After LeBron: The Economic Fallout

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LeBronNow that basketball icon LeBron James has left the Cleveland Cavaliers for the Miami Heat, it’s time to assess the economic fallout of his decision on the region that, until Thursday, James called home. If James had returned, the Cavs were facing an NBA Eastern Conference that, from top to bottom, improved from a year ago. Even with James, the Cavs would have been, at best, the fourth-seeded team in the East and were no lock to win the 60-plus games they won each of the past two years. 

But James’ presence meant full arenas, corporate sponsorships, increased television and radio fees, and ancillary sales that were among the highest of all NBA teams. In James’ rookie season, the team sold out 16 games, which at the time, was the third highest amount in team history. The team is currently in the midst of an 80-game sellout streak. The Cavs currently have the tenth highest ticket prices in the league and are near the top in season ticket sales.

Cavs owner Dan Gilbert told the local media that there have been no requests to cancel season tickets, but it’s still early and, according to a well-placed source in the team’s front office, the Cavs expect a 25 percent to 30 percent decline in attendance if the team is not competitive next season. According to the Team Marketing Report, in 2008 the Cavs saw their revenue from in-game purchases (think hot dogs, popcorn and souvenirs) decline by 8 percent. With the deepening recession, the projection for the past season is expected to be a 10 percent decline. Without James, it is reasonable to think the team could see a 15 percent decline in fan spending.

In its annual listing of the value of NBA franchises, Forbes magazine finds two-time champion Los Angeles Lakers in the top spot with a worth of $607 million. The Cavs ranked fifth at $467 million. All indications are that the value of the franchise will drop to near the league average of $367 million – a potential $100 million dollar hit.

Considering Gilbert made his fortune in the mortgage business, a business that is gasping for air, expect Gilbert to issue more cash calls along the line of those that forced out singer Raymond Usher as a minority investor. But before shedding any tears for Gilbert, keep in mind Ohio voters recently gave him a monopoly on a casino license for Cleveland and Youngstown.

Undoubtedly, James’ loss will mean fewer fans in the stands and less people in downtown bars and restaurants on game nights. According to the Cleveland Convention and Visitors Bureau, the game day impact on Cleveland’s downtown area is $3.7 million a game and $153 million a season. But the organization, which started tracking the numbers in James’ rookie season, was unable to put a number on the amount directly contributed to James.

“While I cannot quantify LeBron’s individual impact, I can say that less people downtown means less spending,” explained spokesperson Lexi Hotchkiss. “In the short-term, some businesses are going to take a hit but many will spend elsewhere in the area.”

Hotchkins says that her group represents the hospitality industry and has spoken to many of the key providers in the area and no one is predicting doom…yet.

“The loss of LeBron is tough, but in the time he was here we saw a growth of new downtown residents at a plus 15,000. We still have the Rock and Roll Hall of Fame and Museum and the new casino will keep visitors coming year round.”

Since the nationwide economic downturn, James and his advisors have scaled back or canceled nearly all development projects both in Cleveland and Akron. Outside of his annual Skills camp and several fundraisers James held in Akron, his impact on that city was more prestige-related. James has stated that he will continue to hold those events, but only time will tell as no one knows how fans will react, or if sponsors will want to wade into potentially turbulent waters.

The city of Cleveland has endured a lot over the last four decades and is diminished but still standing. The region has bigger issues than entertainment and as Cleveland Mayor Frank Jackson expressed, “The city will in time get over the loss and move forward.”