Forced Sale of the Clippers Could Impact Other NBA Franchises

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179246390There is no shortage of commentators commending NBA Commissioner Adam Silver for the way he handled Donald Sterling’s latest mess. But first let us be perfectly frank about one thing: the NBA and its owners do not care that Sterling is a racist.

If they did, they would have tried to punish him in 2003 when he reached a housing discrimination settlement in which he was ordered to pay over $5 million for the plaintiffs’ attorneys fees alone. If they did, the owners would have spoken out against Sterling in 2006 when the Department of Justice sued him for housing discrimination. Or they’d have gotten out the pitchforks when he settled that lawsuit for $2.725 million. Heck, if they were worried about potentially losing a legal battle with him in those cases – on the grounds that Sterling did not admit wrongdoing as part of those settlements – they could have latched on to his testimony when he admitted in court to paying a woman for sex and tried to scrounge up the votes to throw him out of the league then. They chose not to.

What they care about, what they have always cared about, is money.

The NBA and its owners saw the negative wave of press Sterlings’ latest instance of bigotry generated – which, as many people including ESPN’s Bomani Jones have pointed out, does not have nearly as significant an impact as the housing discrimination suits thrown at him – and they watched as sponsor after sponsor left the Clippers in quick succession. And the NBA brain trust were smart enough to realize that it would not have taken long for the leaving sponsors to extend from the Clippers to the NBA at large. And so NBA Commissioner Adam Silver brought the hammer down on Sterling, levying a lifetime ban and a $2.5 million fine. More importantly, Silver pushed the NBA owners into a corner yesterday in his press conference, telling all the reporters and cameras in attendance, “I will urge the Board of Governors to exercise its authority to force a sale of the team and will do everything in my power to ensure that that happens.”

Can they actually do this? Yes, quite easily in fact under to the Constitution and Bylaws of the NBA. According to Article 13 section (d), an NBA owner may be removed by a ¾ vote of the Board of Governor’s for failing or refusing “to fulfill its contractual obligations to the Association, its Members, Players, or any other third party in such a way as to affect the Association or its Members adversely.”

The vote on this will likely come back unanimous: 29 to 0 in favor of removing Sterling from owning the Los Angeles Clippers, though such a vote would likely be driven more by fear than anything else.

With all the leaks over the past decade or so in the sports world – from the 2009 leak in baseball regarding players who are said to have taken performance enhancing drugs in 2003 to the news about NFL quarterback Josh Freeman being in the NFL’s substance abuse program – an NBA owner who is discovered to stand opposed to Silver’s recommendation of removing Sterling would face a wrath from their fan base unlike any that’s ever been seen before. And that wrath would take the form of protest and that protest would undoubtedly impact their bottom line.

That is not to suggest that the NBA or any of its owners share Sterling’s racist views and that any desire they might have to keep him around as an absentee owner should be viewed as support for him and his bigoted beliefs. Such statements would be grossly unfair, but so to would a denial that the NBA and its owners chose to ignore Sterling’s well-documented transgressions until the moment it began to threaten their own franchise values.

So let us remove the veils from our eyes and look at what impact a forced sale of the Clippers through the lenses of other NBA owners and examine how it would impact their own franchises.

 

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The first thing to note about forcing a sale of the Clippers is that such a sale would not happen overnight. So what happens to the Clippers while the NBA tries to find a suitable buyer for the team? According to Article 14A of the Constitution and Bylaws of the NBA, “When the Membership of a Member is terminated, such Member and its assets, properties and operations shall be placed under the management and control of the Commissioner.”

In other words, should the NBA owners decide to terminate Sterling’s ownership, the NBA would effectively own the Clippers. Such a scenario isn’t unprecedented, though the circumstances would be drastically different this time around. Hopefully, the outcome of it would be better too.

The one-year experiment of the NBA owning one of its own franchises brought with it one of the lowest moments in its history not involving the words ‘drug overdose’, ‘point-shaving scandal’ or the phrase ‘Malice at the Palace.’ Instead, it is simply remembered as the Chris Paul trade fiasco. Or more precisely, the Chris Paul vetoed trade fiasco.

In 2010, the NBA purchased the New Orleans Hornets after the Hornets ownership group was unable to continue paying for the team. At the time, the NBA said that it would allow Hornets GM Dell Demps to continue making moves as he saw fit. And it did, up until Demps tried to package superstar point-guard Chris Paul – who was set to become a free agent at the end of the following year – in a trade to the Los Angeles Lakers.

The other NBA owners, fearing another decade of Laker dominance, flipped out, none more so than Cleveland Cavaliers owner/email savant Dan Gilbert, who wrote then-NBA Commissioner David Stern saying, “It would be a travesty to allow the Lakers to acquire Chris Paul in the apparent trade being discussed. This trade should go to a vote of the 29 owners of the Hornets… When will we just change the name of 25 of the 30 teams to the Washington Generals?”

A public vote of the owners never took place, but Stern blocked the proposed trade on the grounds of “basketball reasons,” despite the fact that many NBA insiders believed that the Hornets were set to receive an equitable haul in return for Paul, who again, could have bolted the following summer in free agency.

