The Heat Group

views updated

The Heat Group

601 Biscayne Boulevard
Miami, Florida 33132-1801
U.S.A.
Telephone: (786) 777-4328
Fax: (786) 777-1615
Web site: http://www.nba.com/heat

Private Company
Incorporated: 1987
Employees: 80
Sales: $99 million (2001)
NAIC: 711310 Promoters of Performing Arts, Sports, and Similar Events with Facilities

Originally formed to bring a National Basketball Association franchise to Miami, Florida, The Heat Group has evolved into a multifaceted sports and entertainment company and is owned by Carnival cruise ship mogul Micky Arison. The cornerstone of the Heat Group remains its NBA team, the Miami Heat, but after building 20,000-seat American Airlines Arena for the franchise, the parent corporation has focused on taking full advantage of its state-of-the-art facility by booking the arena as much as possible. In addition to the Miami Heat, The Heat Group owns the Miami Sol, a Women’s National Basketball Association (WNBA) team, which plays during the NBA’s off season. The company also has a stake in a New York business that produces stage shows and is involved in real estate ventures.

Florida Cities Vie for NBA Franchise in the Mid-1980s

At the start of the 1980s, the National Basketball Association was a troubled enterprise. A majority of its clubs were losing money, and a few were in actual danger of folding. With the emergence of star players Larry Bird and Magic Johnson, interest in the game began to pick up, and the institution of a salary cap in 1983 greatly improved the financial picture for owners. However, it was the 1984 hiring of David Stern as NBA commissioner that was the key to launching the league on an extended period of strong growth. He marketed the NBA’s stars to great effect, boosting the gate as well as broadcast revenues. He was also fortunate, of course, that in the same year he was hired, just as the careers of Bird and Johnson were peaking, the most marketable athlete in the world was taking the stage: Michael Jordan. Instead of shrinking the league, the NBA in the mid-1980s began to consider expansion, and a number of cities lobbied the league for a franchise. In Florida, three cities had groups vying for teams: St. Petersburg, Orlando, and Miami.

The Miami Sports and Exhibition Authority, formed to bring professional sports to Miami, originally supported the NBA application of car dealer Alan Potakmin and real-estate investor Seth Werner, but eventually decided to back the efforts of a new group that featured long-time friends, former NBA star and coach Billy Cunningham and ex-NBA player agent Lewis Schaffel. They recruited two other partners, theatrical producer Zev Bufman and Carnival Cruise Lines founder Ted Arison, who had turned over control of Carnival to his son Mickey and was looking to diversify his holdings. Cunningham and Bufman then assumed the lead roles in the group’s efforts to land an NBA team in Miami, which they originally intended to call the Florida Heat. Not only did the investors have to pay a $100,000 non-returnable deposit to the NBA, it was imperative that the city of Miami demonstrate that it had a new arena under construction. As a result, the Heat Group announced that unless construction on a proposed 16,000-seat facility had begun by August 1986, which would allow a new team to begin play for the 1987-88 season, it would withdraw its bid. When construction was delayed by several months, the group continued on, believing that Miami would still be successful in winning an NBA team. It was widely believed that the league would expand to just one of the three contending Florida cities, and those in Miami who were concerned with this matter had little doubt that their community would be the clear-cut winner.

The NBA expansion committee announced their recommendations to club owners on April 2, 1987, calling for new teams in Charlotte and Minnesota. While applications from Anaheim, St. Petersburg, and Toronto were turned down, the committee also decided that a third franchise should be awarded but had been unable to choose between the Florida Heat group and the Orlando Magic group, opting to table the decision until the league’s annual meeting to be held in six months time. According to press accounts, the selection committee was concerned about the Heat’s new arena, located in an area of Miami known as a hangout for drug dealers and prostitutes. By failing to choose between Orlando or Miami, however, the expansion committee unwittingly reignited a longstanding feud between the two cities. With the opening of Disney World in 1971, Orlando began to compete with Miami for tourist dollars, and now Orlando’s college football Citrus Bowl game was scheduled to be played New Year’s Day, in direct competition with Miami’s more established Orange Bowl. Local media personalities began making stinging comments about each other’s city, and the situation threatened to become a public relations nightmare for the NBA. Clearly the league could not wait until its October meeting to settle the matter, and by failing to choose between the Florida cities the NBA had merely insured that the community that lost was going to be extremely angry and bitter. Only days after the expansion committee made its recommendations, the media-savvy league defused the situation by awarding franchises to both Orlando and Miami. The two cities could now take their rivalry to the basketball court, much to the financial benefit of both franchises and the NBA.

