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Friday, October 18, 2013
Very smart player

By Elena Bergeron
ESPN The Magazine

LeBron James
Keep your seven-figure endorsement check; LeBron will take a percentage of the company.

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THE WRITERS OF "Survivor's Remorse," the Starz network sitcom currently in development, might have a hard time concocting a more far-fetched script than the one about how their show came together. A former Nike intern dreams up a show with a rags-to-riches plot, somehow gets a famous TV producer involved, then loops in a pro athlete to help make it happen. With no TV credits to their names and no agent to broker the deal, the former intern and his baller friend wind up creating a hit show from scratch -- and get to keep most of the cash for themselves.

This, though, ain't fiction; it's a real-life example of the acumen that made LeBron James, one of the show's executive producers, the most powerful active athlete/entrepreneur in sports. James and his closest associates (the former intern is Maverick Carter, James' business partner and his friend since Carter was 7 and James was 4) have spent the past eight years cutting increasingly complex and varied deals with increasingly high-powered business partners, deals that cut out middlemen and push the profits over to themselves. They shun contracts that would have LeBron smiling for the camera and hawking goods for a quick check. They negotiate for creative control over ad campaigns that feature him and for a financial stake in other companies they do business with. "In everything, we wanted to own the relationships, the business, our own companies ourselves," says Carter, who is CEO of LRMR, the sports marketing firm they founded with friends Randy Mims and Rich Paul. As a result, LeBron is now the world's fourth-highest-paid athlete, according to Forbes, despite not even being a max salary guy in the NBA.

He reached that perch because of his unconventional approach to projects like "Survivor's Remorse," LeBron Inc.'s latest gambit in ownership. A show like this would normally be a shot in the dark: A production company would dream up the idea, try persuading an agent to lure his or her athlete's involvement and then hope to sell the show to a TV network. But LeBron's personal network let him skip the formalities because he represents himself to the people who matter. Carter conceived the show with Tom Werner, who became TV royalty for producing hit series like "The Cosby Show" and "Roseanne." Werner met James years earlier through James' financial adviser, Paul Wachter. Werner had since gone into business with LeBron via Werner's Fenway Sports Group, which represents James and LRMR on some international deals. In this instance, Wachter connected LeBron, Carter and Warner with former HBO chief executive and current Starz honcho Chris Albrecht. The end result was a show developed and produced entirely by companies owned by James and Carter (LRMR) and Werner (FSG).

If LeBron were content not knowing how brands, businesses and deals work, he could certainly be the world's richest athlete-endorser. But as soon as he split with his first agent in 2005, he was deeply drawn to this hands-on, deal-me-in approach. "When he realized he could control things," Carter says, "he didn't ever want that feeling of not being in control again." He sought out businessmen who wanted to be his partners rather than his keepers, and they quickly learned that entrepreneurship came as naturally to him as passing or dunking.

Paul Wachter, James' financial adviser since 2004 and a key figure in many of LeBron's deals, remembers the first time he saw the basketball star publicly speak like the tenacious investor he knows privately. It was after the Heat lost Game 1 of last season's NBA Finals to the Spurs. James spotted a stat-sheet error that miscalculated the Spurs' second-chance points, and he dug in. "I don't really understand how that is possible with only six offensive rebounds," he insisted to reporters. "I'm very good in math."

"I was laughing," says Wachter, who counts Arnold Schwarzenegger and various Hollywood moguls as clients and routinely connects James with business heavyweights, he says, "because math people are math people. When you approach them with investments and business, they don't just ask the soft questions but eventually get to the hard questions. He is a numbers guy."

"You have to understand that LeBron is very smart financially," adds Warren Buffett, whom Wachter introduced to LeBron in 2006 and who is one of several billionaires (including Bill Gates and Steve Ballmer) who have traded business knowledge with LeBron. "I've never heard him say anything that doesn't make sense."

