LeBron James’ Business Model: Owning The Value Chain - YouTube

At the age of 18, LeBron James turned down a life-changing check of 10 million US dollars

to sign with Reebok, and returned to High School the next day.

As for who he signed for?

The company that offered significantly less, Nike.

A deal LeBron later would call: “The best business decision I’ve ever

made”.

Though only 18, this decision would act as a precedent for LeBron James’ future business

ventures: to put long-term legacy over short-term gains.

A strategy that would lead him to a business portfolio of some of the fastest growing companies

in the world and reshape the way sports media work.

This is the story of how LeBron James went from the projects of Akron, Ohio, to developing

the strongest athlete value chain in all of sports.

As a High School student, LeBron was one of the most highly anticipated NBA prospects

in history; celebrities, sports stars and even Nike Co-Founder Phil Knight all came

to watch his games.

It was not uncommon for his Hometown High School team to have games moved from their

small gymnasium to larger arenas to meet demand.

No matter the size, all games would sell out.

In fact, one game in his Senior Year sold out the 20,000-seat Gund Arena, home of the

Cleveland Cavaliers, the state's NBA team who could only average an attendance of less

than 12,000 per game.

Yet whilst it seemed everyone else was profiting from the hype surrounding the ‘chosen one’,

from Adidas paying only $15,000 to supply the high school with their products, to ESPN,

showcasing LeBron to a national audience on his first televised game in December 2002,

LeBron as an amateur was making no financial return on these deals.

When the first opportunity to make serious money arose for LeBron in the form of a shoe

war between Nike, Adidas, and Reebok, he made the most of the media circus surrounding him.

As a senior, LeBron started varying his brand choice, aware all eyes were on his upcoming

business decision.

For Adidas basketball camps he would wear Nike.

At Nike events he would wear Adidas.

Continually toying with the brands as meetings approached.

However, in a sport where business negotiations can be much like an early scene from Jerry

Maguire…

“SHOW ME THE MONEY!”

In LeBron's case, money was not the main deciding factor for his business choices.

LeBron received offers incomparable to any other rookie in sports history.

When Reebok offered him a $10m upfront cheque and over $100m in guarantees, LeBron “Was

lost for words”.

To put this into perspective, Kobe Bryant coming off winning three successive NBA championships

only received a $40m/ 4year deal from Nike that same year.

Yet despite the huge offer from Reebok, unlike other athletes LeBron realized something:

“I was going to be making a deal for life.

You don’t think about the first check; you think about all of them.”

This was the initial sign of the business mindset that would shape LeBron into the man

he is today.

He would end up signing with Nike on a seven year $90m deal.

The temptations to follow in the footsteps of his idol Michael Jordan, who’s number

23 he’d worn on his jersey throughout High School and follow a similar branding and partnership

deal with Nike in the future was an offer he felt he couldn’t turn down.

The long term vision paid off.

In 2015, LeBron signed a lifetime deal with Nike, with an estimated value of $1b.

The first of its kind in the company’s history.

Upon joining the league, LeBron’s marketability continued to rise.

Coca-Cola, McDonalds, Nike - they all wanted to get involved with LeBron and were willing

to pay big.

By the end of 2003, he was the fourth highest endorsed athlete in the world, only Tiger

Woods ($90m py), Michael Schumacher ($50m) and David Beckham ($35m) were being paid more

off the field.

Yet despite this continued wealth, sitting on a heap of cash just wasn’t LeBron’s

style.

So, at the end of his second season in the league, LeBron took his biggest business risk

yet.

Leaving his agent to go his own way, creating a marketing agency with 3 of his hometown

friends, Rich Paul, Maverick Carter and Randy Mims.

They called it LRMR (After their names).

By doing this, LeBron was taking control of his own business decisions, allowing him to

shape the narrative he portrayed to the public.

Despite this, the league’s elite businessmen thought this was a terrible idea.

