Putting a Price Tag on LeBron James

June 25, 2010  |  Fox Business

Matt Egan
FOXBusiness


The NBA Finals have been over for more than a week, but the biggest battle in pro basketball is just heating up as the sports world gears up for LeBron Watch -- one of the most highly-anticipated and lucrative free-agency sweepstakes ever.

The winner of the LeBron James sweepstakes doesn’t just get a two-time Most Valuable Player and the sport’s most talented player. They get an athlete whose star power will undoubtedly increase revenue on everything from ticket and merchandise sales to television deals and sponsorships. In fact, the team that lands King James, should he choose to leave his hometown Cleveland Cavaliers, may see an estimated $100 million bounty.

“This is the good thing about the NBA: when their players transcend the game itself. And that’s what he’s managed to do. He’s like an action figure. He’s like a toy. He’s certainly beyond basketball,” said Marshall Glickman, CEO of G2 Strategic and former president of the Portland Trailblazers.

Stay or Go?

The LeBron sweepstakes officially kick off July 1 when he and a cluster of other major stars are expected to declare for free agency. Unofficially, it’s been going on for the better part of the past two years, with fans and pundits constantly debating the answer to this question: Should he stay or should he go?

The thinking goes as follows. By staying in small-town Cleveland (population 434,000), James can win that elusive championship with a very talented team that can pay him more than any other franchise (a total of $124.5 million over six years). What Cleveland lacks in luster and marketing opportunities can be made up for on the court by allowing James to add “winner” to his already-impressive resume.

On the other hand, James could become a hero in the world’s biggest media market by winning a championship with the New York Knicks. Or could transform the New Jersey Nets, who are moving to Brooklyn, from a losing franchise to a perennial contender. LeBron could follow in the footsteps of his idol, Michael Jordan, by going the Chicago Bulls or go to other big market teams with cap space like the Los Angeles Clippers or Miami Heat.

While those teams can pay him no more than $95.5 million over five years, the thinking is that he can make more cash off the court in endorsements and other opportunities by going to a bigger market and winning there.  

Of course, LeBron already makes some serious cash, with Forbes saying he brought in $40 million last year, ranking him #19 on its 100 most powerful celebrities list, in between Jordan and Tom Cruise. He has endorsement deals with a slew of major companies, including Nike (NKE: 67.19, -0.67, -0.99%), Sprint (S: 4.12, -0.03, -0.72%), McDonald’s (MCD: 66.1, -0.03, -0.05%), Glaceau, State Farm and Upper Deck.

Star Power

So what is it about LeBron that has companies and teams drooling at the thought of attaching their brands to his?

“He’s got the gift,” said Cliff Kaplan, president of Van Wagner Sports and Entertainment and a former NBA exec. “He’s a guy who has turned around a franchise, put them on his back and made them a winning franchise. He’s a guy who has unique charisma. He’s very personable, articulate and thoughtful.”

Glickman said it comes down to one thing: “charisma,” which “translates into star power, which translates into money.”

In other words, because of who he is and what he represents, fans, corporate clients, advertisers and owners are willing to pay more to be linked to LeBron.

Whichever franchise lands LeBron is “going to wind up securing an asset that is going to have a significant positive ripple effect on all of its business lines,” said Kaplan.

How much of a ripple effect? Forbes estimates LeBron has been worth about $100 million to the Cavaliers during his seven-year reign in Cleveland. For example, the Cavs’ attendance over that span averaged 809,551 a season, up nearly 40% from the seven years prior when their team rarely made the playoffs. Aggregate revenue for the Cavs from ticket sales, concessions, merchandise and parking averaged $59.2 million with LeBron, up almost 49% over the previous seven-year period, according to Forbes.

The Cavs’ global exposure also increased massively, with the team going from rarely, if ever, on Walt Disney’s (DIS: 31.75, 0.4, 1.28%) ESPN or Time Warner’s (TWX: 28.23, 0.04, 0.14%) TNT, to a regular staple, including a league-high 25 nationally-televised games last regular season. 

And for the second year in a row James’s No. 23 jersey was the second-highest selling in the NBA. (Kobe Bryant of the Los Angeles Lakers ranked No. 1.)

All of that translates into a major appreciation in the value of the Cavs, which Dan Gilbert bought in 2005 for $375 million. Today, the team is worth an estimated $476 million, an increase of 27%.

“I’m sure any team that is doing the math is projecting increased revenues to offset the cost of extending a contract to him,” said Neal Pilson, the former president of CBS Sports.

Just how much James will benefit a team’s bottom line certainly matters on where he goes. For example, he may increase the franchise’s value and stature, but James is unlikely to spur a huge increase in ticket sales for the Knicks because they already draw a healthy home crowd, averaging 98.7% of capacity last season, according to ESPN.

He would surely have a bigger impact on the bottom line in New Jersey, which played in front of a league-low 13,103 fans at home last year. Likewise, the Clippers filled up just 85.7% of their building last year despite playing in the No. 2 media market in the U.S.

But that doesn’t mean already-successful franchises in Chicago and Miami will shy away from wooing LeBron.

“Any team that gets him wins by definition of having him,” said Kevin Adler, founder and president of Engage Marketing, a Chicago sports and entertainment marketing firm.

No matter where LeBron chooses to go (or stay), it’s clear the NBA has already come out a winner. The intense buzz created by this free agent class has kept the spotlight on a sport that typically goes into hibernation from the end of the Finals until October.

“All of this reaffirms the NBA as a huge entertainment industry,” said Pilson. “This is what they live for: high-profile stars basically creating an offseason of NBA stories and coverage. I don’t see any downside to the NBA. It’s all positive.”