What The Biggest Payroll Means For The Cleveland Cavaliers and The City

When Lebron James returned to Cleveland from Miami in 2014, so did a lot of taxable revenue - a $67 million increase from the prior season, in fact.

In the business of basketball, the Cleveland Cavaliers do well for themselves, and thus the city. The team is valued at $1.2 billion as of February 2017. Because of their recent stellar performances, the team posted the second-highest attendance in the entire league for an entire season with a total of 843,032 last season. With an average $81 revenue per fan, those are some impressive numbers. Gate receipts totaled out at $67 million.

After payroll and other expenses, the team collected a total revenue of $233 million in the 2016 season. That’s the second highest total revenue of all 30 teams. But it’s not always good news. With the NBA’s highest league payroll of $115 million, the team came into some issues. They greatly surpassed the NBA’s luxury tax threshold - or salary cap - of $84.7 and were fined $54 million. The luxury tax is a surcharge put on a team’s aggregate payroll to avoid ostentatious spending. And the Cavaliers exceeded it at an alarming rate. So despite raking in a cool $233 million, the team actually had an operating income of -$40 million. That is the 5th highest loss overall since Forbes began tracking NBA income losses and gains in 1997.

With the largest payroll in the league, comes some of the most impressive salaries, as well. James is arguably the biggest star in the NBA, and his paycheck reflects this. In 2017, he’ll make $30.96 million. But thanks to the 'jock tax' - which taxes athletes based on the state in which they are playing, and not living - a good chunk is taken out. For example, in 2015 James played in 18 other states where he had to pay state income tax - totaling at $17 million (combined with federal income tax). Teams pay cities directly when withholding from their players’ checks. Local rates are blended with state taxes, so Ohio in particular gets a pretty penny from James and the rest of the Cavaliers (and the rest of the NBA teams that play in Cleveland). However, in 2015, Ohio deemed the jock tax unconstitutional and stopped charging visiting players its 2% municipal income tax, which costed the city a good deal of revenue once enacted.

If the Cavaliers can scale back on their payroll and continue to win and draw in fans, the team is likely set to return to a positive operating income, and keep creating revenue for the city.