LeBron's first experiments, back in 2005, were with new ways to use his marquee name. He wanted to ask for, and get, more from his deals than any athlete of his generation not named Floyd Mayweather. "This kind of old-school idea of 'I get paid to drive around in a car and wave and say I love the car' is not what LBJ is into," Wachter says. For Mayweather, that instinct meant he'd become his own promoter. In James' case, it meant setting up LRMR at age 20, in only the second year of his rookie contract, to handle all of his personal branding. LRMR took a soup-to-nuts approach to how his image would be presented.

"The creative framework is set from the outset," says Steve Stoute, co-founder of Translation Marketing, the ad company that spun James' ads for State Farm and Sprite. "You know it's sort of part of what you do when you go in business with him. LeBron James knows his brand really well, and to work with LeBron you have to respect the LeBron brand."

James has become so notorious for his deal-making that the Harvard Business School used his negotiation with video game makers as a 2010 case study. The study describes how in 2008, EA Sports offered up-front money and few contractually obligated appearances, versus gaming upstart Microsoft's counteroffer, which would let James develop any game, basketball-related or not, and share in the profits. Initially, James took the Microsoft deal. But three years later, he defected to rival 2K Sports, which had offered modest up-front fees with lucrative bonuses based on game sales. It also offered bonuses if other LeBron-endorsed companies used the game in their advertising and if James himself lured other companies to advertise inside the game. In other words, they chose the deal that let LeBron use his own connections to make more money. "Getting a reward for reaching certain sales targets is certainly attractive," Carter was quoted as saying in the Harvard study.

Almost every LeBron enterprise could be the backdrop for a Harvard b-school lesson in something. His 2007 pact with bike maker Cannondale, for example, might teach aspiring MBAs exactly when to get in -- and out -- of deals. James, a budding cyclist, told Carter that he wanted to get into the bike business. Carter contacted Wachter, who connected them to Cannondale through a friend on the company's board. After researching the company, which had been valued at $58 million in 2003, James decided to buy in. By the time he cashed out in 2008, the company was worth four times as much. (LeBron's stake at that time was not disclosed.)

From Jimmy Iovine, legendary co-founder of Interscope Records and of Beats Electronics, LeBron learned how much more lucrative celebrity can be when you own a big piece of the action. After Wachter introduced LeBron and Iovine in 2008 -- and after Carter devised a brilliant demonstration for Iovine of the power of product placement by outfitting James' Olympic teammates with the now-iconic Beats headphones -- Iovine made LeBron a partner in the company, which he'd co-founded with Dr. Dre. (Wachter, of course, is on the board of directors.) As an owner, LeBron continued to make sure that where you saw athletes, you saw Beats. In September, the Carlyle Group, a private equity firm, plopped down a reported $500 million for a piece of the company.

Then there's the unusual partnership with Werner, which allows LeBron to keep more of the profits from both his endorsements and his investments in-house. Werner and his partner, former commodities trader John Henry, had formed Fenway Sports Group as an umbrella company that includes the Boston Red Sox, NASCAR's Roush Fenway Racing and the English Premier League's Liverpool FC. Wachter, James' financial adviser, also represented Werner, and through him James and Carter learned about FSG, and found it intriguing. So in 2011, Wachter arranged for FSG to partner with LRMR and to sell LeBron a tiny share in Liverpool, giving him his first taste of business outside the U.S. More important, the new joint venture allowed FSG (a company James has a stake in) and LRMR (the firm he co-owns) to negotiate LeBron's off-court branding efforts. There's no middleman lobbing off fees. When James designs a $50,000 watch for luxury maker Audemars Piguet, for which he's a global spokesman, or signs on to promote Dunkin' Donuts in Asia (FSG controls Dunkin's sports marketing rights), the whole team benefits. "We're John and Tom's partners," says Carter, underscoring the point of their strategy. "The question is always, 'How do we keep finding things that we can own together?'"

They'll probably answer that in a "Survivor's Remorse" episode.

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