Even as the Heat Group geared up for NBA play, its entry into the league remained contingent upon selling 10,000 season tickets by a December 1, 1987 deadline. Although some 14,000 fans had placed $95 deposits on season tickets, by early November the team had received only 7,500 completed applications and half-payments on tickets. A last minute purchase of 200 tickets by the Latin Builders Association put the Heat over the 10,000 threshold and put to rest any fears that the NBA would rescind the franchise. In addition to setting up a sales staff to handle season tickets, the Heat Group was also busy assembling a front office to hire coaches and evaluate college players and current NBA players who might become available in the expansion draft. Moreover, there were team colors, a logo, and uniforms to select, as well as radio and cable television contracts to negotiate.

The city of Miami had been interested in building a first-class arena since the 1950s, and finally, in order to accommodate the new NBA team, the dream came true when in July 1988 the $52 million facility opened. It was able to seat 15,500 for NBA games and featured 16 skyboxes. At the time, Miami Arena was the largest facility of its kind in Southeast and considered to be one of the finest in all of the country, but within a few years it became obvious that the Miami Arena was the last of a generation of arenas that would now be superceded by a wave of new buildings offering far better accommodations, including the luxury suites and premium seating sections that became all-important to the financial health of contemporary basketball and hockey franchises. The 16 skyboxes at Miami Arena, once lauded, were now regarded as too few and hardly luxurious, their view from the rafters being one of the worst in the building. Moreover, the building’s concessions were substandard and the Heat received none of the parking revenues. As early as 1991, the press reported rumors that the Heat was interested in building its own arena, mostly likely in Broward county. The fact that Bufman and businessman Wayne Huizenga had recently formed a partnership to develop arenas only added to the intrigue. Throughout most of the 1990s, the Heat was the constant subject of speculation, as the team bickered with the Miami Sports and Exhibition Authority over the Miami Arena. Relocating the franchise to Broward or some other community was very much a real possibility.

Pat Riley Hired in 1995

The basketball team, in the meantime, proved more successful off the court than on. Despite winning only 15 games in its first NBA season and just 18 games the next, the Heat played before consistent sellout crowds. The team made the playoffs in 1991-92, despite having a losing record, but were quickly dispatched in three games by Michael Jordon and the Chicago Bulls. The Heat fared better in the playoffs two years later but still lost in the opening round. The following season saw the team regress and miss the playoffs, but it marked the beginning of a number of positive changes in the franchise. In February 1995, the Arison family bought out Cunningham and Schaffel, giving Ted Arison’s wife, Marilyn, 88 percent of the club. Son Micky was subsequently named managing general partner. Coach Kevin Loughery was offered a front office job and eased out of the organization. In September 1995, the Heat hired Pat Riley, the well regarded former coach of the Los Angeles Lakers and New York Knicks to serve as coach and team president. Riley quickly restructured the Heat’s roster and within two years built a contending team that in 1996-97 surprised most experts by winning the Atlantic Division.

Key Dates:

1987:: An investor group is awarded Miami National Basketball Association (NBA) franchise.
1988:: Miami Heat begins play in NBA.
1994:: Micky Arison becomes managing general partner.
1995:: Pat Riley is hired to coach the team.
1999:: American Airlines Arena opens.
2000:: Miami Sol begins playing in the Women’s National Basketball Association (WNBA).

