LeBron $21 Million a Year Bringing Cleveland $215 MillionEben Novy-Williams and Mark Niquette
LeBron James is bringing more than his talents to northeastern Ohio. A new economy will come with the world’s best basketball player.
His return to the Cleveland Cavaliers will generate as much as $215 million annually in new and redistributed money for the franchise and Cleveland from tourism, taxes, service industry spending and the team’s business, according to data compiled by Bloomberg. The largest financial impact of any current NBA player is more than the cost to convert the downtown Ameritrust complex into apartments, hotel, office and retail space, and more than double what Alcoa Inc. spent to rebuild a 50,000-ton forging press at its Cleveland Works.
“He’s a walking, talking economy,” said Nick Kostis, owner of the downtown Pickwick & Frolic Restaurant and Club. Kostis, 71, said he expects between $150,000 and $250,000 in added business with James back with the National Basketball Association’s Cavaliers. “Everyone’s boat will rise.”
An Akron native, James, 29, said he was drawn back to Ohio from the Miami Heat by his pride in the region. His two-year, $42 million contract, which lets him opt out after this season and bucks the trend of top players signing for the maximum length, means he can cash in when the salary cap is raised after the 2015-16 season as a result of the league’s new $24 billion television deals.
James’s effect on consumer spending will be greater there than in a city like Chicago, with seven times more people and a larger economy, according to Allen Sanderson, a University of Chicago economist. He said James’s influence tops that of Bulls guard Derrick Rose -- another NBA Most Valuable Player competing for his hometown team. Should the Cavaliers have success, the team’s impact may be further heightened in Cleveland because no professional sports team has won a league title since football’s Browns in 1964, Sanderson said.
James’s July 11 announcement, the same week Cleveland landed the 2016 Republican National Convention, accentuated the renaissance of the city by Lake Erie after factory closings and residential decline. The population fell almost 60 percent from a peak of 914,808 in 1950 to about 390,000 today, according to the U.S. Census Bureau.
For arena employees, James’s return means more workdays, more hours and more overtime; for one hotel manager, it prompted a transfer request to a downtown location, and for a local health insurance company, it represents an opportunity to reach more potential customers after Obamacare became law.
At CLE Clothing Co., a downtown apparel store with no Cavaliers- or James-specific merchandise, the announcement created a weekend of business typically seen only during December holidays. Laura Kubinski, the company’s director of operations, said the downtown shop -- which now stocks a “Return of the King” shirt -- will stay open later during the winter months now that James’s return means larger crowds.
“We always knew this was a great town, but with LeBron’s return, the RNC and the recent hosting of the Gay Games, other people are starting to take notice, and that’s really refreshing,” Kubinski said in an interview.
Cleveland became known as “the mistake by the lake” when the polluted Cuyahoga River caught fire in 1969 and the city defaulted in 1978. After luring the Rock and Roll Hall of Fame to Cleveland in 1995 and building stadiums for its three major sports teams, the city has begun to rebound with a bustling downtown, arts district and a medical corridor that has grown around the Cleveland Clinic, the county’s largest employer.
Public and private investment since 2010 has reached about $5.5 billion, according to a quarterly report by the Downtown Cleveland Alliance, including a new $465 million convention center and adjoining $272 million hotel under construction. Cleveland also has had a 68 percent increase in 25- to 34-year-old college graduates between 2006 and 2012, the report said.
Cavaliers Chief Executive Officer Len Komoroski, also a board member for the city’s convention and visitor’s bureau, said the RNC and the essay James wrote explaining his decision to return may prove a “tipping point” in the city’s revival.
“The impact was so seismic and symbolic that it’s created a renewed sense of optimism,” Komoroski said in an interview.
No single business will see more growth as a result of James’s arrival than the Cavaliers, who haven’t had a winning record or made the playoffs since his departure in 2010. Immediately after James’s announcement, the franchise became the betting favorite to win its first NBA title, and sold out its season tickets in less than 10 hours.
The team probably will see increased ticket revenue, sponsorships, merchandise sales, and when its 10-year television deal expires in 2016, media income.
