TEXT OF INTERVIEW
Kai Ryssdal: The NBA Championships have come and gone, but there's an arguably bigger day in store for basketball fans this week. July 1, Thursday, is when free agents can start contract negotiations with other teams. And there is no free agent in the league bigger than LeBron James. He made around $18 million this year, but millions more in ticket revenue and merchandising deals will turn on whether James stays with his hometown club, the Cleveland Cavaliers, or goes elsewhere. The guy is just that valuable. That very value, though, can turn out to be a problem for whichever team does get him.
Ira Boudway makes that point in a piece for Bloomberg BusinessWeek. Welcome to the program.
Ira Boudway: Thanks for having me.
Ryssdal: How does the best basketball player in a generation, LeBron James, get to be a problem for a team?
Boudway: He becomes a problem, because the way the NBA salary cap works. Owners just can't pay him what he's worth to a franchise. They can only pay him, at this point in his career, 30 percent of the team salary cap, which is projected to be about $56 million -- and that's far below what he's worth to a franchise. So they have to find other ways to make him, in Cleveland's case, want to stay, or in the case of his other suitors, want to go.
Ryssdal: It's a case of disproportionate value, right? If he gets 30 percent of the whole payroll, it sort of doesn't work that way.
Boudway: Right. I mean, players like Anderson Varejao, who's on the team, who's a pretty good player, makes 40 percent of what LeBron does, and there's no math that make shim 40 percent as valuable to the team.
Ryssdal: Is there something else that the rest of us can understand? Is there like a real life example where you can say, "You know what, here's another instance or profession, where you have these guys who are disproportionately valuable?"
Boudway: One of the big ones that came up reporting the piece is really exceptional trial lawyers, where they frequently exist in these big corporate firms, where the pay structure is based almost entirely on seniority and hours billed.
Ryssdal: It's interesting you said lawyers. I was going to say Hollywood, right? All those big movie stars who get $20 million a picture.
Boudway: Yeah. They are similar to basketball players, because they really have a limited number of places they can go to to get their paycheck. For a big time Hollywood star, it's the six big studios. So, the stars kind of have to take what the studios are giving, but where they get some leverage is when they get identified or attached to a hit franchise. The example that we give in the piece is Tobey Maguire. He made $4 million for the first "Spider-Man" movie. He had a contract for three, but he just went back to the studio and said, "I want to renegotiate," and he got $17 million for the second one, and $15 million plus a big cut of the backend for the third one.
Ryssdal: Which is a pretty nice payday for running around in a spider suit.
Ryssdal: Just to get it back to LeBron James and basketball: How does a team, when it has this handicap, has these restrictions on it, how do they get somebody to sign?
Boudway: The biggest thing, especially in the case of LeBron James, is making the case that this is the place where he can go to win. But you also have to pay attention to a lot of the peripherals -- that he can be comfortable there, that he will get along with the coach, that they will take care of him and that they are completely dedicated to his happiness.
Ryssdal: Look at it for me from the owner's perspective. The owner of the Cleveland Cavaliers finds himself on the horns of a dilemma. How much does he invest in this guy who is so disproportionately valuable? He can't actually come out and say, "I'll do what it takes to sign him." But nor can he say, "Pfft, I'm done with LeBron."
Boudway: Yeah, he has to kinda walk a tightrope, because he has to pretend the Cavs are not ruined if LeBron James leaves to the tune of -- they say -- at least $20 million a year, that's what he's worth in just the revenue upfront. They are kind of in a real bind if he leaves. But he has to project strength, he has to say, "We think this is the best place for him to play, but if he decides to go elsewhere, we think we can succeed anyway."
Ryssdal: This is a little bit metaphysical, but it's almost like he, or the star player in question, winds up owning the owner, if you will.
Boudway: Yes. He has a bigger say in the ultimate value and fate of the franchise and really any of the owners do, and these are people who put up hundreds of millions of dollars to own these teams.
Ryssdal: Ira Boudway at Bloomberg Businessweek, talking about the dilemma of disproportionate value. Ira, thanks a lot.
Boudway: Thank you.