A losing streak for the ages. A roster of D-League players. A batshit-crazy owner. Doesn't matter. The Cavs are making money hand over foot like never before. How?
Their expenses are way down, having stayed under the luxury tax bar this year after James, Shaq, and others left. At the same time, all their revenue streams were locked in for this year regardless of what the roster looked like. Season ticket holders had to renew their seats by May — long before LeBron's decision — and few, if any, gave up their seats. Add in a supremely lucrative local TV contract with Fox Sports Ohio — worth $25 million a year — that was signed a few years ago, and you have the recipe for a highly successful business even if the product sucks.
However, while the value of the team was crushed by James’ departure, cash flow has improved dramatically in the 2010-11 season. The Cavaliers will be one of the NBA’s most profitable teams for this season after barely breaking even the past two years playing before a full-house each night and hosting 13 playoffs games with LeBron. Only the New York Knicks and Chicago Bulls will likely make more money this season.
Here is how the math works. We figure the Cavs generated $161 million in revenue last season. That number will drop by $10 million to $15 million at the most this season. The biggest hit to revenues will be from the team sitting out the playoffs. Fewer people are showing up at the arena to watch this year’s squad, cutting concession and merchandise revenue. These no-shows have paid for tickets though as the team recently had its 100th straight sellout at Quicken Loans Arena (most tickets were sold before James made his decision).
Sponsorship revenues have held up thanks to deals with KeyBank, Anheuser-Busch, Kia Motor, Cub Cadet and others. Luxury suite and club seat inventory was mostly sold on multi-year deals that were locked-up before James departed. The team is in the middle of a multi-year deal to air its games on Fox Sports Ohio that is worth $25 million annually on average.
And despite the highest drop year-over-year in TV ratings of any team in the NBA, the Cavs still rank in the top ten for highest ratings in the league and top ten for attendance.
Of course, when season ticket renewal time comes around in May of this year, the Cavs may lose more season ticket holders in one fell swoop than any other team in the history of everything. Which shouldn't bother them too much, they are setting ignominious records left and right these days.
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