LeBron James Did Not Make $700 Million Off Beats By Dre

As one of the most successful professional athletes of all time, LeBron James will likely make much more money in product endorsements, licensing deals, and various investments than he'll make on the court, even as a premier star athlete. During his career to date, LeBron has earned HUNDREDS of millions of dollars. By our count, his career earnings as of this writing total $600 million.

According to one of LeBron's former teammates, however, a single investment may have earned him more than his entire basketball and endorsement career combined.

Here's what's going on:

Kendrick Perkins recently made an appearance on the Runnin' Plays, a podcast from the Golden State Warriors. During the podcast, he spoke a bit about an investment he says paid off for James while they were teammates in Cleveland:

"When Dr. Dre got the big contract for the Beats by Dre, when they wrote him that check, LeBron James got $700 million off of it. He was a silent investor in the Beats, and nobody knows this."

Unfortunately for James, while it's true that he's made unspeakable sums of money in his various business endeavors over the years, he did NOT make $700 million from Beats by Dre.

In reality, LeBron owned 1% of Beats by Dre. Apple bought the brand in 2014 for $3 billion in cash and stock. So, his windfall was around $26 million in cash and $4 million worth of Apple stock when the deal closed.

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Why the $700 Million Number Does Not Work

For LeBron to have received $700 million from a $3 billion acquisition, he would have needed to own approximately 23.3% of Beats.

The basic calculation is straightforward:

$700 million ÷ $3 billion = 23.3%

A 23% stake would not have made LeBron a small or silent investor. It would have made him one of the largest owners of the company, with a stake nearly equal to those held by Dr. Dre and Jimmy Iovine.

It is also difficult to imagine LeBron accumulating such a large percentage without investing hundreds of millions of dollars or receiving an enormous equity grant. There is no evidence that either occurred.

More importantly, the known ownership history of Beats leaves no realistic room for LeBron to have controlled nearly one-quarter of the company.

How Ownership of Beats Was Divided

Dr. Dre and Jimmy Iovine launched Beats Electronics in 2008. The company became an immediate force in the consumer audio industry, combining premium-priced headphones with celebrity endorsements and highly effective marketing.

In 2011, Taiwanese electronics company HTC purchased a 50% interest in Beats for approximately $300 million. The transaction valued the entire company at roughly $600 million.

About a year later, Beats bought back half of HTC's position for approximately $150 million. Following that transaction, the ownership structure was roughly:

• Dr. Dre: 37.5%
• Jimmy Iovine: 37.5%
• HTC: 25%

In 2013, private equity giant Carlyle Group invested approximately $500 million in Beats. Carlyle acquired HTC's remaining interest and purchased additional shares from Dre and Iovine.

By the time Apple acquired Beats in 2014, Carlyle controlled approximately 50% of the company, while Dre and Iovine each held roughly 25%.

Applying those percentages to a $3 billion sale price produces the following approximate payouts before taxes and other expenses:

• Carlyle Group: $1.5 billion
• Dr. Dre: $750 million
• Jimmy Iovine: $750 million

Those figures explain where the $700 million rumor may have originated. Dre and Iovine each received gross proceeds in the neighborhood of $750 million.

It is possible that Perkins confused LeBron's payout with Dr. Dre's, misunderstood a story he had heard, or simply repeated an exaggerated version of LeBron's actual investment success.

What is not possible is for LeBron to have received $700 million from the sale while owning only 1% of the company.

LeBron's Relationship With Beats

LeBron's involvement with Beats began years before the Apple acquisition.

In 2008, Beats supplied members of the United States Olympic basketball team with headphones. The exposure helped introduce Beats to athletes and consumers around the world, while LeBron's association with the product gave the young company instant credibility.

Rather than serving only as a paid spokesperson, LeBron received an ownership interest. That decision gave him the ability to participate in the company's growth and eventual sale.

The arrangement became an early example of the equity-based endorsement strategy that would later become common among athletes and entertainers. Instead of accepting only an upfront endorsement fee, a celebrity can receive shares in the company and benefit if the business increases in value.