My producer Patrick McMenamin is from Cleveland, and a die-hard Cleveland sports fan. He is agonizing over the decision that LeBron James will make later tonight. (David Asman has a one hour special on "The Business of LeBron" tonight, after “Stossel” at 9pm ET). McMenamin’s obsession has reached the point where he sent me the "libertarian" case for why LeBron should stay in Cleveland:
It's not easy to make a "libertarian" case about anything in the NBA, because there's nothing particularly libertarian about the NBA. Player salaries are capped. Team salaries are capped and each dollar spent over the cap is "taxed" by the league and redistributed to other teams. New players are "drafted", given no choice of which team gets them. Antitrust exemptions from the government give the NBA broad monopoly powers.
Still, the US economy isn't very "libertarian" either, yet we make arguments to pull things in a libertarian direction...so why not a libertarian argument for why LeBron James should stay in Cleveland? We libertarians believe in accurate prices determined by market forces, so LeBron should go to the city where he can come closest to his market value.
Now, NBA rules essentially prevent that market process, so LeBron James will always be wildly underpaid. Some estimates put his value at $250 million, judging by how much value the Cleveland Cavaliers franchise would lose if LeBron left. But the most LeBron can make under NBA rules is about $128 million over 6 years ($21 million per year). But there is a catch. League rules only permit such a high salary if and only if LeBron re-signs with his original team, the Cavaliers. If he signs anywhere else, he would have to accept $29 million less in total salary over 5 years. That means he should stay in Cleveland.
There are counterarguments that LeBron can make up that loss with endorsement deals, especially playing for a bigger city. However, LeBron already makes the most endorsement money of any NBA player by playing in Cleveland. How much more could he really make? Besides, according to Plain Dealer reporter Brian Windhorst, he still earns most of his money from his NBA salary, not from endorsements. Playing for Cleveland is the only place he can come closest to his true value.
You following this? I don’t exactly buy it. LeBron could probably make so much more endorsement money in NYC that it would overcome the Cleveland advantage. Or he could keep more money by going to Miami, where he wouldn’t pay state income tax. Or LeBron should come to the Knicks so my son would be happy. Still, having done a special on Cleveland's struggles, I can see why Cleveland needs him to stay. I hope he stays only so I don't wind up with a depressed producer on my hands.
His staying in Cleveland looks less likely by the moment. The betting on Intrade.com, the best predictor of most things, had been leaning heavily toward Cleveland, but now Cleveland is down to 27 cents. Good for LeBron for providing all this excitement. And for giving his TV money to charity.