Lebron James photographed in NYC, Sept. 2007.
Photograph by Ben Baker

Lebron Inc.

The building of a billion-dollar athlete.
December 10, 2007

It’s May 31, 2007 in Auburn Hills, Mich., and the Cleveland Cavaliers, a Cinderella team no one expected to get this far, are down 107 to 104 in the crucial game five of the Eastern Conference finals against the Detroit Pistons when LeBron James launches a fadeaway three-pointer to tie with 1:14 to go in the second overtime. One minute and 12 seconds later he seals the game with a vicious drive down the lane to put his team up 109 to 107. Those were the two finishing flourishes of a feat that NBC anchor Marv Albert crowed would “go down as one of the all-time performances in NBA history.” James’s play was stunning and described by another announcer as “Jordanesque”: He scored 29 of his team’s final 30 points, including the last 25.

Watching the 22-year-old’s performance closer than the bookies in Vegas were the executives at Nike, who had shelled out $90 million to James as soon as he’d graduated from high school in hopes of latching onto the NBA’s next great superstar, the one who would carry the mantle of Michael Jordan. “We measure everyone against Michael Jordan at Nike,” says Lynn Merritt, the company’s senior director of basketball development and the executive who crafted James’s sneaker deal—the size of which irked some within Nike. That is, until James’s performance against the Pistons. “Game five set me free from any criticism at Nike,” Merritt says. Within the halls of Nike’s basketball division at its headquarters in Beaverton, Ore., executives began referring to a whole new era for James and Nike. “AGF” is what they called it: “after game five.”

Also watching game five intently, as if it were an IPO for a company they had nurtured from the startup phase, were investment bankers at Allen & Co. and executives at Microsoft. And here lies the difference between James and nearly every other professional athlete. Together with Maverick Carter, a childhood chum and the de facto CEO of LeBron Inc., James is trying to create a new financial model for the 21st-century athlete. Instead of just lining up endorsements and cashing checks, James is seeking equity in the companies he works with; and he is using his on-court prowess to build a corporation that deals with entities as disparate as Bubblicious and Warren Buffett. “What I do on the court will drive revenue,” says James. He’s also picky about his partners, always asking himself, “Is it authentic? I know I can go out and sign a lot of endorsements and get checks. Money is not the issue.”

Maverick Carter and Lebron James, photographed in NYC in Sept. 2007.
Photograph by Ben Baker

Little is left to chance: While Jordan serendipitously possessed both the on-court talent and the star power to become a pop culture phenomenon, James currently lacks Jordan’s ability to hold his own in a scene with Bugs Bunny (as Jordan did in the movie Space Jam). Nor does he have the political power or poetic ability of Cassius Clay. He is also playing in the Cleve, no Chicago, and far from the bright lights of big-city media. So Carter and his colleagues are in the brand-building business too. Beyond these challenges, the risk for LeBron Inc. compared with a traditional company is that it is built on one asset—an asset that could suffer a career-ending injury and one that has yet to make the Air Jordan–type leap from hoops star to global celebrity.

Changing the Model

MOST SUPERSTAR ATHLETES conduct their off-the-court business like this: They hire an agent who secures endorsement deals. The athlete shows up at the appointed time and collects checks and usually agrees to a number of “service days,” occasions when he will be present for various PR and marketing events. James began his pro career this way, but in May 2005—toward the end of his second year in the NBA—he decided to make a change. He fired his agent, Aaron Goodwin, and established his own firm to handle all aspects of his business ventures. He put Carter, 25—another Akron native, who had worked for Nike—in charge. “It was my idea. I wanted to own my own business,” he says in the first of two exclusive interviews with FORTUNE. He also wanted to give his friends a chance to create a professional legacy beyond being flunkies and hangers-on: “How do my guys want to be remembered when LeBron James is finished playing basketball?”

As Carter recalls it, he was home in Ohio in May 2005 and visiting LeBron at his house. “He said, ‘Mav, you know, my agent and I are just not seeing eye to eye right now. It’s not what I want to do. I’m older now, I’m 20 years old, I’ll be 21 in December, and I want to kind of do things differently than anyone has ever done them before. Of course, I grew up watching Michael and the way he did it, and he set the roadmap. I want to run my own business. I want to be my own business.'”

So in 2006, James founded LRMR Marketing, so named for the initials of the four buddies: Lebron, Randy Mims, Maverick Carter, and Richard Paul. The only real core competency James’s brain trust possessed was loyalty. (In fact, it was James’s former agent, Goodwin, who brokered some of James’s bigger paydays to date—like his first Cavalier contract, a three-year, $14.5 million deal. He also negotiated the Nike and Coke endorsement contracts.)

