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Do IT this week: Layering
By Rick Armon
Beacon Journal staff writer
POSTED: 06:40 p.m. EDT, Oct 24, 2009
On the court, LeBron James is money.
And off, he means even more money for the Cavaliers.
Since James entered the NBA, the value of the Cavs' franchise jumped 85 percent to $477 million last year — the largest percentage increase in the league, according to Forbes.com.
The team is ranked as the fifth-most valuable in the NBA, climbing over larger markets in the past several years, thanks in large part to James' on-court success.
But that team value — which factors in the arena — and ranking could take a serious hit next year.
As the NBA season kicks off this week, James is entering the final year of his contract with the Cavs, and there's plenty of media and fan speculation that he might bolt to a big-city market such as New York City when he becomes a free agent. The question of whether he stays or goes likely will hound James all season.
If he does leave, the psychological blow to Cleveland sports fans would be immense. But it also would be a huge financial blow to the team itself.
''The value of the team would diminish significantly,'' said Forbes National Editor Michael Ozanian, one of the authors of Forbes.com's annual ''Business of Basketball'' report. ''I wouldn't want to put an exact dollar amount on it, but it could easily be 10 percent.''
That's an eye-popping $47.7 million.
The franchise value would fall because majority owner Dan Gilbert — who bought the team for $375 million in 2005 — would have a hard time increasing sponsorship and TV deals without the homegrown superstar, experts said. Season-ticket sales also would falter.
''Ticket revenue is the bread and butter of the industry,'' said Jim Kahler, executive director of the Center for Sports Administration at Ohio University and former senior vice president of sales and marketing for the Cavs from 1991 to 2002. ''If you don't have people in the building, it's going to have an impact on your sponsorships.''
Increased value
When James entered the league right out of St. Vincent-St. Mary High, the Cavs were 15th in Forbes.com's rankings.
The team's estimated value at the time was $258 million. It has grown $219 million since.
No other NBA team appreciated faster, according to the Forbes.com data. The Golden State Warriors are second at 78 percent ($188 million to $335 million).
The average league rate was 43 percent. If the Cavs grew at that rate, the team would be worth an estimated $367 million today.
''I think almost all of the above-normal gains in franchise value are attributable to LBJ,'' said John Vrooman, a Vanderbilt University economics professor and sports economist. ''It is safe to say that the Cavs' value is now well over $500 million.''
The only teams with higher value than the Cavs last year were the New York Knicks, Los Angeles Lakers, Chicago Bulls and Detroit Pistons.
The Forbes.com 2009 rankings are expected to be released in December.
James declined to comment for this story.
But Cavs teammate Zydrunas Ilgauskas, when asked about James' value chuckled and answered, ''I don't know, you'd have to ask the owner.''
Even if James decides to leave — and Vrooman doesn't think he will because of the league's salary-cap restrictions and the collective bargaining agreement — the team value won't be decimated, Vrooman said.
''In the event that the Cavs were to lose LBJ, they would drift back into the mid-market mediocrity of the pack at No. 15 because of the sweet arena deal they still have with Gateway,'' he said. ''Mr. Q, [Gilbert] of course, knows this and will do whatever it takes to keep King James and his money machine.''
James reportedly will make $15.7 million this season — a relative bargain, given his financial worth to the team.
Austin Briggs, a Cleveland Heights resident, Kent State student and co-founder of the Web site http://www.pleasedontleave23.com, said it would be devastating to see James leave.
''I think Dan Gilbert and the ownership of the Cavs need to do whatever is within their power to keep LeBron,'' he said. ''They also need to set an example for the management of the Browns and the Indians that they need to keep players. In the long run, winning games is what makes the most money.''
Gilbert's response
Gilbert downplayed the Forbes.com valuation, saying real value is determined when a franchise is sold.
''I'm glad they think that,'' he said. ''But we won't know that for a long time because we plan to be around for a long time and don't plan on selling the team.''
