The Economics Behind LeBron James’ Decision

I woke up this morning. Did my thing and browsed through news channels—CNN, CNBC, Bloomberg. NYSE is already closed, but there are plenty of talks about the European economy, British Petroleum, China’s currency peg, inflation rates and the rather bleak US employment data—all bound to affect the stock market and economies all over the world. But none of those have such effect on emotional investors than the LEBRON JAMES DECISION. LBJ pollutes the Bloomberg news as if he's the newly elected President of the United States; as if he brings the news that the stock market is about to crash big time.

For those who don’t know a thing about basketball, LeBron James is one of the best ballers (probably the best in the world currently, arguably the most solid and most sought after athlete in the NBA) who ever existed.  He was drafted in 2003 by the Cleveland Cavaliers and for seven years, LeBron tried hard to win a championship. His contract expired this year, and together with top NBA “free-agents” Dwanye Wade and Chris Bosh, LeBron wanted to go to a team with nothing less than a title in mind. He announced today that he is joining Wade and Bosh in Miami. And suddenly, NBA teams felt the Goosebumps.  Three of the best basketball athletes in the NBA today all in one team. Talk about your worst nightmare.  It’s like having an all-star game every night.

And Cleveland will not be very happy about it. Cleveland’s economy was non-existent, up until LeBron stole the show as a local who would finally change the course of Cleveland’s sports history (Cleveland is title-less in all the 4 major sports in the US). To put things into perspective, let me ask, what was Cleveland Cavaliers worth without LeBron? LeBron is worth so much to Cleveland that Forbes magazine estimates that the franchise’s overall value will drop $100 million if James bolts for greener pastures. That’s a 21% drop in team’s current net worth of $476 million.

People in Ohio are now burning LeBron’s jerseys. Disgusted. Depressed. Bitter. They should be. The golden boy, the “King” of NBA just left for greener pastures. And by greener pastures I mean not the money. LeBron will likely make the most bucks in New York or Cleveland, but he chose Miami because with Wade and Bosh, the NBA title is most likely to land in Miami. All roads point to Miami as NBA experts pick them as the early favorites to win the title in 2011. Probably in 2012 also. 2013. Why not?

I just hate it. But it doesn’t matter. LeBron pursued his dream to cement his legacy in the NBA. To be an NBA champ finally. He is probably on his way to do that. This is his first move. And it makes economic sense (at least for him, not the Miami Heat because now the team will have around $45-50 million in salaries committed to Wade-Bosh-James, and only less than $10 million for the remaining 12 rosters). Miami is his better alternative because of Wade and Bosh. New York, Chicago, New Jersey, Los Angeles and Cleveland made their pitches. But in the end, for LeBron, it’s all about the championship title.

This will be an interesting era in the NBA. Three of the best players in the NBA in one team. And these players are in their prime (mid-20s) unlike the “Big Three” in the Boston Celtics team (Allen-Pierce-Garnett are in their 30s when they came together). LeBron’s decision will surely have an impact on the future of the NBA, and the economies of the cities involved. Miami got the biggest share of the pie. But imagine if LeBron chose to join NY instead. I’m willing to bet the NASDAQ and the S&P will hit green in seconds.

I may think (feel) LeBron is gay for joining Miami. But it’s his decision. His $15-20 million. It's his life. His shot at the title. I could have even done the same if given a chance. Geeeezzz. Anything for legacy huh? Giving up his big ego for a bigger EGO. That’s the economics of his decision. Good luck to the other teams in the NBA.