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LeBrononomics: How LeBron James's Departure Could Further Hurt Cleveland

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LeBrononomics: How LeBron James's Departure Could Further Hurt Cleveland
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Few would argue that the city hit the most by the recession was Detroit, which saw its unemployment rate hit 16.4 percent following the bankruptcy of General Motors.

The result has been a large increase in vacant housing and crime, which the city was already suffering from since 1967 when the 12th Street riots caused the middle- and upper-class to move towards the suburbs.

According to an MSNBC article written on Dec. 20, 2008, the average price of a home is $18,513 and there are 44,000 vacant homes, which haven’t been demolished because the cost is too high.

While the only city in recent history to rival Detroit’s downfall is New Orleans, Cleveland is starting to decay in similar fashion.

Like the Motor City, Cleveland runs on mainly one industry (manufacturing) to make its economy function. The city that once rocked with a vibrant downtown and managed to brave the recession for most of 2008 eventually buckled as unemployment went up 1.5 percent in just three months.

For a city nearly half the size of Detroit, that’s a pretty big hit.

In 2009, Cleveland became the eighth most dangerous city in America and rivals Detroit for having the highest poverty rate in the country.

As if Cleveland couldn’t be in any worse shape, its economic situation could deteriorate even more should LeBron James leave the Cavs this summer. I’m not saying that he single-handedly keeps Cleveland’s unemployment rate from climbing, but considering the fact that he plays in only the 41st largest city in the country, everything makes a difference.

If Chicago Business’s article on James saying that he’d bring $2.7 billion to Chicago is true, imagine what it means to Cleveland, which is six times smaller than the Windy City.

In order to determine exactly what James means to the city of Cleveland, first consider what he does to the Cavs. The Los Angeles Lakers, New York Knicks, and Chicago Bulls are the three most valuable teams in the NBA according to Forbes and are also in the top three biggest markets.

The Cavs became the fifth most valuable team while their city is ranked the 18th biggest market. The Pistons (No. 4) are the only other anomaly, although the economy caught up to them this year and their ticket sales plummeted. Meanwhile, the Quicken Loans Arena stayed sold out on a consistent basis.

In other words, the Cavs are seriously outperforming market expectations, and could suffer a rough slide back to reality if James leaves Cleveland.

The Akron Beacon Journal quoted Robes National Editor Michael Ozanian on Oct. 24, 2009 as saying, “The value of the team would diminish significantly. I wouldn’t want to put an exact dollar amount on it, but it could easily be 10 percent.”

Considering that the Cavs were worth $476 million, that’s a pretty steep cost for losing one player. Other estimates suggest they’ll eventually slide back to the 15th spot, which they were before drafting James.

It currently is the Utah Jazz at $343 million. That’s nearly a 28 percent drop in value and would represent the lowest their value has ever been since the 2004-05 season.

The state of the Cavaliers might not seem like a big deal to Cleveland’s economy, but the truth is that the effect James has on his current team might be a microcosm of what might happen to the city if he leaves.

For starters, Cleveland makes a lot less tax revenue simply by losing James. If James chose to opt out and then resign with the Cavs, he would make $16.5 million plus another $12.8 million from his Nike deal.

Next year, the state of Ohio would tax James approximately $1.7 million, and only part of that goes to Cleveland. Then tax eight percent of the $159 million the Cavs made in 2009, which comes out to $12.7 million in total tax revenue.

Those two factors by themselves barely make a dent in Cleveland’s economy, but add in the stores selling James and/or Cavs merchandise, the hotel industry during playoff time, the restaurant and bar scene around Cleveland, and the businesses that work with the Cavs are also largely affected by James staying in Cleveland.

It’s hard to estimate for sure exactly how much the city of Cleveland would lose from James’s departure, but the city made $491 million in revenue during 2009. That’s just $15 million more than the Cavs are worth if they were sold today.

You don’t want to say that James is a one-man economy, but when you consider how small Cleveland really is, it’s hard not to notice the impact he would have if he left. Several downtown businesses would suffer and therefore contribute to the unemployment rate.

It would certainly be tragic if the Rock and Roll capital of the world followed in Detroit’s footsteps, and the lines that once went out the door to get into sports bars became nothing more than a vacant building waiting to be torn down.

If James thinks his effect lays strictly in wins and losses, he should think again.

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