LeBron’s Departure Could Have Cost Cavs Owner $100 Million
Six years ago, Quicken Loans founder Dan Gilbert bought the Cleveland Cavaliers for $375 million. If Gilbert wanted to sell it today, one sports investment banker, who requested anonymity because he helps clients buy and sell sports teams, told CNBC that Gilbert could get about $275 million for the team.
The price Gilbert agreed to pay in January 2005 was undoubtedly boosted by the fact that hometown boy LeBron James, then in the middle of his second season, was helping to fill up the arena on a regular basis.
James was worth plenty to Gilbert over the next 5 ½ seasons, as average per game attendance was never lower than 18,000 fans per game, a number the Cavaliers hadn’t ever achieved before.
But when LeBron “took his talents” to Miami this past summer, he left the cupboard bare. The result? A team that is 10-46 at the All-Star break, thanks to a league record 26-game losing streak. If they lose as many games in the second half of the season that they did in the first half, they’ll have their worst season since 1981-82.
The investment banker made the valuation based on projected revenues as well as the team’s location in Cleveland. That’s why it’s so far off from what the Golden State Warriors sold for ($450 million) in July.
Revenues are obviously expected to plummet due to the team’s fortunes.
Mark Klang, who says he is the Cavaliers biggest season ticket holder in terms of number of tickets, is predicting that, at best, 50 percent of season ticket holders will renew given the prices the Cavaliers have given season ticket holders for next season.
The prices, which were sent to current season ticket holders in late January have not been publicized have been reduced from no change to up to 20 percent.
The lower level center court seat, which teams usually don't have a problem selling to corporations, is being reduced from $158 a game to $155 a game. Klang, a ticket broker who says he currently owns 300 season tickets which he pays close to $1 million for, says his lower level baseline seats are being held at $140 each per game. The Cavaliers have more than 100 different price points due to seat location and season ticket holder history.
“Gilbert has that hustler sense to him, that’s how he was raised,” Klang, owner of Ohio-based Amazing Tickets, told CNBC. “It’s tough for him to admit when his product isn’t good, so it’s just not his mentality to own up to it. He believes there is an entertainment value to the team and there is when they are winning, but there’s clearly not when they aren’t.”
Klang should know. Given the team’s performance, Klang says he is lucky to get $40 for a seat he paid $150 for. What he doesn’t understand is how Gilbert could not know about what the market demand is, especially when he also owns Flash Seats, an online ticket reseller.
“There were $850 tickets to the Lakers game the other night, which includes food and drink that the Cavs value at $54,” Klang said. “They went on his site for $200. And that was a Lakers game.”
Cavaliers spokesman Tad Carper said that Gilbert isn’t concerned about the one banker's valuation because he is not selling the team anytime soon. Carper said Gilbert also doesn't believe that valuation to be accurate.
Carper also said that the against-all-odds scenario is something Gilbert is used to.
“He guided Quicken Loans through the mortgage crisis and the company now has its highest all-time loan volume and has increased market share,” Carper said. Quicken Loans, the nation’s largest online retail mortgage lender, closed a record $29 billion in retail home loan volume in 2010, having recently closed its one millionth loan.
To be fair, this will likely be the highest year of revenues for Gilbert. A center court, lower bowl seat cost $95 a ticket to season ticket holders in the year that Gilbert bought the team. This year that ticket costs $158 a game.
Fans had to purchase their season tickets in March — which is typical for the team — at the highest prices the Cavaliers had ever charged, so they were locked in by the time LeBron decided to leave in the summer. That’s why, despite the Cavs horrible season, announced attendance this year is averaging 20,343 per game, an average only trailing the Chicago Bulls and the Portland Trail Blazers. Then take into account that the Cavs are spending roughly $40 million less due to a reduction in payroll and lack of luxury tax.
There's also an argument to be made that, without his high profile status as the Cavaliers owner, Gilbert would not have gotten approval to build two casinos, along with Penn National Gaming, in Cleveland and Cincinnati. The statewide referendum was passed in November 2009, when Gilbert's popularity was arguably at an all-time high as Cavs owner. The casinos likely will be bigger revenue generators than the Cavaliers will be.
Carper says the Cavaliers have had "incredible fan support in the past and still have that and we want to work hard to continue to earn that."
But Mark Klang says he wants to see further reductions in the price of tickets to reflect the Cavs lack of a good on-the-court product.
“Out of my 300 season tickets, I’ll probably renew about 12 for next season at these prices,” Klang said. “If they reduced the prices like they should, by 30 to 40 percent, I would probably keep 100 seats.”
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