LeBron's Link to PE
July 6, 2010
The Tuesday after the long Fourth of July weekend is rarely a great day in the news cycle for those not reporting on hot dog contests. Lucky for us, though, there’s a private equity link to the LeBron James free-agency story. Thank you, Dan Gilbert.
Gilbert acquired the Cleveland Cavaliers for a reported $375 million roughly five years ago. He deserves some credit, because shortly after taking over, Gilbert moved quickly to lock up LeBron, and succeeded in extending the star’s contract by three years.
With that said, if he’s viewing the Cavs as a true investment, the Quicken Loans founder and head of growth equity shop Rockbridge, should know better than to make a bet on a franchise so dependent on one person.
(I’m going to bet he doesn’t view this as a true investment, but it’s fun to speculate anyway.)
So let’s compare Gilbert’s Cavs deal with the Celtics acquisition two years earlier by an investor group led by Bain Capital’s Steve Pagliuca and Highland Capital Partners’ Wyc Grousbeck. At $360 million, Pagliuca and company were able to acquire one of the few NBA franchises with an enduring brand that transcends its home market. They suffered through some embarrassing seasons, namely 2004 to 2006, but their key man has proven to be Danny Ainge, the architect of the team’s recent success.
Gilbert, meanwhile, is watching his investment rest on the whims of a 25-year old, who will likely make more on sponsorship deals than actually playing basketball. Whether or not the franchise re-signs LeBron, according to Forbes’ ‘SportsMoney’ blog, will have a $100 million impact on the club’s valuation.
No matter what happens, big winners remain the Gunds, who reportedly paid a mere $20 million for the franchise in the 1980s. And considering the haircut Robert Johnson just took when he sold the Charlotte Bobcats earlier this year for $175 million, Gilbert probably realizes there’s not much of a market for a 'Bronless Cavs.
The good news, if Gilbert’s been glued to ESPN’s ticker, is that the sports network still considers Cleveland a frontrunnerfor the star along with the Chicago Bulls.
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