Buried in that big ESPN.com story on the Miami Heat considering making a run at signing Carmelo Anthony was an item on LeBron James, businessman:
James' off-court business is booming, thanks to a string of investments paying off massively and the prospect of new opportunities in endorsements and entertainment projects promising to expand his wealth significantly in coming years.
In a recent example, while James was leading the Heat to a victory over the Indiana Pacers in the Eastern Conference finals, sources say the 29-year-old was finalizing what is believed to be the biggest equity cash payout for a professional athlete in history as part of Apple's recent $3 billion purchase of Beats Electronics. Sources briefed on the situation say James realized a profit of more than $30 million in cash and stock in the Beats sale after he had struck a deal to get a small stake in the company at its inception in 2008 in exchange for promoting its high-end headphones.
In Beats' formative months, nothing was better for business than the U.S. Olympic basketball team being seen wearing them. (James had been given a prototype pair by Jimmy Iovine, and served as the middleman to hook up the rest of Team USA. The rest of the sports world soon followed: "I started hearing from people who wanted to know: What are they?" James said. "Where did I get them?")
As it turned out, James had an endorsement deal with Beats, but it wasn't the standard you-pay-me-to-advertise-the-product contract. Instead, James was given a stake in the company—about one percent, if the ESPN report is accurate.
This is the way we do things now, or at least the way increasingly it's going for the top athletes. Bryce Harper is a minority owner of an eye black company. Kobe Bryant owns the third-largest share of a sports drink.
It makes sense, at least for those athletes well-paid enough to assume the risk of investing. The potential payout can dwarf that of a simple licensing deal—compare James's windfall from Beats (which still leaves him with a good amount of Apple stock) with the reported $4 million annually he gets from McDonald's on a traditional endorsement deal. And on the company's end, it's doubly smart: Not only does the athlete have a concrete stake (both emotional and financial) in the company's success, but since compensation is directly tied to the company's growth, it's a win-win situation.