Aside from working with his friends, there is additional upside to how James has structured his business. To reduce his tax liability, he formed King James Inc., a holding company, to contract with endorsement partners. “Some agents I talk with are oblivious to the tax disadvantages of having the player personally contract for the endorsement,” says Fred Nance, James’s longtime attorney. King James Inc. also pays for much of LeBron’s personal expenses, such as security.

A multimillion-dollar star jet-setting with three of his buddies conjures up the hit HBO series Entourage, a comparison the foursome often hears but one they believe undercuts what they are trying to accomplish (although it’s hard not to think of Entourage one evening in September when the four of them tumble from a black SUV near Nike’s headquarters and amble across the tarmac onto the sneaker giant’s Gulfstream V jet for a quick trip to an L.A. magazine photo shoot). And initially the decision to turn the running of his career over to his posse was met with concern by the NBA.

“I first met Maverick after I read that LeBron had fired his agent,” says Adam Silver, the deputy commissioner of the NBA. “I was nervous that LeBron was going to be represented by a group of his childhood friends. But before I had a chance to call Maverick, he called me. Shortly into our first meeting I had a sense of relief that LeBron was in good hands.”

Lebron has endorsed (clockwise from top) riding mowers, bubble gum, sneakers, a website, a series of action figures depicting "all business," "kid," "wise," and "athlete," and Powerade.
Handouts

The arrangement has worked, not least because LRMR has associated itself with top-shelf accountants and lawyers, not to mention Warren Buffett, who dispenses financial advice when asked. “If LeBron were an IPO, I’d buy it,” he says. The hoops superstar and the investor met earlier this year in Omaha to film a satirical video for Berkshire Hathaway’s annual meeting (Buffett beats James on the court). “I bought them some milk shakes and hamburgers, and we had a good time,” Buffett says. “I was amazed at how mature he was, not just physically but in financial matters. At 21, I wasn’t remotely as mature as LeBron. Maybe at 51 I wasn’t as mature as him.” He says he’s advised James and Carter on “personal financial matters” and speaks to them occasionally on the phone. “Neither of them needs my help, but I’m available if they need me,” he says.

LeBron Inc. also has on its side Allen & Co., the New York boutique investment bank known for its discreet advice to top media and entertainment moguls. Steve Greenberg, an Allen & Co. partner, first met Carter on Cavaliers owner Dan Gilbert’s jet two years ago while flying from New York to Cleveland for the Cavs’ season opener. “He’s an exceptional young man,” says Greenberg, a former minor league baseball player and son of the Hall of Fame outfielder Hank Greenberg, in a recent interview in an oak-paneled conference room at Allen & Co.’s headquarters in New York. “He was this 23-year-old from Akron, and he said, ‘Allen & Co.? Isn’t that the firm that has the big conference in Sun Valley every year? How can I get invited to that?’ That just blew me away.”

How It Works

IN LATE JUNE THIS YEAR, 13 days after the Cavaliers were swept by the San Antonio Spurs in the NBA Finals, a time when other athletes might be on a tropical beach decompressing from a long season, James and Carter convened a two-day summit at the University of Akron for executives from the various companies aligned with James—in addition to Nike, they include Coca-Cola, Bubblicious, trading-card company Upper Deck, Microsoft’s MSN, and lawn mower maker Cub Cadet. The night before the powwow, James and his inner circle held a private dinner at the Akron Hilton for a handful of the summit attendees. Mike Krzyzewski, the iconic Duke University hoops coach who worked with the U.S. basketball team over the summer in preparation for next year’s Beijing Olympics, was a surprise guest and gave a toast before the steaks arrived: “Over the next two days the focus needs to be on LeBron, not your individual companies.”

The next morning Carter addresses about 65 executives in a large seminar room at the university’s student center by saying, “With LeBron playing that way, it makes our job easier. Everyone in this room is in it for the long haul with LeBron. It’s a ten- to 15- to 20-year thing. He’s part of all our legacies in business.” The gathering has the feel of a quarterly corporate brainstorming meeting, with each division—in this case the companies that are endorsement partners with James—giving presentations, followed by breakout sessions on topics with a tilt toward the Beijing Olympics as a platform for expanding the LeBron brand globally. The sessions carry titles such as “China 101: Pop Culture, Media, and Sports,” “Brand Globalization,” and “LeBron Brand in China.”

In fact, China is central to growing the business, as it is for any multinational corporation today. In October the Cavaliers held a portion of the team’s training camp in China. Last year 17 of the team’s games were broadcast there, and more than 100 million Chinese viewers tuned in for each of the four NBA Finals games in 2007. One Nike executive in attendance summed up the Olympic Games and the company’s own efforts in China: “It’s really about introducing LeBron to China. He’s not Mike, he’s not Kobe—this is a new generation.” Nike recently introduced a new LeBron sneaker there.