With Micky Arison now at the head, the Heat Group intensified its efforts to secure a new arena while at the same time hinting that it might simply sell the franchise. Both the Heat and the Florida Panthers National Hockey League team signed a letter of intent to negotiate with Broward County, which is just north of Miami, on a proposed arena they would share, but the matter was complicated by the looming sale of the Panthers. When a deadline imposed by owner Wayne Huizenga expired with no further movement, the Heat Group decided in April 1996 to abandon the effort to move to Broward and instead began to negotiate in earnest with Dade County, in which Miami is located. In June, a deal was reached with the county to build a $165 million, 20,000-seat arena as part of a retail and office complex expected to revitalize the downtown area near the Port of Miami. The $165 million was to come from tax exempt revenue bonds issued by Dade and backed by hotel taxes and a sales tax rebate. The plan was contingent, however, on the acceptance of two ballot initiatives put before the voters in the fall elections. One approved the use of a site on Biscayne Bay and the second approved the use of public funds to finance the arena. There was strong political opposition to the proposal, and a political action group, the Stop the New Arena Committee, maintained that the use of tax dollars and public land for the arena violated the county’s charter and state law. The Heat went to court to block the group’s attempt to place its own initiative on the ballot, but according to polling data the arena-funding question was sure to be defeated. At the eleventh hour, a compromise was reached between Arison and Dade County Mayor Alex Pénelas, who had long opposed the public debt aspect of the proposal. Instead, the Heat now agreed to privately place the $165 million in bonds as well as pay the debt service. The privately placed bonds would be insured by MIBA Insurance Corp., backed by arena revenues and using the team as collateral. For its part, the county agreed to pay as much as $6.5 million a year to help operate the facility, offset by a $2 parking surcharge. The county also shared in annual net profits, but in effect the Heat Group would be the owners, moving the company beyond basketball and into the arena business.

New Arena Opens on Eve of 2000

With naming rights sold to American Airlines, the Heat’s new arena opened on December 31, 1999, not with a basketball game but with music, the Millennium Concert Spectacular of Gloria Estfan, a Miami favorite. After playing the first 13 games of the 1999-2000 NBA season in Miami Arena, the Heat played its first game in its new home on January 2, 2000. The facility seated 19,600 for basketball and could be set up in five different configurations for other events, with seating that ranged from 5,000 to 20,000 patrons. Some 140, 12-seat luxury suites were also available, featuring private balconies overlooking the water. “Starbox” holders enjoyed courtside lounges with private dining beneath the court. A number of six-seat loge boxes also offered exceptional views of the game from perches overlooking the court. The impact on the balance sheet for the Heat was immediate and dramatic. The year before moving into the new arena, the team lost close to $15 million, albeit due in large part to a shortened season caused by the NBA locking out players during the negotiation of a new collective bargaining agreement. Basketball games in American Airlines Arena produced 40 to 50 percent more revenues as a result of the increase in premium seating options, greater sponsorship opportunities, vastly improved concessions, parking fees, and other ancillary income. Aside from the arena itself, the Heat Group hoped to take advantage of the nearby marina in order to host boat shows, regattas, and other events. It also formed a real estate venture called Calor to help in developing the area surrounding the arena into a thriving retail and entertainment locale.

American Airlines Arena, like similar venues around the country, booked major concerts, the circus, and ice shows, but unlike many it lacked a hockey co-tenant to help keep the building in constant use. The Panthers ultimately found a home in Broward County, moving into their own state-of-the art arena. To help fill the schedule during the summer months, The Heat Group pursued a team in the WNBA, the women’s professional basketball league formed by the NBA in 1996, with the individual teams operated by NBA franchises. In 1999, the Heat Group was awarded a WNBA franchise to begin play in the summer of 2000. Rather than involving the fans in coining a name for the new team, the Heat Group and WNBA decided to call the team the Miami Sol, the Spanish word for sun and an allusion to the sun and fun reputation of South Florida.

With Heat and Sol games accounting for 125 days a year and concerts another 50 to 60, the American Airlines Arena still had many available dates in the year. To help fill this gap, the Heat Group in 2002 bought a minority interest in a New York company, Creative Battery, which produced stage shows. Although Creative Battery was focused on launching Broadway shows that could then be taken on the road and possibly translated to film or television, the Heat Group’s primary objective was to bring in shows to the arena and lessen its reliance on rentals, thereby cutting down on the high cost of license fees. The move would also likely help American Airlines Arena when a new performing arts center opened close by in 2004. Although the Heat basketball team remained its signature enterprise, the Heat Group was now a company with ever-widening aspirations for the future.