The Cavaliers receive about $25 million a year right now from a 10-year television deal with Fox Sports Ohio signed in 2006, according to the Northeast Ohio Media Group. Should the team have success in the next two years and James stays long-term, the new deal probably will be for double or even triple that amount, according to Len DeLuca, who worked almost 30 years in college basketball programming at CBS Sports and Walt Disney Co.’s ESPN.
The biggest immediate boost will come from tickets, where the team could see an added $44.5 million this year, according to ticket-data aggregator SeatGeek.com. That includes about $7.9 million in extra regular-season sales, $3.3 million in dynamic pricing increases, where higher prices are charged for better games, and a possible $33.3 million if the team hosts nine playoff games, which roughly coincides with a run to the Eastern Conference finals.
Sponsorship revenue probably will rise 30 percent, according to Chicago-based sponsorship consultant IEG, mostly from new and renegotiated deals. Merchandise sales within the arena, which aren’t subject to the league’s revenue sharing, also probably will increase, as will fan spending for food and beverages.
“We’re in a very strong demand situation,” said Komoroski, who declined to provide specific numbers.
Cavaliers owner Dan Gilbert has invested more than $1 billion in downtown Cleveland and owns 12 local businesses, Komoroski said. Gilbert was unavailable to comment, said team spokesman Tad Carper.
The Cavaliers more than doubled their win total in 2003-04 after selecting James with the No. 1 draft pick and went to the playoffs in each of his final five seasons in Cleveland. After announcing that he was leaving for Miami in a 75-minute television special -- which prompted some Cavaliers fans to burn replicas of his jersey -- James helped the Heat to four straight finals appearances, including titles in 2012 and 2013. In 11 seasons James has won four MVP awards, two finals MVPs, and made 10 All-Star appearances.
James has “Akron Est. 1984” tattooed across his shoulders. When he announced his intention to return to Ohio, he said the decision “goes above basketball.”
“Our community, which has struggled so much, needs all the talent it can get,” James said in the essay, published by Sports Illustrated on July 11.
About noon that day, Angie Gerges, a manager at Panini’s in downtown Cleveland, was waiting tables when the television flashed the news. She said some lunch patrons didn’t go back to work, drinking through the day and into the night on the patio.
At the downtown Radisson hotel two blocks away, the Gateway Bar & Grill began serving $2 “LeBron Bombs,” a shot of whiskey, grenadine, orange juice and Sprite. Drinkers also got a packet of sugar, allowing them to mimic James’s pregame ritual of tossing powdered chalk into the air. Ryan Phelps, the hotel’s assistant general manager, said he transferred there in early August after working at another Ohio Radisson.
“At this location there would be more business, and more business means more opportunity,” said Phelps, who estimated that the Bar & Grill would be standing-room-only for Cavaliers games and that the 142-room hotel would sell out on home dates, starting Oct. 30 when the club plays the New York Knicks.
Lamont Anderson also thought about his career after hearing the news. A Cleveland native who lives in the St. Clair neighborhood, Anderson, 31, works as a dishwasher at Quicken Loans Arena, where he’s paid $8.90 an hour on basketball game nights and prep days.
“My first thought was more hours, more games, larger crowds,” Anderson said. “Probably a lot of overtime pay, too.”
James’s return won’t necessarily mean an infusion of new dollars, rather a reshuffling of money that would have been spent elsewhere, said Sanderson and Robert Baumann, an economist at the College of the Holy Cross in Massachusetts who has studied the economic impact of events such as the Super Bowl and political conventions.
Still, James will cause spending choices that wouldn’t have been made without his return, Baumann said.
His biggest impact outside the arena will be fan spending, mostly in the downtown area, which the county projects will increase $34 million per year to $170 million, not counting playoff games. That includes spending at hotels and nearby restaurants such as those owned by chef Michael Symon.
Symon, who has restaurants inside Quicken Loans Arena and a nearby casino, said he expects a 25 percent increase in business on game nights.
“It’s human nature to spend a little bit more money when you’re in a better mood, and we’re going to have a better team with LeBron than without LeBron,” Symon said.
The return also provides a focus for businesses far from hospitality or sports. Thanks to the Affordable Care Act, which was implemented last October, providers such as Medical Mutual of Ohio, a team partner for more than 15 years, have had to focus their advertising on individuals, not corporations. Jared Chaney, the company’s chief marketing officer, called it a “whole different dynamic.”
