June 29 (Bloomberg) -- LeBron James’s departure might mean more losses for the Cleveland Cavaliers than those on the court.
James, a two-time Most Valuable Player at the age of 25, will become the NBA’s most coveted free agent on July 1. The franchise value of the Cavaliers would fall should he leave his hometown team, perhaps by as much as $250 million, according to former basketball executives.
Cleveland has had two straight 60-win seasons and finished second in the NBA in attendance with an average of 20,562 fans a game last season. It’s fifth in the league with a value of $476 million, according to Forbes magazine’s ranking of NBA franchises.
“I wouldn’t be surprised if the Cavaliers in a year or two are below the league average in terms of value,” said Michael Cramer, the former president of baseball’s Texas Rangers and hockey’s Dallas Stars who teaches sports business at New York University. “One player has a tremendous impact, especially in the NBA, and especially when you’re talking about one of the top two or three visible, recognizable players not only in the league, but in all of professional sports.”
Forbes’s average value for an NBA franchise is $367 million.
Cavaliers owner Dan Gilbert declined to comment on the impact James’s leaving might have on the franchise, team spokesman Tad Carper said. Gilbert, chairman of Quicken Loans Inc., said after the playoff loss to Boston that the Cavaliers are the best franchise for James.
“We’ll do everything in our power to attract great talent and keep great talent,” Gilbert said during a news conference. “This isn’t among money and franchise value, this is about delivering for the fans, the corporate sponsors and everybody else. The plan is to continue to get better, rise above this and deliver a championship to Cleveland.”
In two days, teams with space under the league’s salary cap such as the New York Knicks, Chicago Bulls, Miami Heat and New Jersey Nets can make proposals to lure the five-time All-Star from the Cavaliers.
James met with Gilbert last week in Akron, Ohio, and will meet with other clubs in-state rather than going on a recruiting tour, said his business manager, Maverick Carter, ESPN reported. Carter didn’t return telephone calls or e-mails seeking comment.
The Knicks are sending a contingent that includes owner James Dolan, coach Mike D’Antoni and General Manager Donnie Walsh on July 1 to make their pitch to James, the New York Post reported, citing a person with the franchise it didn’t identify. NBA teams can’t comment on free agents before July 1.
The Nets are also set to meet with James, with new owner Mikhail Prokhorov and 10-time Grammy winning rapper Jay-Z making the presentation, Yahoo! Sports said, citing people in the NBA it didn’t identify. The Bulls, Heat and Los Angeles Clippers will also make presentations, Yahoo! Sports said.
Should any of the sales pitches lure James away, the Cavaliers’ decline in value might be as much as $250 million, said former Portland Trail Blazers President Bob Whitsitt.
“If I asked today what could you sell the Cavaliers for, obviously the first question is, ‘Is LeBron on the team or not?’” Whitsitt, the president of consulting firm Whitsitt Enterprises LLC, said in a telephone interview. “If he’s not on the team, you’re probably going to be looking at something that starts with a 2, maybe $250 million. If he’s on the team, you’re looking at something that starts with a 5.”
Russ Granik, the NBA’s deputy commissioner for 30 years, said the Cavaliers’ value wouldn’t plummet that much without James. Granik is vice chairman of Galatioto Sports Partners in New York, which has helped buy or sell 14 professional sports teams, and said James’s departure would more likely have a “modest” effect on the team’s value.
“Having a player of LeBron’s caliber is going to improve the way your team plays and is going to provide more in the short term in ticket sales, sponsorship revenues and maybe even TV revenues,” Granik said in a telephone interview. “But when you’re talking about assets that are worth $300 million on up, I don’t think it would have that much effect on that valuation. I think that’s crazy.”
Rick Burton, the David Falk professor of sports management at Syracuse University, said the value is unlikely to fall that much.
“It may be a while again before Cleveland puts the right pieces in place, but is the asset value going to go down?” Burton said. “Not necessarily -- if the health of the league is strong, the ratings from the finals are up and the economy comes back around.”
The Cavaliers were coming off a 17-65 season when they took James, from Akron, Ohio, with the first pick in the 2003 NBA draft. Their average attendance that year was 11,497. The team’s value before his arrival was $258 million, according to Forbes.
In the seven seasons James has been with the team, the Cavs’ annual revenue -- which includes money ranging from ticket, luxury box and jersey sales to sponsorships -- has risen to almost $160 million from about $72 million.
The NBA’s labor contract dictates how much James can make. He can sign a contract for as long as six years with the Cavaliers; five with other teams. Both contracts would start around $17 million a year, although the Cavaliers can give him bigger raises. In total, he would make about $30 million more by signing a six-year deal with Cleveland.
Whitsitt, who built the Trail Blazers and Seattle SuperSonics into winning teams, has seen how fast a franchise can decline. After he left Portland in 2003, the team went from making the playoffs 18 straight years to missing the postseason five seasons in a row. Three years after ranking sixth in the NBA in attendance, they had 21 wins and drew the smallest crowds in the league. Whitsitt’s current company offers a range of management services, including consulting on franchise sales and acquisitions.
“We had really good teams, but we never had that LeBron superstar,” Whitsitt said. “When I say they could fall to 26th (in ticket revenue), a lot of people might say, ‘Wow, that’s never going to happen,’ but they could go even lower than that. It might take a year or two to see the transition, but it might also be more difficult to attract free agents.”
When he was with the NBA, Granik said he would counsel interested ownership groups not to decide whether to buy a team based on a particular player -- even a player such as James, who has averaged 27.8 points, seven rebounds and seven assists per game in his career.
“If you do that, you’re going to be making a mistake,” said Granik, 61. “The reality is, if you’re buying the franchise, you’re buying it for the long term; a player could get hurt tomorrow. It’s really the value of the franchise in the league and the market that’s the most important.”
James Equals Cavaliers
In Cleveland though, James has become synonymous with the Cavaliers, said Cramer, 58.
“The league is very driven by winning teams and more so by visible personalities,” Cramer said. “You take away LeBron from Cleveland, it’s not taking away one player, it’s taking away the image of the franchise.”
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