Lessons from LeBron
Off court lessons in value creation
Since Cooper Flagg is the pride of Maine, there’s a lot of March Madness talk in the Pine Tree State air these days (Go Duke!). Flagg is very talented at basketball, so of course, there’s a lot of chatter about whether or not he’s ‘the next LeBron’. We think those conversations are misguided. Didn’t everybody learn in school: ‘Be yourself—everyone else is already taken’. Cooper Flagg won’t be the next LeBron, he’ll be the first Cooper Flagg. Silly ducks.
Regardless, one area in which Flagg would be wise to emulate LeBron is his approach to negotiations. Let’s go back to 2003, when LeBron James was an 18-year-old high school senior. As a ridiculously talented basketball player en route to the NBA, LeBron was considering sponsorship options from Nike, Adidas, and Reebok.
His first meeting was with Reebok’s CEO, who offered a 10-year, $100 million deal. Sounds pretty good. The CEO also cut a $10 million check in front of the group and offered it as an upfront payment, available immediately, for LeBron with one condition: that he not meet with Nike or Adidas. LeBron recounts:
“When [Fireman] slid [the check down the table] and he said, ‘Listen, if you take this right now, you just promise me you won’t go talk to Nike or Adidas. You know, you can take this right now.’ And I was lost for words at the beginning. I mean, I flew in from Akron, Ohio, out of Spring Hill, from the projects. I mean, our rent was like $17 a month. And now I’m looking at a $10 million check — and go back to high school and go back to the classroom the next day. I was going to homeroom the next morning. I’m like,’ Holy s—.'”
A lot of us would probably take that check. It’s life-changing money. That said, it also feels… a bit slimy. What happened next? From Sports Illustrated:
“James asked to take a break from the meeting and spoke with his mom in private. Gloria [his mom] said, ‘Son, trust your gut. If they are offering you this, then who knows what the other companies may offer you.’ James trusted his gut and politely declined the offer. He said, ‘Thank you, I want to continue this conversation. But I would be remiss if I did not take those other pitches from the other companies.’ James joked that he may have cried on the way home.”
So, what happened next? Adidas offered $60 million and was out of the running. Nike prepared a great presentation … but offered $70 million with a $5 million upfront bonus and another $5 million signing bonus. After some back and forth, Nike reportedly upped its offer to a guaranteed $77 million for seven years and a signing bonus of $10 million. Reebok upped its offer to $115 million.
So, let’s recap. 18-year-old LeBron got an $115 million offer from Reebok, an $87 million offer from Nike, and a $60 million offer from Adidas. He chose … the Nike offer. Wait, what? LeBron shares insight into his decision-making process:
“I started thinking, like, ‘If this guy… if he’s willing to give me a $10 million check right now, what is it to say if Nike or Adidas isn’t willing to give me $20 or $30 [million] upfront.’ Or to say if maybe the upfront money isn’t the biggest thing. Maybe let’s start thinking about the backend,” he added.
Seems like it worked out pretty well. In 2015, 12 years after the initial deal, LeBron signed a lifetime deal with Nike, ensuring he remains a Nike ambassador even after his playing career ends. The deal was the first of its kind and is estimated to be worth over $1 billion. Now that’s playing the long game.
We’re not LeBron, but we do know how to play the long game. We’re pretty comfortable with our value proposition as it relates to buying small businesses. We work best with owners who want to transact at fair prices with people they can trust to steward their business over the long term. We are disciplined with valuation, knowing that high multiples and high debt levels introduce unnecessary risk and don’t position us as good long-term owners. In competitive processes, we are frequently not the highest bidder. We know where we add value, and we understand that headline price is just one factor in an acquisition.
We’re not in the business of high-pressure sales tactics. When a seller is presented with an exceptional offer from another party, we usually happily bow out of the process and encourage them to proceed accordingly. We want to work with people who want to work with us. We don’t chase valuations, and we are genuinely happy when a seller achieves a great outcome for themselves and their families. Of course, if the deal falls through, we’re always happy to rekindle the conversation!
We have no idea what will happen in the Final Four or with Cooper Flagg’s career prospects. Regardless, we know it’s important to remember that anyone can write a big check—what matters is who’s still around when the ink dries. Big checks might win the tip-off, but stewardship wins the game.
Have a great week,
Your Chenmark Team
