July 12 (Bloomberg) -- LeBron James makes the Cleveland Cavaliers a billion-dollar franchise, almost double what the team would be worth without the four-time National Basketball Association Most Valuable Player.
“Certainly the brand itself, as well as the revenue that the team is able to generate, is much stronger with him -- to the point of a billion-dollar franchise,” said valuation expert Peter Schwartz, managing director of venture capital at Boston-based Christie & Associates LLC.
The addition of James, the league’s biggest star and a worldwide marketing force, will boost the team’s revenue in all areas, including ticket and merchandise sales and sponsor value, said Chad Estis, a former chief marketing officer of the Cavaliers.
When the native of Akron, Ohio, joined the Cavs as the No. 1 pick in the 2003 draft they were in the “low, low, low end” of league revenue, Estis said. Eventually, he said, the club was in the top 10.
“For a mid-size market, the revenues were outperforming the market,” said Estis, who is now president of global sales for Legends, a sports and entertainment company owned by the Dallas Cowboys and New York Yankees. “You get to a point where everything will be sold out, then you increase prices, certainly local sponsors, suite renewal is better if you win and the potential long-term effect for the brand if you win a championship.”
The Cavaliers averaged 17,329 fans last season, about 84 percent capacity of Quicken Loans Arena and 16th in the 30-team NBA. Quicken Loans was founded by Cavaliers owner Dan Gilbert, who four years ago in an open letter to fans labeled his star player’s decision to leave as a free agent for the Miami Heat a “cowardly betrayal.”
James told Sports Illustrated that his relationship with Northeast Ohio is bigger than basketball. “I didn’t realize that four years ago,” he told SI. “I do now.”
The team’s top corporate partners include the Cleveland Clinic, Akron-based FirstEnergy Corp., Columbus, Ohio-based Huntington National Bank, Pepsi Americas Inc., Toyota Motor Corp. and Horseshoe Casino Cleveland, which is a joint venture between Caesars Entertainment Corp. and Gilbert’s Rock Gaming LLC.
The sponsors will benefit from the arrival of James, who makes the Cavs must-see programming, Estis said.
Last season, the Cavaliers made one appearance on ESPN and one on TNT. The Heat were on ABC six times, ESPN 10 times and TNT nine times. Add NBA TV, and the Heat made the maximum 35 national TV appearances.
“Whatever you have to pay LeBron, it’s more than worth it for the franchise,” Estis said.
Heat owner Micky Arison on his Twitter feed said he was “shocked and disappointed” at James’s decision to leave. Heat President Pat Riley said in a statement released by the team that “while I am disappointed by LeBron’s decision to leave Miami, no one can fault another person for wanting to return home.”
James, 29, whose endorsement partners include Nike Inc., Coca-Cola Co. and McDonald’s Corp., can receive a four-year contract with a starting salary of about $20.7 million. Separately, he reaped about $30 million for his stake in Beats Electronics, which last month was acquired by Apple Inc. for $3 billion.
James, according to Sports Illustrated, is the second-highest-earning athlete this year behind boxer Floyd Mayweather, taking in $57 million in salary and endorsements. His marketing company, LRMR, represents Browns quarterback Johnny Manziel.
Celebrity chef Michael Symon, who has several restaurants in Cleveland, including inside Quicken Loans Arena, said on his Facebook page the return of James is the crowning achievement in what’s been a great summer for a city that earlier this week was picked by the Republication National Committee to host its 2016 convention.
“All this will drive huge revenue to our fair city,” he said. “It is our time.”
James spent his first seven seasons in Cleveland, which reached the NBA Finals in 2007, losing to the San Antonio Spurs. He joined the Heat in 2010, making four straight appearances in the Finals, winning two championships and becoming the face of the league in the U.S. and abroad.
“It means more to the franchise than any normal player transaction because he means so much to the city,” Estis said of James, who unlike many highly compensated athlete endorsers has shown a willingness to address controversial topics.
James spearheaded a decision by Heat players to pose for a photograph of the team, all wearing hooded sweatshirts, heads bowed, after the shooting death of Trayvon Martin, the unarmed black teenager wearing a hoodie when he was killed by a neighborhood watch volunteer.
And he was among the most vocal players after racist statements made by Los Angeles Clippers owner Donald Sterling were made public.
“I voice my opinion on issues that, first of all, I have knowledge about and issues that I feel like I’m able to make an impact on, things that I’m comfortable with,” James said on June 6 during the NBA Finals, which the Heat lost to the Spurs.
Rev. Peter Matthews, executive director of the Wesley Foundation in Cincinnati, said it’s “mind-blowing” to think of the power and influence James can exert in Ohio and beyond.
“For a young black man to come back to Ohio and exercise influence economically -- and perhaps politically -- to win a championship in the state -- he would have a level of influence that we haven’t seen since Jim Brown,” said Matthews, referring to the former Cleveland Browns football player who has been outspoken on social matters.
James told SI that his decision wasn’t about rosters or organizations. “I feel my calling here goes above basketball,” he said. “I have a responsibility to lead, in more ways than one, and I take that very seriously.”
James told SI that he isn’t promising a championship, which no major Cleveland team has won since 1964. Since he left for Miami the three professional sports teams in Cleveland have combined for one winning season and one playoff game.
“We’re not ready right now,” he said. “No way. Of course, I want to win next year, but I’m realistic. In Northeast Ohio, nothing is given. Everything is earned. You work for what you have. I’m ready to accept the challenge. I’m coming home.”
James headlines a nucleus in Cleveland that includes 2011-12 Rookie of the Year Kyrie Irving and Andrew Wiggins, the first player chosen in last month’s draft.
Schwartz, the valuation expert, said James’s return to the Cavs is akin to the sale of the Clippers, who were put up for sale after Sterling was banned and the league threatened to seize the franchise.
Forbes in January valued the Cavaliers at $515 million, 19th in the league. Former Microsoft Chief Executive Officer Steve Ballmer agreed to buy the Clippers for $2 billion, which would shatter the previous record price of $550 million for the Milwaukee Bucks.
“As we saw from the Clippers, whenever there’s a frenzy over a team it can be difficult to asses where the ceiling is,” Schwartz said. “The team becomes a trophy asset when there’s a catalyst event surrounding it.”
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