Lebron James: the Billion Dollar Man

While Germany was winning its first World Cup in decades (sorry Argentina), the entire state of Ohio was happily fantasizing about the upcoming NBA season. Lebron James, the child of Akron, Ohio, was coming home to finish his career. Yet his move doesn't just shake the landscape of competitive basketball, it shakes the landscape of sports management.

Sports are perhaps unique in the world of business in the sense that much of their intrinsic value lies not in solely in their utility - in this case, the success of the team - but rather appeal. This is strongly felt in basketball when comparing franchises like the New York Knicks against other teams like the Indiana Pacers. While NY has a massive 1.4 billion dollar valuation, they haven't been past the first round of the playoffs since the 1990s. Conversely, the Indiana Pacers have a 475 million dollar valuation despite having the second best record in the entire NBA last year! To be clear: sure, success drives the appeal of teams, but the appeal of teams themselves is a separate variable, one which ultimately affects profit margins. Which brings us back to Lebron.

In this day and age, the reach of media is unprecedented. As such any move some of a sport's biggest stars make will ripple. And boy did it ripple. The year after losing Lebron, the value of the Caves dropped a dramatic 26%. Their television ratings dropped 55%, and merchandise sales didn't fare much better. While that year, the decline in profitability may have been because the Cavs were a worse team without Lebron, but then they got the number one overall draft pick and used it to select Kyrie Irving. The problem was he wasn't Lebron. The Cavs did better the following year... and their valuation still dropped 7% more. TV companies renegotiated smaller contracts, and the Cavs dropped ticket prices to compensate.

Meanwhile, the brand value of the Miami Heat, Lebron's chosen team, soared. the team's value jumped 17%, tops in the NBA. The Television ratings doubled. And most importantly, the heat sold out all season tickets after 4 straight years of declining attendance.

But now, the above trends are set to be reversed. The Heat should still win their share of games. But their brand value has taken a massive hit, the same hit that that will boost the Cavs. The figures aren't clear just yet, but Lebron's promise to stay in Cleveland will result in stopping power for the Cav's negotiations with TV companies for newer, bigger contracts. Their ticket prices will once again soar. And a certain jersey will sell like hotcakes once again.