The outcry to this decision was swift and LOUD. Grantland’s Bill Simmons was not a fan. Neither was Deadspin’s Tommy Craggs. The list goes on and on. All in all, the vetoed Chris Paul trade stands as one of the low moments in NBA history and one that the league would not like to repeat.

Because of this, prospective bidders for the Clippers know that the league will be desperate to unload the team, thus diminishing the value that the team will likely go for. Think about in these terms: in order for bidding war to reach its absolute zenith, two factors must be present. First, there must be multiple prospective buyers, each of whom will bid and outbid the other in their quest to obtain the desired item. (A good example of this would be a live auction.) Second, there must be a chance – however slight that chance may be – that the person or group currently in possession of the desired item may choose to hold onto it should the bids submitted fail to meet a certain required level.

Using these lenses for analysis, it’s clear that the NBA will not receive maximum value for the Clippers, precisely because the NBA would (temporarily) own them. The league will be desperate to unload the franchise to a new owner so as to avoid the headache that comes with the NBA owning one of its own teams and to be free from the bad press associated with Sterling once and for all. Prospective owners will seize upon this and the bids submitted for the team will be diminished – however slightly that may be – than had Sterling solicited offers for the team a week and a half ago before the damaging tapes were released.

This, more than anything, explains why the NBA owners have not tried to oust Sterling before and why some owners would rather still not force Sterling to sell: A forced sale of the Clippers cannot possibly fetch maximum value for the franchise.

But why should NBA owners care what other NBA franchises go for anyway? It’s not like it’s their money. Yes and no. While the other 29 NBA owners would not profit from the sale of the Clippers – the money generated in the sale still goes to Sterling – the fact is, the value of NBA franchises are impacted by the sale of another, much in the same way that houses in a given neighborhood have their values tied to one another to a certain extent. The more a house in a given neighborhood goes for, the more the houses surrounding it rise in value. The same is true with the NBA; the more a given franchise goes for, the more the other values rise in value.

Currently, the values of NBA franchises are at an all-time high. The reason for this is twofold: one, the new collective bargaining agreement that was signed in 2011 was much more friendly to the owners than the previous one and two, the NBA’s national television deal is set to expire in two and a half years and will likely command record rates moving forward. These two factors combined have made NBA franchise sales jump dramatically in the past year. Last May, the Maloof family sold their 65 percent interest in the Sacramento Kings at a total franchise valuation of more than $534 million, which trumped the record sale of the Golden State Warriors in 2010 by more than $80 million. Recently, this mark was topped by the sale of the Milwaukee Bucks, which went for $550 million and would have undoubtedly gone for more had Herb Kowl not made any deal contingent upon the Bucks remaining in Milwaukee.

Despite these staggering sale prices, it’s important to keep in mind that both the Kings and Bucks are small market teams and that their sales pale in comparison to what other NBA franchises would likely go for. In their annual evaluation of all 30 NBA franchises, Forbes listed both the Kings and Bucks in the bottom half of NBA franchise values, with the Bucks coming in dead last at $405 million. And if the Bucks were able to command $145 million more than what Forbes anticipated the franchise should go for, it stands to reason that other NBA franchises should go for dramatically more than what they are currently thought to be valued at.

Should the Board of Governors move to terminate Sterling’s membership within the league, which they undoubtedly will, the Clippers will be a good test for this theory. In a lot of ways, the Forbes 13th place ranking of the team seems low, at least in comparison to other teams. The Clippers historical futility has something to do with this, but the reality is that certain teams ranked above them, specifically the Oklahoma City Thunder and Miami Heat, derive most of their current value from the star power of a few of their given players, meaning that those franchise’s values can be dramatically impacted should those players decide to leave. (The Cleveland Cavaliers overall value plummeted almost 25 percent when LeBron James left in the summer of 2010.) By the same token, removing a toxic figure such as Sterling could help raise the value of the team.

The other interesting thing to note about the Clippers is that their local TV deal is set to expire at the end of the 2015-2016 season, providing prospective owners extra incentive to buy the team now and hope that they can command dramatically more in the next TV deal.

But that’s still two years down the line. Meanwhile, the NBA knows that it has to move on this situation fast.

And so the owners will vote unanimously to terminate Sterling’s membership in the NBA – mostly out of fear of a public backlash should their vote in the opposite direction ever become public knowledge – and when the Los Angeles Clippers are sold quickly this summer – mostly out of fear of a repeat performance of the Chris Paul vetoed trade fiasco – there will be slightly less money lining Donald Sterling’s pockets than had he sold the team of his own accord.

And while none of the other NBA owners will express sympathy for Sterling, each of them will have some small amount of fear that there might be less money lining their pockets too if and when they decide to sell the stake in their own team.

Because ultimately, that’s what NBA owners really care about.

About Ryan Hallagan

Ryan Hallagan recently graduated from the University of San Diego with a B.A. in Psychology and English and plans to parlay that education into writing about his greatest passion: the big business that is professional sports. He also enjoys writing short stories, obsessively listens to bands like The Gaslight Anthem and actively wishes that a time-traveling DeLorean really did exist, so that he could go back to 1975, far away from all of the terrible music he hears on the radio today. Follow him on Twitter @rallyforhally
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