No, LeBron James Won’t Bring $500 Million A Year To Cleveland’s Economy

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"No, LeBron James Won’t Bring $500 Million A Year To Cleveland’s Economy"

LeBron James will make Clevelanders very happy. He won't make them rich.

LeBron James will make Clevelanders very happy. He won’t make them rich.

CREDIT: AP

When LeBron James announced last week that he would return to Cleveland to play for the hometown Cavaliers next season, he told the world that he was doing so not just to win basketball games but to help the area of Ohio where he had grown up. This was “bigger than basketball,” he wrote in the Sports Illustrated essay announcing his return.

“My presence can make a difference in Miami, but I think it can mean more where I’m from,” James continued. “I want kids in Northeast Ohio, like the hundreds of Akron third-graders I sponsor through my foundation, to realize that there’s no better place to grow up. Maybe some of them will come home after college and start a family or open a business. That would make me smile. Our community, which has struggled so much, needs all the talent it can get.”

Now, everyone has jumped on the “LeBron Can Save Us” bandwagon, trying to assess the direct economic impact he might have on the Cleveland area. In Time, for instance, a Cleveland-area economics professor outlined an estimate that LeBron’s return would have a $500 million direct impact on Cleveland’s economy, thanks to higher ticket sales and other spending he will help generate. The number has spread, with news outlets and fans amazed at how a single player could have such a positive effect.

But if that number sounds too good to be true — $500 million is a huge impact — it’s because it is!

“Absurdly bad,” College of the Holy Cross sports economist Victor Matheson, who studies the impact of sports stadiums and events on local economies, told ThinkProgress of the $500 million figure. “In fact, this may literally be the worst overestimate I have ever seen in my career. Seriously.”

A simple examination of the annual revenues of the Cleveland Cavaliers and Miami Heat makes it clear that there is no way James himself could generate $500 million in impact. The teams themselves don’t generate anywhere near that much.

“It’s just completely unclear how you get $500 million out of this,” Matheson said. “The Cavs’ entire revenue for the year is like $145 million. The Miami Heat, their revenue last year was $188 million. How you go from that to $500 million for the local economy is crazy. Just on that front alone it would be crazy.”

On top of that, people didn’t abandon the Cavaliers when James left. Attendance dropped and ticket price did too, but the Cavs still drew 17,000 fans a game during the 2014 season. To suggest that James’ presence will bring in an additional $129 million in ticket revenue alone, as the study responsible for the $500 million figure guesses, or that all of that revenue would remain in the local economy (it never does), doesn’t seem to stand up to scrutiny.

The other issue — and the issue that is most misunderstood when it comes to the impact of stadiums and sporting events — is the substitution effect. In short, people didn’t stop spending money in the Cleveland area when LeBron James left for Miami four years ago. One estimate suggests that Cleveland’s “leisure economy” lost $48 million in the aftermath of James’ departure. Even if that is true, there’s no evidence that Clevelanders didn’t spend the money elsewhere in the local economy, spending what they would have otherwise used at and around Cavs games or on LeBron jerseys on something else. If they start spending money on the Cavs now, most of it won’t be new money, but money diverted from other places in Cleveland where they were already spending their cash.

To surmise that James could have an impact anywhere near $500 million would require not just a much larger overall revenue number from the Cavaliers franchise, but an assumption that people in Cleveland stopped spending money altogether upon his departure.

“So the main issue is what were these people doing when James wasn’t there? They didn’t just hole up in their apartments, lights out, not eating, not drinking, not breathing,” Matheson said. “They were doing something with that money, and the extra money they’re spending on the Cavs has to come from somewhere.”

The other assumption is that people will travel to Cleveland from outside the greater Northeast Ohio region to see James and the Cavs play, but for multiple reasons, even that likely won’t produce a significant impact. Economic research into sporting events already suggests that the number of fans who travel into cities and stay overnight (thereby boosting hotel and restaurant revenues too) is relatively small, especially for every day events like an average NBA game. Add in that it will be far easier to get tickets to see the Cavs in cities that aren’t Cleveland, and it is even more likely that any such effect will be minimal.

Even accounting for the impact James himself may provide — through charity donations or money he spends in the city, for instance — the net benefit will probably be small. James already keeps a house in Northeast Ohio and already donates millions of his dollars to Northeast Ohio charities. There might be tax benefits for Cleveland and Ohio, but even those are closer to zero than they are to $500 million.

That’s not to say James’ return won’t have benefits for Cleveland. He will provide a small economic boost totaling somewhere in the low millions of dollars, though even the $50 million posited by Cuyahoga County Executive Ed FitzGerald may be too high, Matheson said. But the same ideas underlying the claim that James will have a half-a-billion dollar impact on Cleveland are those that backstop public financing of sports stadiums and arenas. And those ideas are disputed by loads of research showing that such plans, or the events that take place in them, aren’t the economic windfalls proponents say they are. Which means that for as exceptional as James is on the court, he’s much closer to ordinary in the sports world when it comes to impact: the economic side is small but vastly overstated by politicians, boosters, and the media, while his actual impact — what Matheson calls the “feel good effect” — is largely ignored.

“It’s a great time to be a Clevelander,” he said. “The feel good effect is absolutely real and it’s huge for that. LeBron is making us happy. But there’s no reason to think LeBron is going to make us rich.”

Update
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Writing at the Sports Economist blog (which is worth adding to your blog roll), Matheson has some more specific numbers on LeBron’s effect on ticket sales:

More specifically, in 2009-10, LeBron’s last year in Cleveland, the Cavs sold 20,562 tickets per game at an average price of $55.95 for a total regular season gate sales of $47.2 million. Last season, attendance was down to 17,329 and ticket prices were only $43.31 for a total gate of $30.6 million. LeBron’s return will certainly bring team gate revenues back to at least $50 million, but an increase in $20 million still leaves $480 million of Bloomberg’s reporting yet to be explained. John Carroll University professor LeRoy Brooks claims that ticket prices are much higher than face value when James is in town based on ticket resale data, but resale data is not a random sample of ticket prices and only represents a small fraction of tickets purchased. Just because one guy scalps a courtside seat for $3,000 doesn’t mean that the typical ticket buyer is paying prices like this.

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