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Despite Record Losses, Cavaliers More Profitable

Lose 26 games in a row and turn a profit?  Really?  That's what Forbes is saying about the Cleveland Cavaliers this year.  According to the report, the Cavaliers could make as much as $40 million  this season, a huge jump from the last couple of seasons when the Cavaliers were barely able to turn a profit.

Couple this with the recent news that despite all the losing the Cavaliers were still a Top-10 team in terms of local TV viewership, and you have the making of a quick rebound for the team - and owner Dan Gilbert - if he can get the Cavaliers turned around quickly.

According to Forbes, the Cavaliers will make money in 2010-11 because many of the revenue streams coming in to the team were set up while LeBron James was a Cavalier, and the deals were signed for multiple years.  Tickets, luxury suites and sponsorship streams have held up because of this - offsetting any decline in attendance, concessions and merchandise revenue.

The biggest gain, however, is what Gilbert is NOT spending on the team this season.  After going for broke the past two seasons, Gilbert will spend much less on the Cavaliers this season, including avoiding the dreaded NBA luxury tax, something the Cavaliers have spent a reported $30 million on the past two seasons:

Avoiding the tax also means the Cavs will collect a check from the NBA that every non-taxpaying team gets (last year it was $3.7 million funded by the taxpaying teams). The upshot is that the Cavaliers should see operating profits of more than $40 million this season after earning $2.6 million last year by our count.

Things get interesting this summer, however.  The Cavaliers will need to sell tickets, sell suites without the benefit of LeBron - or the excitement generated during a playoff run.  There is also a pending labor dispute in the NBA that could make the NFL's current labor mess look like child's play.  Throw in a magical run by the Indians - or Browns - along with no player moves by the Cavs that create excitement and the Wine and Gold could be in trouble. 

Until then, however, Gilbert will be making money - something I am all for.  The Cavs, led by Gilbert, did everything they could to win, to appease LeBron.  Now they need to do things the right way.  If Dan Gilbert is what he seems to be, the Cavaliers will be back.