jays do still have a chance to finish in second in the division, an improvement over last season...however considering the payrolls of their annual competition (the Yankees and Red Sox most notably) GM JP Riccardi was recently quoted as saying that once again, without another injection of cash next season, the Blue Jays could just not compete for a division title and playoff spot.

So the $25 million increase for this season wasn't enough? Apparently not...but does it matter?

From a business standpoint it's interesting to note that the Jays, even with their fourth straight rise in attendance, (a total of 2,302,212 and their highest since 1998) are slated to lose $25 million this year when all is said and done. Yes, that's right, about the same amount as the salary increase Rogers paid to increase the Jays' chances this season. Can a franchise bleeding this kind of cash continue to increase spending? Or is cost-cutting on the way?

According to the article, it seems that the $25 million loss is really just a drop in the bucket for Rogers however and in fact viewed as more of a marketing expense than anything else. Through the Jays and their telecasts, mostly aired on Rogers' Sportsnet stations, the Canadian public is exposed to Rogers' wide assortment of media products, thus representing a great way to target certain markets.

In fact in light of this information, one could argue that the Blue Jays are none other than a giant marketing plan. If the Jays keep fielding a competitive team that continues to bring in the fans, then Rogers can afford the hit on the balance books so long as it leads to revenue generation in other areas.

Sound familiar?

Wouldn't the Toronto Maple Leafs be another example of this in terms of a team that's generally competitive and "packs the house" season after season?

Yes, MLSE has never managed to break the bank to get the team over the hump (what year of the Stanley Cup drought are we on?) but appear to be quite happy simply to hear the "cha-ching" of the ACC cash registers.

Which of course brings me to the Raptors.

As we've said here at the HQ after the dismissal of Rob Babcock, this sort of thing scares us. MLSE isn't owned by a corporation per say but in majority (58 per cent as of 2003) by the Ontario Teachers' Pension Plan. The next largest owners are Bell Globemedia and TD Capital Group with 15 and 14 per cent ownership respectively. In the case of the Toronto Blue Jays, the owner is a huge conglomerate willing to spend the money to improve the team even if its main goal isn't necessarily a World Championship. No, that would simply be icing on the cake. But for the Raptors, Bell and TD's shares in MLSE ownership simply aren't sufficient enough to spearhead such a similar plan. In fact only weeks ago it was announced that Rogers, and not Bell, was going to team up with MLSE and become their preferred supplier of telecommunications and business solutions. Combined with the Jays and Rogers Cup, this puts Rogers Media Inc. at the forefront of sports marketing and seems to put even more restrictions on any Blue Jays-esque marketing attempts by Bell or even TD.

In addition, the salary situations in Major League Baseball versus the NBA are quite different with the NBA's being much more restrictive. Therefore unlike the Yankees in MLB, constant cash injections don't necessarily amount to a more dominant on-court product - just look at the Knicks.

Therefore the Raptors are somewhat caught between a rock and a hard spot in terms of Toronto Sports franchises. They don't have the draw and history of the Leafs, and don't have the conglomerate backing of the Jays...and furthermore, I'm not convinced that they have an ownership group who cares enough.

Rogers will ensure that the Jays remain competitive (hence the rumoured increase in spending on the team AGAIN next season) to ensure the success of their brand. If the Jays go into the tank and become a league laughingstock, how does that reflect on the Rogers brand?

However as long as MLSE keeps turning a profit, will they really care how their individual clubs are doing? If the Raptors continue to dwell in the NBA's cellar but their lack of financial success is offset by MLSE's other assets (say the Leafs or their new soccer team) then how can MLSE ever truly focus on improving the Raptors? Yes, the Leafs, Raptors and presumably the soccer club (Toronto FC) are run as seperate lines of business but when Forbes looks at the value of MLSE, it's all of MLSE that gets put under the microscope.

My fear is that MLSE is spreading itself too thin. With upcoming and current projects like Maple Leaf Square, Oshawa Gardens, On-line Poker and the aforementioned soccer club, one has to wonder just where MLSE's priorities lie:

Creating a successful product?

In the case of the Leafs and Raptors, that's debatable.

Increasing profit?

Most definitely.

Last season the Raptors averaged a little over 17,000 fans per game. Considering how few games the team won and the team's recent lack of success, that number in itself speaks volumes as to the nature of the Raptors' fan base. An increase in last year's win total and a more competitive team should be able to knock that number back up closer to 18,000 bringing a smile to the MLSE collective. The financial implications of a late-season playoff push (or even better, making the playoffs) would make those smiles even brighter. Yes folks, that's where I believe the real expectations of MLSE lay for this coming season, and that they believe Bryan Colangelo is the man to deliver on these expectations.

I just hope that Colangelo has the autonomy necessary to carry-out his remake of the team without running into many of the rumoured management issues that his predecessor encountered. Only then can the team move forward with a goal of winning an NBA Championship and creating a winning culture, not solely one of financial viability.