Gilbert said he's confident that James will re-sign with the team. Gilbert has invested millions in upgrading Quicken Loans Arena and building a state-of-the-art practice facility in Independence as part of his goal to make the Cavs an attractive franchise.
''I believe for him, or anybody else, this is the best place to play basketball. Plus it's his hometown. And plus he did say when he was drafted . . . let's light up this town like it's Las Vegas and we're doing our part,'' he said, alluding to his casino effort on the statewide ballot next month.
''In the long term, if we're doing the right things, the Cleveland Cavaliers should be bigger than any player. Should be bigger than its owner. Should be bigger than its GM and coach,'' he added. ''If it has a philosophy and a winning culture and strategy, then it should be valuable no matter who's around.
''Hopefully we won't ever have to worry about [James leaving].''
James' impact
Smaller-market teams such as the Cavs face a greater financial impact when a superstar leaves, experts said.
Conversely, the value of the Knicks wouldn't jump much if James went there because they already are the most valuable franchise in the league thanks to their home arena, Madison Square Garden.
''What LeBron to the Knicks does is raise the ceiling on all NBA deals — broadcast, sponsorship, Internet — because with the Knicks being terrible, the ceiling on all deals has been limited for all teams,'' said Robert Boland, clinical assistant professor of sports management at the New York University Tisch Center.
He added that James would boost the value of the New Jersey Nets, who are planning to relocate to a new arena in Brooklyn. One of the Nets' owners is hip-hop artist Jay-Z, a friend of James, and there is speculation about James ending up with that team.
''A star joining a team helps at the box office and can make a team more profitable but not as much as an improved facility and a better fan base,'' Boland said. ''Although the star can help with both of those things, too.''
Ozanian compared the Cavs' situation to NBA Hall of Famer Michael Jordan leaving the Chicago Bulls, which still had another superstar in Scottie Pippen upon Jordan's departure.
''The value didn't go down because Jordan had put the team on the map and won several championships,'' he said. ''They had already established that team . . . He built it into a winner and it was still great [when he left]. That hasn't happened yet with the Cavs. They haven't won yet. They are on the precipice.''
Rick Armon can be reached at 330-996-3569 or rarmon@thebeaconjournal.com.
Cavaliers beat reporter George M. Thomas
contributed to this report.
On the court, LeBron James is money.
And off, he means even more money for the Cavaliers.
Since James entered the NBA, the value of the Cavs' franchise jumped 85 percent to $477 million last year — the largest percentage increase in the league, according to Forbes.com.
The team is ranked as the fifth-most valuable in the NBA, climbing over larger markets in the past several years, thanks in large part to James' on-court success.
But that team value — which factors in the arena — and ranking could take a serious hit next year.
As the NBA season kicks off this week, James is entering the final year of his contract with the Cavs, and there's plenty of media and fan speculation that he might bolt to a big-city market such as New York City when he becomes a free agent. The question of whether he stays or goes likely will hound James all season.
If he does leave, the psychological blow to Cleveland sports fans would be immense. But it also would be a huge financial blow to the team itself.
''The value of the team would diminish significantly,'' said Forbes National Editor Michael Ozanian, one of the authors of Forbes.com's annual ''Business of Basketball'' report. ''I wouldn't want to put an exact dollar amount on it, but it could easily be 10 percent.''
That's an eye-popping $47.7 million.
The franchise value would fall because majority owner Dan Gilbert — who bought the team for $375 million in 2005 — would have a hard time increasing sponsorship and TV deals without the homegrown superstar, experts said. Season-ticket sales also would falter.
''Ticket revenue is the bread and butter of the industry,'' said Jim Kahler, executive director of the Center for Sports Administration at Ohio University and former senior vice president of sales and marketing for the Cavs from 1991 to 2002. ''If you don't have people in the building, it's going to have an impact on your sponsorships.''
Increased value
When James entered the league right out of St. Vincent-St. Mary High, the Cavs were 15th in Forbes.com's rankings.
The team's estimated value at the time was $258 million. It has grown $219 million since.
No other NBA team appreciated faster, according to the Forbes.com data. The Golden State Warriors are second at 78 percent ($188 million to $335 million).
