King Midas: The Economic Impact of LeBron James
By Paul Donaldson
On July 1 at 8:05pm, the long anticipated announcement of whether or not LeBron James would once again take his talents elsewhere finally arrived. With it came the jubilation of my fellow Lakers fans, and the utter disbelief of Cleveland Cavalier diehards. But in addition to the seismic shifting of power between two franchises in opposite conferences, the economic landscape of their respective cities very likely also changed.
A study conducted by AEI in 2017 examined changes in the economic landscape of Miami and Cleveland when he first left Ohio and again when he returned. According to an analysis of a report by Black Enterprise, “the number of eateries and bars within a mile of the stadium where James was based at the time increased by 13 percent. In turn, employment within those establishments increased by 23.5 percent. While, on the other hand, those numbers dropped when James was not on either team.” When James announced his return to Cleveland in 2014, ticket sales spiked by over 100 times, going from $25 to an average of $386, and season tickets selling out within hours. In addition, the King’s return was correlated with an economic boost in downtown Cleveland worth hundreds of millions of dollars.
Within hours of the release of “The Decision” 3.0, Los Angeles began to show similar trends. According to ESPN, James’ new LA jersey was on the market just forty minutes after the announcement, but with an even greater effect than his prior moves. “In the first three hours of sales, there was a 600 percent spike compared to how his new Cavaliers jersey sold on the site on the day when he returned to Cleveland from Miami in July 2014.” Moreover, the lowest Lakers season ticket prices on StubHub increased from $3,499 to a minimum of $6,500. In Cleveland however, one ticket broker believes the tickets that he currently holds for next season will lose 60 percent of their value, just as they did when the King left for Miami in 2010.
But what about the long-term implications? Prior to the announcement, FormSwift analyzed the potential economic impact LeBron James would bring to a new city should he choose to leave. For Los Angeles, the study estimated a total impact of $396 million, 3000 jobs, and $29 million in state tax revenue over the length of a five-year contract. In contrast, Cleveland.com reports that another study conducted by The Plain Dealer and economist contributors in 2010 said that James had an impact of $200 million annually in downtown spending. With James gone, Cleveland.com also reports that Cleveland businesses downtown could lose $48 million. In addition, the region could miss out on $150 million if the Cavs fail to play in at least 10 home playoff games. Moreover, the overall value of the franchise could fall by $100 million.
However, Cleveland.com also points out that many estimates fail to account for whether or not the increase in jobs and city revenue is new money being spent, or simply a reallocation of spending habits (i.e. going to a basketball game instead of going to the movies), meaning that the exact economic impact of LeBron James would be unknown.
But perhaps the most telling information comes from ESPN reporter, Ian Begley: “Members of an ownership group from an NBA team ran an analysis that concluded signing LeBron James could generate approximately $65 million annually for the franchise, per sources. He’s projected to sign a contract worth $35 million for the 2018-19 season.”
Regardless of whether or not LeBron James is indeed responsible for generating new economic opportunity, at the very least, the King does have an impact on how people spend their money. And who better to know how much than the people who would be paying his salary.
So, if you’re wondering why LeBron and other high-profile athletes get paid as much as they do, “playing a game” is only scratching the surface of their responsibilities.
Paul Donaldson is currently interning with The James Madison Institute. He is a University of North Florida senior studying finance (BBA) with a double minor in economics and leadership.