Cleveland's Big Arena Bet Faces Test After LeBron James Leaves

(Bloomberg) -- American municipalities take note: Having the greatest and latest basketball arena won't necessarily prevent your star player from leaving.

LeBron James is abandoning the Cleveland Cavaliers for the Los Angeles Lakers, which means he won't get to practice and play home games in the soon-to-be transformed Quicken Loans Arena. His departure is unfortunate timing for the team owned by billionaire Dan Gilbert, the county of Cuyahoga and city of Cleveland, which are on the hook to pay off about $140 million in bonds sold in October to pay for upgrades.

The revamp of the arena, which is closed for construction, is meant to "modernize the venue to maintain its world-class status." The Cavaliers agreed to extend their lease by seven years to 2034 as part of a deal to upgrade their home, which was announced the same year the team won the 2016 NBA Finals.

Given the high credit rating and variety of revenue sources backing the debt, bondholders shouldn't fret too much over James' decision (unless, of course, they're Cavs fans). But the departure of the team's biggest draw could pose risks if attendance drops, given that a tax on ticket sales is used to help pay off the debt. The site is also home to Cleveland Monsters hockey team and hosts concerts throughout the year.

James's departure comes a little less than a month after the Cavaliers lost to the Golden State Warriors in this year's championship.

To contact the reporter on this story: Amanda Albright in New York City at aalbright4@bloomberg.net

To contact the editors responsible for this story: James Crombie at jcrombie8@bloomberg.net, William Selway, Michael B. Marois

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