The average league rate was 43 percent. If the Cavs grew at that rate, the team would be worth an estimated $367 million today.
''I think almost all of the above-normal gains in franchise value are attributable to LBJ,'' said John Vrooman, a Vanderbilt University economics professor and sports economist. ''It is safe to say that the Cavs' value is now well over $500 million.''
The only teams with higher value than the Cavs last year were the New York Knicks, Los Angeles Lakers, Chicago Bulls and Detroit Pistons.
The Forbes.com 2009 rankings are expected to be released in December.
James declined to comment for this story.
But Cavs teammate Zydrunas Ilgauskas, when asked about James' value chuckled and answered, ''I don't know, you'd have to ask the owner.''
Even if James decides to leave — and Vrooman doesn't think he will because of the league's salary-cap restrictions and the collective bargaining agreement — the team value won't be decimated, Vrooman said.
''In the event that the Cavs were to lose LBJ, they would drift back into the mid-market mediocrity of the pack at No. 15 because of the sweet arena deal they still have with Gateway,'' he said. ''Mr. Q, [Gilbert] of course, knows this and will do whatever it takes to keep King James and his money machine.''
James reportedly will make $15.7 million this season — a relative bargain, given his financial worth to the team.
Austin Briggs, a Cleveland Heights resident, Kent State student and co-founder of the Web site http://www.pleasedontleave23.com, said it would be devastating to see James leave.
''I think Dan Gilbert and the ownership of the Cavs need to do whatever is within their power to keep LeBron,'' he said. ''They also need to set an example for the management of the Browns and the Indians that they need to keep players. In the long run, winning games is what makes the most money.''
Gilbert's response
Gilbert downplayed the Forbes.com valuation, saying real value is determined when a franchise is sold.
''I'm glad they think that,'' he said. ''But we won't know that for a long time because we plan to be around for a long time and don't plan on selling the team.''
Gilbert said he's confident that James will re-sign with the team. Gilbert has invested millions in upgrading Quicken Loans Arena and building a state-of-the-art practice facility in Independence as part of his goal to make the Cavs an attractive franchise.
''I believe for him, or anybody else, this is the best place to play basketball. Plus it's his hometown. And plus he did say when he was drafted . . . let's light up this town like it's Las Vegas and we're doing our part,'' he said, alluding to his casino effort on the statewide ballot next month.
''In the long term, if we're doing the right things, the Cleveland Cavaliers should be bigger than any player. Should be bigger than its owner. Should be bigger than its GM and coach,'' he added. ''If it has a philosophy and a winning culture and strategy, then it should be valuable no matter who's around.
''Hopefully we won't ever have to worry about [James leaving].''
James' impact
Smaller-market teams such as the Cavs face a greater financial impact when a superstar leaves, experts said.
Conversely, the value of the Knicks wouldn't jump much if James went there because they already are the most valuable franchise in the league thanks to their home arena, Madison Square Garden.
''What LeBron to the Knicks does is raise the ceiling on all NBA deals — broadcast, sponsorship, Internet — because with the Knicks being terrible, the ceiling on all deals has been limited for all teams,'' said Robert Boland, clinical assistant professor of sports management at the New York University Tisch Center.
He added that James would boost the value of the New Jersey Nets, who are planning to relocate to a new arena in Brooklyn. One of the Nets' owners is hip-hop artist Jay-Z, a friend of James, and there is speculation about James ending up with that team.
''A star joining a team helps at the box office and can make a team more profitable but not as much as an improved facility and a better fan base,'' Boland said. ''Although the star can help with both of those things, too.''
Ozanian compared the Cavs' situation to NBA Hall of Famer Michael Jordan leaving the Chicago Bulls, which still had another superstar in Scottie Pippen upon Jordan's departure.
''The value didn't go down because Jordan had put the team on the map and won several championships,'' he said. ''They had already established that team . . . He built it into a winner and it was still great [when he left]. That hasn't happened yet with the Cavs. They haven't won yet. They are on the precipice.''