At 22, the age at which most NBA players are just entering the league, James has a four-year headstart when it comes to generating revenue. He’s already the NBA’s endorsement king, bringing in an estimated $25 million from his various deals this year. That’s in addition to his nearly $13 million salary from the Cavaliers. Overall, he has about $170 million in sponsorship deals. In this figure is the $90 million from Nike, $15 million from Coke, $6 million from Upper Deck, $4.5 million from Bubblicious, and $7.5 million from Cub Cadet. His deal with MSN included $3 million upfront, and the partners will soon begin a phase in which Microsoft and LRMR will share advertising revenues sold on MSN’s LeBron site—60% for LRMR and 40% for MSN.

Lebron scores against the Los Angeles Clippers on Nov. 11, 2007.
Andrew D. Bernstein—NBAE/Getty Images

While James is LRMR’s core business, the goal is to diversify by representing other athletes. Right now they have only one other client. In August the company signed a contract with Ted Ginn Jr., the Ohio State star and a rookie wide receiver on the Miami Dolphins. (The firm is interested in becoming a boutique sports and marketing agency, but James will always be client No. 1.) As a marketing firm, the company also has done projects for Cannondale, the bike company in which Lebron himself owns an equity stake; Sprite; and accessories company Judith Lieber. These days Carter is less interested in straight endorsement deals than in equity stakes in the companies with which LRMR works. One newly inked deal is a kind of Facebook for young athletes. James is one of a handful of athletes who will receive equity. The site is an online community, and the other sports stars involved are Derek Jeter, Peyton Manning, Philadelphia Phillies slugger Ryan Howard, and the San Antonio Spurs’ Tony Parker. The venture is backed by the hedge fund Pequot Capital, the talent agency Creative Artists Agency, and Major League Baseball Advanced Media, the league’s Internet arm. “We’re kind of in stealth mode,” says Steve Hansen, the former COO of GeoCities, who will run the company. The site is scheduled to launch in April.

“He should be looking at multiyear deals with a vested interest,” says Doug Shabelman, the president of Burns Entertainment & Sports Marketing. “He’ll probably be in a position to take some ownership stakes.” Shabelman added that if LRMR develops a stable of athletes, it could package them in deals for marketers. In other words, if you want LeBron, you gotta take the others.

The Road to $1 Billion

IF LAST SEASON’S POSTSEASON pyrotechnics are a harbinger of future play, it’s certainly possible for James to approach the level Jordan held in pop culture or the post-NBA business success of Magic Johnson, whose net worth has swelled to a reported $800 million through various entrepreneurial ventures that include real estate and theaters. But for James to get there, according to Carter, the public must become enchanted with his off-the-court persona. According to research conducted earlier this year by LRMR, among 13- to 17-year-olds, the only current athlete with a higher favorability rating than James is Peyton Manning, the Indianapolis Colts quarterback who won the Super Bowl last year. (Jordan and Larry Bird also ranked higher.) Among the top NBA players, James ranks highest for endorsement potential, ahead of the Miami Heat’s Dwyane Wade and the L.A. Lakers’ Kobe Bryant.

Yet he ranks lower when measured by “sophistication” and “accessibility.” During a presentation of the data at the summit, Chris Gebhardt, a consultant who conducted the research, says, “They simply do not have as positive an image of LeBron as they do of sports celebrities who have married on-field performance with off-field personality, such as Tiger, Peyton, or Michael. We need to do a better job of appealing to the consumer side of these fans, to start telling the nonbasketball story.” Off-court James has been in a long-term relationship with his high school sweetheart, Savannah Brinson; the two have not married, and together they have two children—LeBron James Jr., 3, and Bryce James, 5 months.

It’s easy to think that global superstardom at the level to which James aspires happens organically, that performance and charisma magically align to catapult an athlete to icon status. That may have been the case with, say, Muhammad Ali, but LRMR is not leaving anything to chance. Instead they are approaching LeBron’s personality with the same attention to detail that the Manhattan Project reserved for atomic physics. LRMR is dealing with a different media landscape from what existed in Ali’s or even Jordan’s era: TV markets are increasingly fragmented. “It’s much more difficult to aggregate a television audience today than it once was,” says Silver, the NBA’s deputy commissioner. Consider this: Jordan’s last game with the Bulls in 1998—game six of the NBA Finals—was the highest-rated NBA game in history, drawing in close to 35.9 million viewers, a number that dwarfs the 9.8 million viewers who watched James in this year’s deciding game four between the Spurs and Cavaliers. By contrast, this year’s American Idol finale drew a little over 30 million viewers. The NBA, in other words, has yet to recover from its post-Jordan decline, a burden that James is well aware of. “For me as a competitor, I do take the responsibility to bring the game of basketball back,” James says. By flicking back the veil on the business operation that is LeBron James, one sees how strategic and deliberate those efforts have to be today.