Yet it wasn’t until Maverick Carter was put in contact with Paul Wachter, the man

who’d managed Arnold Schwarzenegger in becoming one of the most recognizable men on the planet,

that the connections of the group came into play.

Wachter began advising LeBron, demonstrating that partnerships are significantly more rewarding

than simply taking a paycheck on an endorsement, shaping the increased involvement in his advertising

value chain.

This advice became an ‘initial test’ for LeBron.

If the company wasn’t one he wanted to partner with, he simply wouldn’t work with them.

So, when LeBron was introduced to the co-founder of Beats Electronics, who showed him their

new styles of earphones, LeBron was sold.

He supplied every member of Team USA with a pair on their 21 hour flight from the states

to Beijing.

When the team faced the cameras upon touching down in China, a discussion had been generated:

what the hell are these headphones all these stars are wearing?

In terms of influential people, few attract more attention from fashion than NBA superstars.

LeBron helped to provide Beats with the crucial organic launch they needed.

LeBron would later become a partner with Beats, and following their $3b sale to Apple in 2014,

He took home over $30m.

Proving Long-Term equity provides greater benefits than an endorsement paycheck.

This increased involvement in the value chain also came into play when LeBron, Maverick

Carter and Paul Wachter met with Fenway Sports Group (FSG) who had just taken over Liverpool

FC.

With the ambition to diversify the company’s marketing capabilities, Carter tried selling

the idea that LeBron was a franchise himself.

FSG would receive the rights to market LeBron for endorsement deals.

In return, LeBron would receive 2% of FSG’s new acquisition, Liverpool FC.

Upon agreement, this 2% was worth an estimated $7m.

As of Forbes 2019 valuations, following Liverpool’s on-field successes, this same 2% stake is

worth over $43m.

Upon joining the Lakers in 2018, it was clear that LeBron’s motivation behind the move

could be put down to his off-the-court business.

It’s no secret that LA is the media capital of the world- The Glitz and Glamour of Hollywood

Movie Studios resonates with people all over the globe, LeBron included.

In 2007, he and Maverick Carter founded SpringHill Entertainment with the ambition to create

“the most culturally inspired brands, entertainment and products”.

The company has since had success in TV, Film, and Audio projects, including smash-hit Top

Boy in partnership with Music Star, Drake.

Yet the biggest success in the media industry for LeBron has been the creation of Uninterrupted,

a digital media platform allowing athletes to share their message on their own terms.

LeBron learnt from his past experiences with TV projects and wanted to provide athletes

with the ability to speak freely without the restrictions major sports networks may provide.

But athlete empowerment is not the only goal LeBron pursued with UNINTERRUPTED.

The ability to own, control, and distribute your content is incredibly important in a

world where consumers spend most of the day watching, reading, or listening to media on

their phones.

LeBron took inspiration from similar media companies founded by athletes, such as the

Players Tribune.

Those athletes leverage the opportunities given to them by social media and the internet

and capitalize on a revolution that completely eliminates the middle-man.

From a business perspective, what LeBron does is classical vertical integration.

Instead of selling his image, stories and voice - his intellectual property - to ESPN

or other companies and have them produce a documentary that brings in millions of dollars,

he keeps control of his intellectual property and capitalizes it himself.

In 2012 it was announced that the sequel to the iconic SpaceJam was being planned with

LeBron as the star.

Yet LeBron waited on the film, establishing business partnerships with the production

company Warner Bros first.

In 2015 Uninterrupted received over $16m in investment led by Warner Bros as well as other

partners before a script was finally agreed on in 2018.

As LeBron’s incredible career on the court is reaching its final years, it can be argued

his business career is still in its early stages.

The question is, what's next?

There has been talk of potentially owning a team one day, likewise, his ambition to

continue the outstanding work of his ‘LeBron James Foundation’, empowering children in

his hometown.

But one thing is for certain, once the sneakers have been hung up and the final game has been

played, it won’t be the last time we see LeBron.

What do you think is next for LeBron James?

Would you like to see him own a sports team?

If so, who?

Let us know in the comment section.