Rick Armon can be reached at 330-996-3569 or rarmon@thebeaconjournal.com.
Cavaliers beat reporter George M. Thomas
contributed to this report.
Comments
Click here to post your comments
cuyahoga falls, oh
Posted 09:43 PM, 10/24/2009
james will be here six more years easy.
Phoenix, Az
Posted 10:50 PM, 10/24/2009
If Lebron leaves, then I will still tip my hat to the man. We at least got to the finals and had a chance to take it all. He has been a true role model and as fine of an ambassador akronites, clevelanders, ohioans could ever ask of him. He has handled the pressures of stardom better then any athlete in the history from such a young age and seemingly has surpassed a mountain of expectations that were laid out from everyone. Wish you the best decision LJB for yourself, you earned it.
Canton, OH
Posted 11:04 AM, 10/25/2009
LeBron = Le$$$$$$$$$$$$
$$$$$$$ = root of all evil
LeBron = ??????????????
Akron, Ohio
Posted 11:20 AM, 10/25/2009
Lebron,
I am a senior-senior,semi retired,
have followed your career since High school.
You must have an overwhelming amount of advice
from many sources.
This may be the answer "your children are settled in, you live in the area, have enough $ to get by,
money is not everything, are reasonably happy in your life, and sometimes we want more but that
is not the answer." Nothing is 100% perfect.
I have other thoughts, but this is enough.
I'm not a preacher, just an old (whatever), with some experience.
Good luck.
Canal Fulton, Oh
Posted 11:46 AM, 10/25/2009
Yea,like we dont know he's going to New York~~ his best friend owns the freakin team.why wouldnt he go??
Paradise, Oh
Posted 02:22 PM, 10/25/2009
When James leaves, the value of that franchise will drop to about seven cents.
That will be amazing.
What will they do with the Gund Arena/"Q"? Maybe they can turn it into the Cleveland Convention Center so that the gazillions of people, all over the world, that have been aching to get a chance to see Cleveland, can go there to convene.
Canal Fulton, Oh
Posted 04:50 PM, 10/25/2009
@Noodles,
So are you thinking that Shaq isnt going to pull in money also?? I think he will.I dont think it will drop to 7 cents.It will drop but Shaqs there!!
AKRON, OH
Posted 05:30 PM, 10/25/2009
A king with no crown.Twice, once in the championship against San Antonio Spurs beat 4-0, whined and pouted off the court.second.He whined and pouted off the court after his loss to the Magic.Take the Indians and Browns with you.
Canton, Oh
Posted 07:26 PM, 10/25/2009
What about Shaq? He has some star quality.
Posted 09:33 PM, 10/25/2009
To me this means only one thing. You keep him here by offering a small percent ownership of the team. Then he really has stake here. You offer now, if he refuses then you know now he is bolting. If thats the case you trade him early in the season to maximize his exit.
Atlantic City, NJ
Posted 10:09 PM, 10/25/2009
@Steve; don't think that is a possibility. I think coaches can be part owners but players are excluded. Didn't Jordon have to sell his part of Washington when he returned to play in Chicago?? I may be wrong, but....
Uniontown, OH
Posted 02:58 PM, 10/26/2009
Hope lebron snaps in leg in 47 pieces!!! Then George W. throws one down on him!
Lorain, OH
Posted 06:47 PM, 10/26/2009
If LeBron leaves, blame management. They shouldn't have tinkered with the 2007 squad that got to the Finals unexpectedly. Instead of letting that unit grow together and build chemistry, they scrapped it for a 'Win Now' squad that has done anything but that.
Now they're banking on an older Shaq who has become a talking shell of himself (without Phoenix's training staff, I don't know how healthy he stays) to team with LeBron and Mo (not an All-Star, especially after the disappearing act he did during the Eastern Conference Finals) to get the Cavs a title. They're not better than Orlando (even without Hedo Turkoglu) or Boston in that conference, LeBron and Shaq's star power will keep them in the title discussion that they will have no real place in.
