Economic Playbook: LeBron is 'Coming Home'
LeBron James has a complicated history with his home state of Ohio. But it's a history that got a much sweeter ending today when he announced he would re-join the Cleveland Cavaliers.
You always knew James was a basketball superstar, but you might not have known he's also an economic heavyweight who could have a profound impact on the team, and even his home state.
James's decision affects not only his personal brand, but also everything from merchandise sales and stadium attendance to sponsorship deals and TV timeslots for the team he chooses…and the one he dumps.
"The title made them a name brand. The Heat became not only a national brand, but the epitome of just a swagger-filled team, a champion team. LeBron became a villain for most of the league"
“A move by a player at that level affects every revenue stream,” Kevin Adler, chief engagement officer at Engage Marketing said.
The two-time NBA title player’s decision is the modern-day ‘Michael Jordan Factor.’ His name alone attached to a brand is virtually guaranteed revenue, concessions and game-day merchandise sales, more sponsorship dollars, and better game-day television slots.
“...it means a substantial benefit financially (for Cleveland) and otherwise for the team as a business and the community,” Adler said this week ahead of the basketball legend's decision.
The Breakdown
At an average of $78.30 per seat per game, James's old team, the Heat, commands the third-highest average ticket prices in the National Basketball Association, according to data compiled by Team Marketing Report. The Cleveland Cavaliers, by contrast, rank twentieth in the league, with the average ticket cost of $43.31. Those prices could be poised to soar now that James is "coming home."
In Miami, ticket prices rose an average of 8% during the 2013 and 2014 seasons, as the team celebrated back to back NBA titles, while ticket prices in Cleveland declined by about the same margin over the same period.
Still not convinced James’ name translates to dollar signs for the team he chooses? How about this: During the seven years the now-29-year-old superstar spent with the Cavaliers between 2003 and 2010, the value of the team skyrocketed a whopping 136% to $476 million, according to Forbes. When he left in 2010, not only did the team’s value decline by 25% in just one year, it took until 2014 to recuperate those loses.
Since James made his unexpected (and now infamous) decision to “take his talents to Miami,” the value of the Heat has surged 96% in four years to $770 million.
The stats strongly suggest that a move back to his hometown team would mean a resurgence in economic prosperity for the team and the city.
“Attendance was averaging 17,000 for the Cavs when LeBron was with the team,” Jon Greenberg, executive editor of Team Marketing Report, said. “They were a name-brand team on national television as much as you can be, and now they’re completely forgotten.”
Once James left, the team was experiencing difficulty keeping season ticketholders, Greenberg added. To help stem the losses, about two years ago the Cavaliers was one of the first in the NBA to implement a new kind of ticket plan called Wine and Gold United: the Cavs offered a membership plan based on a European soccer model. Instead of forking over one lump sum for the season tickets ahead of the start of the season, fans could pay by monthly installments.
It worked. Greenberg said about 78% of everyone at an NBA game is a season ticket holder, and the new membership plan is something other teams are looking to incorporate in their ticket options.
“Part of that (decision for Cleveland) was because they were losing so many holders after LeBron left. That killed them. There are still fans, but for marketing, the blow was enormous. That’s the bread and butter,” Greenberg said.
Another side effect for a team that wins or loses James is the nature of the media business. Television networks want to have the best match-ups on their air to drive viewers to their channels, in order to rake in higher advertising revenues.
Donald Erickson, president and managing partner of Erickson Partners, said it generally takes awhile for a high-caliber player change to affect a team’s revenue because of the complicated timelines of media contracts. But LeBron James is different.
Generally speaking, if a player like James joins the team, the team will try to negotiate a higher revenue contract for television as soon as possible. The same idea can be applied to arena suites, which fetch a higher dollar-amount when better players sign onto the rosters.
“If a player signs a long enough contract, as those provider and suites contracts rollover, you’ll get a pop on suite prices. So it’s the same with sponsorship contracts. The general rule: If you had him and the team goes from average to contender, I wouldn’t be surprised if revenues went up by $10 million per year. The multiples on value are about four times revenues. So, you could add a minimum of $40 million, as an example, to the team value,” said Erickson.
LeBron as a Corporate Brand
Greenberg said Miami could fall victim to the same fate Cleveland did four years ago: A decline in interest from the community, falling ticket sales, and less overall revenue. Forbes previously predicted Miami could stand to lose up to $100 million on James.
“The title made them a name brand. The Heat became not only a national brand, but the epitome of just a swagger-filled team, a champion team. LeBron became a villain for most of the league – everywhere he went, people got excited and it was very good for business.”
Adler said the personal-brand aspect is the most interesting part of the media storm surrounding a single basketball player’s decision.
“His personal brand is a topic of hot debate and has been for a long time and it goes back to how he handled the original announcement,” Adler said.
James caught a lot of flak from fans and sports pundits over his decision in 2010 to announce his move to Miami on national television. The program, called ‘The Decision’ and aired on ESPN, was widely derided as a long-form advertisement for James and an embarrassment for ESPN.
There are several layers, Adler explained, to how James could unravel his latest decision to positively impact his name brand. The first is to simply “do the right thing” and make a better-thought-out decision as to how to announce a potential departure from Miami. To that end, he said in a Sports Illustrated essay unveiling the move that he "want(ed) an opportunity to explain [himself] uninterrupted."
But a move back to Cleveland could be a boon to his personal brand.
“It would take the villain stuff away. He could do coming-home type of stuff,” Greenberg said.
“I don’t know if it’s the smartest business decision, but it’s a heck of a brand story.”
FOX Business.com's Adam Davis contributed to this report.