“When he left, if you were tied to the arena, you were reaching just a fraction of the people you used to reach,” Chaney said in a telephone interview. “All of a sudden it’s a megaforce again.”
The city also will benefit from the publicity of more nationally televised games, said Adam Sacks, founder and president of the Tourism Economics division of Oxford Economics outside of Philadelphia. Last year the Cavaliers played two nationally televised games, excluding those on the league-owned network -- this year that number is 25 and could increase.
The exposure will reach companies and individuals making decisions about where to locate, said Edward “Ned” Hill, dean of the College of Urban Affairs at Cleveland State University and an economist who studies development.
Hill recalled traveling in Croatia when James was last with the Cavs and seeing a two-story billboard of him at a Nike store there.
“That type of name recognition, for a mid-size city and region, is actually quite large,” Hill said by telephone.
Cuyahoga County Executive Ed FitzGerald said July 14 that the county expects James will generate at least an additional $50 million, and that the Cavaliers at full capacity will have a $500 million impact on the local economy. The number is different than Bloomberg’s estimate because it includes the direct impact of Cavs games, as well as indirect spending on goods and services and spending by workers connected with the team and arena.
The county said it based its estimates on a percentage increase of calculations of fan spending in consultation with Positively Cleveland, the county’s convention and visitors bureau. The numbers assume the difference between sold-out games, or 20,562 a contest, compared with attendance without LeBron, which averaged 17,330 last season.
That spending means more tax money for Cleveland, Cuyahoga County and Ohio. The city alone expects an annual boost of between $3.3 million to $3.75 million from taxes on tickets, parking and hotel rooms, said Dedrick Stephens, commissioner of the Division of Assessments and Licenses.
The Cavs’ payroll is projected to increase about $8.2 million next year, meaning an additional $437,000 in income taxes for Ohio based on the top tax rate for those earning more than $208,500 a year. Cleveland and Independence, Ohio, where the Cavs practice, would split an additional $82,000 in income tax based on the increase in team payroll based on the 2 percent levy charged to non-resident athletes.
The county also projects an additional 550 jobs downtown and $28 million in salaries for waiters, security guards and other workers. That would generate about $890,000 in state income taxes, using the rate of 3.169 percent for individuals and couples earning between $20,900 and $41,700 a year.
James will also affect bond repayments because admissions tax revenue is used for the $9 million a year in debt service for the $120 million in bonds that the county issued in 1992 to build Quicken Loans Arena. Nathan Kelly, county deputy chief of staff for economic development, said it expects a $3.5 million increase in tax to put toward debt -- making up for a similar sum that it covered from its general fund after James left.
Yet challenges remain. Cleveland tied for seventh in poverty with Lansing, Michigan, among 50 cities of 100,000 or more, with 36.1 percent of the population below the poverty line, according to data compiled by Bloomberg as of May 2014.
The city ranked fifth in foreclosure rates nationally during the recession, according to its 2014 budget book. That left thousands of vacant and dilapidated properties to tear down in an attempt to stem the drop in property values.
Even so, the prospect of sellouts will give restaurants and other businesses the confidence to invest and keep employment stable, said Joe Roman, president and chief executive of the Greater Cleveland Partnership, the metropolitan chamber of commerce.
“There are some that have an ability to attract more outside spending than others, and I think LeBron is one of those,” Roman said by phone.
Northeastern Ohio is filled with banners and signs celebrating James’s return -- with a new 10-story billboard on the eastern face of the Landmark Office Towers in Cleveland set to be unfurled this week, replacing one that was torn down when he left for Miami. In Akron, James’s high school hung a poster across the street from an auto parts store whose front facade read “Welcome Home LeBron, Your Hometown.”
Inside the Gilbert-owned Horseshoe Casino there’s a 30-foot mural of famous Clevelanders, including Drew Carey, Bob Hope and Superman, who was created by local high school students in 1933. Jamie Brown, the casino’s vice president of marketing, joked that the mural might be incomplete.
“We might need to find some room and pencil him in,” she said.