LeBron James is the most important player in the NBA for a wide variety of reasons. He’s an international sports star in a way few American athletes are. His social awareness makes him an important political voice. And his expanding entertainment empire and acting experience means he’s going to be in the public spotlight long after his playing days are over.
But he’s also so valuable as an NBA player that he’s costing the team he plays for in a direct financial sense. James makes himself and the Cavaliers so much money playing in Cleveland that the Cavs reportedly operate at a net loss.
ESPN reported on Tuesday that nearly half of NBA franchises operate at a loss before revenue sharing. And even after revenue sharing and luxury tax payments, LeBron’s Cleveland Cavaliers are one of nine teams that finished in the red in 2016.
It’s all part of a complicated equation that involves the ever-shifting requirements of revenue sharing, which gives money from national television deals and other revenue streams to smaller, less-profitable teams if they are struggling to turn a profit.
The problem for the Cavaliers is not that LeBron is losing popularity or not finding success with the team, but that he’s such a huge force in the NBA that he turns the Cavaliers from a team that gets revenue sharing to one that pays into the luxury tax.
The revenue-sharing formula is a byzantine maze of calculations based on market size, expected revenue for each team, expense levels and other variables. It includes adjustments that can reduce a team’s payout based on various performance criteria. Complicating matters further, team fortunes can fluctuate wildly from year to year.
For instance, the NBA documents showed the remarkable LeBron James effect. In their last season without James, 2013-14, the Cavs received $10.8 million in revenue sharing. Over the past three seasons, the Cavs have paid a total of $29 million into the system. The Cavs made $21.7 million in net income before revenue sharing last season but moved into the red after paying $24.8 million in luxury taxes and $15.2 million in a revenue-sharing check they wrote.
If a team overperforms expectations based on market size and past data, it effectively forfeits some of its revenue-sharing bounty.
In other words, James and the Cavaliers have been so good they can’t benefit from the fact that they play in the smaller Cleveland market. By making the Finals every year James has returned to Lake Erie, the team is too good to get the benefits smaller markets like Memphis and Detroit get via revenue sharing. Another team in the same spot as Cleveland is the Oklahoma City Thunder, who ESPN says has actually paid into the revenue-sharing system the last six seasons despite being in one of the league’s smaller markets.
So if you’re rooting for Dan Gilbert’s checkbook rather than the Cavaliers, hope that LeBron leaves Cleveland to play elsewhere after this season. It’s simply not fiscally responsible to keep the best player in the league around.