LeBron James' return to the Cleveland Cavaliers has been called many things in the mainstream press: "The Return of the King," "The Decision II," and my personal favorite, "The King's Homecoming." But beyond the world's obsession with its best basketball player, there are enormous business ramifications from James' move back to Ohio.
How much money could it bring the NBA franchise?
The impact could be worth millions
According to Forbes, the Cavaliers were valued at $515 million this past season. That ranked 19th in the NBA. In 2010, the final year of James' first stint with the team, the Cavs ranked fifth, above prestigious competitors like the Boston Celtics, San Antonio Spurs, and Dallas Mavericks.
During James' four years with the Miami Heat, NBA franchise values grew by an average of 71%, Statista reports. Over that same time, the Cavs' valuation gained just 8%. Had it followed league norms, Cleveland's team would be worth more than $800 million.
So, will the Cavs make up this near-$300 million shortfall now that their "King" has returned? That remains to be seen. But there's reason to believe his immediate impact may be worth at least nine figures.
The TV dollars
As Forbes' Mike Ozanian recently explained, an influx of TV dollars could cause the franchise's value to skyrocket.
"A new cable deal, with James and the much higher ratings, will average at least $40 million a year," he writes. "Applying a multiple of five to the discounted future value of that revenue stream would add $100 million in value to the Cavaliers."
In James' first year with the Heat, TV ratings doubled, Ozanian points out. Cleveland's ratings fell by 54% the year after his departure, the SportsBusiness Journal reports. It's reasonable to think that this trend can now reverse.
Vegas oddsmakers, in fact, give Cleveland the best chance to win the NBA Finals next season, according to SBNation. A fun fact: The Cavs' lineup now has an astounding four No. 1 picks, with James, Kyrie Irving, Anthony Bennett, and Andrew Wiggins.
Don't forget about ticket sales and sponsors
As you might expect, ticket prices, and consequently ticket sales, will likely rise. Forbes estimates the Cavs made $30 million from gate receipts last year. Championship contenders like the Spurs and Oklahoma City Thunder, by comparison, generate between $50 million and $60 million annually from this revenue source. The Heat booked a little more than $80 million in ticket sales last season.
And don't forget about sponsors. Given James' immense marketability, the Cavs' endorsement income should also receive a boost. Key sponsors last year included FirstEnergy(NYSE:FE), Quicken Loans, and Time Warner(NYSE:TWX), though existing LeBron-partners like McDonald's(NYSE:MCD), and Coca-Cola(NYSE:KO) could reasonably jump on board. The latter already sponsors the New York Knicks and Chicago Bulls.
As I explained last month, James' 2010 decision to take his talents to South Beach likely improved Miami's sponsorship income. At the time, I wrote:
In the '09-'10 season -- the year before he joined the Heat -- Forbes valued Miami's franchise at $364 million. This ranked 12th in the NBA, and included roughly $40 million in brand value…. Four years later, the Heat are now worth $770 million according to the outlet, good for seventh in the league, and the team's brand value is now $113 million.
The bottom line
While the world vilified LeBron James for leaving Cleveland, his return turns him into a hero. His presence immediately makes the Cavaliers one of the best teams in the NBA, and in multiple ways, it should improve the franchise's financial footprint. Although the team may not win the finals next season, fans outside of Miami can finally root for the game's best player again.
Jake Mann has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and McDonald's. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.