LeBron James May Be a Slam-Dunk for the Heat, Not So Much for Miami
byJul 9th 2010 3:00PM
There's an old joke that if you line up 1,000 economists, you'd get just as many opinions. That's true on many subjects but not on the idea that the impact of pro sports on local economies is minimal: Economists are practically unanimous on that point, and James case shows why.
It's easy to confuse the issue of what's good for a team and what's good for the community. Take the comments of sports business experts on James's decision to leave his hometown Cleveland Cavaliers for the Miami Heat that were quoted in The Miami Herald.
"LeBron, is a walking, talking, free-throw-shooting stimulus plan," said sports business commentator and author Rick Horrow.
"It's tantamount to signing the Beatles to a season-long engagement at our stadium,'' said Scott Becher, president of Boca Raton-based Sports and Sponsorships.
"Stimulus plan?" "The Beatles?" Really?
A Limited Potential to Boost Spending
Chris Lafakis, an economist at Moody's Economy.Com who studies Miami's economy, has a more subdued take on the impact James will have. "It's not going to hurt, but I don't think it's going to matter measurably for Miami's economy," says Lafakis.
For one thing, the city's economy is huge -- it draws $9 billion a year from tourism alone. If an additional 10,000 people go out to bars and restaurants to watch the Heat, spending on a net basis $25 each -- and that's a big if -- that would generate roughly $21 million in revenue over the season, boosting that sector of the economy by 0.2%, Lafakis says.
On the other side, Bodhi Ganguli, another Moody's Economy.com economist, says James's departure from Cleveland won't really hurt that city's economy, which is turning around after a long and deep recession. "There will be loss in the near term, but over the long run it won't mean much," he says.
Revenue Sharing Spreads the LeBron Wealth
Of course, Miami fans are deliriously happy about James's arrival, and he's feeding the hype, tweeting after the announcement that "the road to history starts now."
"Yesterday, fans could buy Heat season tickets for $3,238.61 on average," according to Christian Anderson, a spokesman for FanSnap, a search engine for ticket sales. "Today, Heat season tickets average $8,249.99. That's a 2.5x increase overnight. Heat season tickets had been relatively flat for the last 10 days."
However, not all that fan enthusiasm will translate to the team's bottom line. For instance, the NBA splits apparel revenue equally, so James fans who pay to wear their idol's new Miami jersey will be lining the pockets of the Cavaliers as well. National TV and sponsorship rights money also is divided up among the league members, according to NBA.com.
Will New Revenue Offset Higher Costs?
Of course, the Heat can raise ticket prices, but the team regularly sells out anyway. Given the weakness in the city's economy, where unemployment is about 12% and the housing market is in disarray, there are limits on how much fans will pay to see the latest celebrity to call South Florida home. Indeed, the team could even have difficulty in recouping the expenses of signing James.
Forbes estimates that the team generated $126 million in revenue in 2009 with player expenses totaling $74 million. According to The Wall Street Journal, the maximum salary James can get in Miami is $96 million over five years. If he's getting that, the team's salary expenses would rise about 27% annually. Becher told The Miami Herald that he expects the Heat to generate an additional $20 million a year from playoff revenue, regular-season ticket sales, sponsorship and media sales.
Those optimistic projections would mean about an 11% gain in revenue, and an approximately break-even impact on the team's finances. A team spokesman could not be immediately reached for comment.
Signing James could bring championships and provide Miami with a psychological boost, but it may not offer much of a financial one.