Donald Sterling’s Fight to Stay in the NBA
Donald Sterling’s racist remarks from a privately recorded conversation could cost him his ownership interest in the L.A. Clippers, while the threat of related litigation may cause a stir amongst other NBA owners.
Photo by Arnaud Klamecki (Wikimedia Commons)
Donald Sterling, billionaire owner of the Los Angeles Clippers basketball team, is under a barrage of criticism for racist comments he made in a private conversation with a female friend. Shortly after a recording of the conversation was made public in April 2014, the commissioner of the National Basketball Association (NBA) Adam Silver fined Mr. Sterling $2.5 million and banned him from the NBA for life. Additionally, Commissioner Silver is urging all other NBA team owners to force a sale of the Clippers. In order to force a sale, three-quarters of the controlling owners must vote for such action. To date, Mr. Sterling has not paid the fine and has threatened to litigate the issue if necessary.
The NBA’s authority to punish Mr. Sterling comes from its constitution (pdf), which acts as a binding contract between all thirty controlling owners in the League. Membership in the League requires controlling owners to agree to its provisions. Additionally, each team in the NBA is considered a “member” and is represented by its controlling member. Together, the controlling members of the teams make the Board of Governors.
Several experts believe the team will ultimately be sold, and that if Sterling decides to take the arbiter’s decision to court, he will face a steep up-hill battle in getting it overturned.
The NBA is likely to argue Mr. Sterling violated Article 13(d) of its constitution, which allows the league to revoke membership if the owner fails or refuses “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.” Mr. Sterling may be found to have failed to uphold his contractual obligations, including several covenants between himself and the NBA, such as their franchise agreement.
If the Board of Governors agree Mr. Sterling has violated Article 13(d), the Board or Commissioner Silver may formally charge Mr. Sterling in writing as a “violating owner” under Article 14(a). The Board of Governors would next vote on whether to sustain the charge. In order to do so, Article 14(g) requires at least two-thirds of the Board of Governors vote in its favor. If the charge is sustained, the Clippers’ membership in the NBA would be terminated and Commissioner Silver would automatically take control of the team. At this time that the Clippers would be sold and the proceeds would go to the Sterlings.
Several experts believe the team will ultimately be sold, and that if Mr. Sterling decides to take the arbiter’s decision to court, he will face a steep up-hill battle in getting it overturned. A reviewing court is likely to give substantial deference to the arbiter’s decision here, as it is an agreed-upon process between sophisticated parties.
Thus, if the Board of Governors agree Donald Sterling violated a provision of Article 13, Shelly Sterling’s share will be automatically sold.
Complicating the revocation of Mr. Sterling’s ownership interest in the Clippers is the fact that he does not own the team alone. Mr. Sterling and his estranged wife, Shelly, co-own the family trust that owns the Clippers. This raises an additional issue of whether Mrs. Sterling would lose her ownership interest if the NBA owners vote to force a sale of the Clippers. Mrs. Sterling plans to file for divorce, yet does not intend to give up her share of the team.
On May 12, Mrs. Sterling stated on NBC’s Today Show that the forced sale should not apply to her fifty percent ownership interest in the team and that she will fight the NBA’s attempts to remove her as part owner. Mrs. Sterling believes she cannot be punished for something in which she had no involvement. It is worth noting however that while Mr. Sterling is the controlling owner of the franchise through their family trust, Mrs. Sterling is only a passive owner. The NBA recently stated “if a controlling owner’s interest is terminated by a three-quarter vote, all other team owners’ interests are automatically terminated as well.”
The difference between ownership of a franchise and membership in the League is complex. The Sterlings are owners of a franchise in the League, but the franchise itself is a member of the League. When the membership of a franchise/member is terminated, the member itself is taken away from its owners and placed under the control of the Commissioner. Under Article 14A of the NBA constitution, the Commissioner then has the power “either to transfer such Member’s Membership [. . .] or to liquidate the Player Contracts and other assets of the Member . . .”
Thus, if the Board of Governors agree Mr. Sterling violated a provision of Article 13, and three-quarters of the Board vote to charge him with a violation of such, Mrs. Sterling’s share will be automatically sold. Since the Sterlings jointly own the trust that owns the team, it is most likely the team will be taken from them as a whole.
Mrs. Sterling additionally indicated on the Today Show that she believes her eighty-year-old husband may be suffering from early stages of dementia, and that this disease may be the reason for his racist statements. While this may be true, it is unlikely to have any bearing on the outcome of this situation. It appears Mrs. Sterling believes the excuse that Mr. Sterling suffers from dementia could provide justification for her gaining full ownership of the franchise. She may also hope the other NBA owners are sympathetic towards Mr. Sterling’s situation, but it is implausible the slight onset of dementia is the primary cause of his statements, especially in light of his past behavior.
Mr. Sterling could use the discovery process to uncover instances of misconduct by other NBA owners that were not acted upon in previous instances.
The NBA should expect to spend several years and millions of dollars on litigation against the Sterlings, each of whom have the resources to put up a costly litigious battle. In his interview with CNN after the recordings were released, Mr. Sterling initially seemed as if he had no intention of taking legal action. Yet, he has recently hired Maxwell Blecher, a renowned antitrust attorney, who wrote a letter to the NBA explaining that his client will not pay the $2.5 million fine and that they are prepared to take this controversy to court.
It’s possible that Mr. Sterling could inflict serious damage on the NBA in his fight to keep his team. In addition to the financial burden on the NBA, he could use the discovery process to uncover instances of misconduct by other NBA owners that were not acted upon in previous instances. Mr. Sterling may have made the League look bad with his prejudiced remarks, but he certainly has the means to make it look worse for not acting on similar conduct in the past.
The prospect of what discovery may uncover could cause other owners to second-guess removing the Sterlings from the NBA. As Mr. Sterling’s downfall is the result of the clandestine recording of a private conversation, other owners may worry about how easily something similar could happen to them. It’s quite possible other NBA owners have said or done things in the past that they would rather keep out of the spotlight.
The public’s reaction to inflict serious punishment on Donald Sterling has been powerful, as seen by the NBA’s quick reaction to punish him. However, the NBA must weigh the goal of removing the Sterlings against the consequences of shedding further bad publicity on their League.