“From now until the Olympics we’re very focused on letting the world get to know LeBron,” Carter says in an interview in his Cleveland office, “letting the world know that he’s a very simple human, a regular guy who laughs and likes to have fun and enjoys being with his family and friends. When you’re looking for longevity, the world has to know who you are for real.” To do this, Carter is trying to get distribution for a documentary that was shot during James’s high school days. Also in this vein, James hosted ESPN’s Espy awards with Jimmy Kimmel earlier this year and was a guest host on Saturday Night Live in September. The last athlete to grace the show before James was Peyton Manning. Tuning in for him were 7.9 million viewers; 6.1 million did for James.

In one-on-one interviews James tends to be soft-spoken and to rely on the common crutch for athletes: clichés. But when performing, he lights up. Anyone who has seen the Nike ads featuring the LeBrons, a sketch in which James borrows from Eddie Murphy’s playbook and portrays four characters (an all-business, a childlike, a wise-old, and a jock version of himself), can see his potential as an entertainer. At the summit, for example, he stood up and feigned surprise that all the executives would travel to Akron. “I’m just very excited about this,” he says. “Who would ever have thought we could get you guys to Akron, Ohio? Growing up, we couldn’t get anyone to little ol’ Akron, Ohio.” (Of course, when he was in high school, James was one of the most highly touted schoolboy athletes in the country. Sneaker executives and coaches flocked to Akron to see him play, and two of his high school games were broadcast on ESPN.)

Lebron shows off his flute-playing skills during an "SNL" rehearsal this fall.

To build James’s star power, Carter also told his team that he wants more frequent research studies to keep his pulse on the public’s view of James. “I want to set it up so we get information about his awareness and what people really feel about him, and I want to do it every six months,” he says.

Ultimately, LRMR’s future does not rely on research but on James’s winning an NBA championship, and in Cleveland’s current lineup he is getting little support. This is an issue, because the success of the Cavaliers—who at presstime were playing .500 ball in the early season—will dictate the success of LRMR. For better or worse, James is locked into playing for Cleveland until 2010 at least, based on a contract extension he signed in 2006. Ohio may be home, but it is not a major media market. And there has been speculation within the league of his moving to New York or Los Angeles when his contract is up. “But first he has to win” is how Nike Brand president Charlie Denson sums up the key element in James’s becoming a true superstar. “He can’t get there unless he wins. LeBron knows that.”

Aside from being stuck on an also-ran team, there are other potential pitfalls that could bring the enterprise to a crashing halt. One off-the-court indiscretion memorialized on a cellphone camera can dent a reputation and a business; one freak injury could dry up the revenue stream. But Carter is not daunted by the prospect. “We’re building a business that would keep going on,” Carter says. “I’m building a name in the business community, and LeBron would still be a name.”

Meantime it is full speed ahead on taking LeBron global: On the Tuesday after Labor Day, James and Nike hold their annual business meetings in a sunny conference room in the Tiger Woods Center at Nike’s vast campus in Beaverton. (Fifteen athletes have buildings on Nike’s campus named for them, but James is not yet one of them.) Fresh from a summer playing for USA Basketball in Las Vegas, James sits at the center of the table, surrounded by 25 or so Nike executives displaying the upcoming LeBron-branded sneakers and apparel. Even Nike founder Phil Knight pops in and out. One shoe has gold accents to symbolize “fit for a king”—a play on his nickname, “King James.” Wearing baggy shorts, his shoes off, and munching on cookies and M&Ms, James has an air of insouciance, as if he’s bored really. But he is actually taking everything in, and he pipes up when he has an opinion or disagrees with something. When someone proposes pitching a “cross-cultural” story to the media involving LeBron and a Chinese athlete, James is skeptical because it violates his business mantra: “It has to be authentic,” he says. “I don’t want to do it if it doesn’t feel authentic.”

Even though a championship ring has eluded James, his postseason performance, the “AGF” of it all, has prompted Nike to reshuffle its basketball division, placing James atop the organization, meaning that more resources will be devoted to marketing and selling James’s products. Before the change, about four people within Nike spent most of their time on James. In the new construct, about 150 people will be working on James on a daily basis.

Later that evening on the flight to Los Angeles, while James sleeps in the back of Nike’s Gulfstream, the sneaker company’s basketball development executive, Merritt, sits up front and reflects on James’s place in the pantheon of Nike athletes. “One of the phrases we used in the meeting today was that he can be an ambassador to his sport like Jordan was,” he says, “like Muhammad Ali, like Tiger. I think LeBron can be as big as these guys. How far are we? I think we’re at the infant stage.” Now it is up to LeBron to show the world that he can do more than crawl.