Sports in the Courts

 Don’t expect NBA team’s owner to go down quietly

Ned Macey
Nacht Law

On April 26, an audiotape appeared on the gossip website TMZ revealing a string of shockingly racist statements made by Donald Sterling, the owner of the NBA franchise Los Angeles Clippers. Just three days later, NBA Commissioner Adam Silver announced that he was banning Sterling from the NBA for life, was fining him $2.5 million, and was going to move forward for the other NBA owners’ vote to force a sale of the Clippers. 

For those who missed the story, Sterling appears by all accounts to be an indisputable racist. He has paid millions of dollars to settle Fair Housing lawsuits and has allegedly made a number of racist statements. In the most recent audio, he was chastising his girlfriend about posting pictures with NBA legend (and African American) Magic Johnson on her Instagram account and directing her not to bring African Americans with her to Clippers’ games. 

These statements (and publicity of his prior actions) led to near-universal condemnation. The NBA players reacted strongly and were allegedly planning to boycott playoff games if Silver did not attempt to remove Sterling from the league. Silver’s announcement of the penalties was met with wide acclaim from both inside and outside basketball. 

The move, however, was unprecedented. The closest parallel from professional sports was Major League Baseball’s treatment of Marge Schott, the owner of the Cincinnati Reds in the 1990s. Schott made a number of offensive racist statements, including calling two of her star players her “million dollar n----“) and making positive statements about Hitler. Baseball suspended Schott upon learning of her comments initially. Several years later, when she made negative comments about Asians, working women, coupled with more positive comments about Hitler, baseball suspended her again and worked with her minority shareholders to buy her out of the team. 

Baseball effectively forced Schott to sell by threatening to extend her suspension, but it never officially acted, as the NBA is planning to do, to take over the team and sell it. Furthermore, while Schott had been warned and suspended before she lost her team, the NBA had never taken any action against Sterling for the previous incidents. 

Sterling will certainly fight the penalty, in particular the forced sale of his team, in the courts. Sterling, in a black mark to our profession, is a lawyer by training. (He earned enough to buy a basketball team by transitioning into real estate). There are two fronts for a potential assault. First, does the NBA have the authority to force the sale under the NBA Constitution? Second, is the forced sale an antitrust violation? 

In light of the publicity surrounding this case, the NBA has, for the first time, released its constitution and bylaws. Article 13 of the constitution provides the grounds for “Termination of Ownership or Membership.” Ownership can be terminated by a 3/4 vote of owners based on any one of 10 separate grounds. Nine of those grounds deal with financial problems and/or gambling. Presumably, the league will rely on the broad wording of the last provision: “Willfully violate any of the provisions of the Constitution and By-Laws, resolutions, or agreements of the Association.”

It is unclear what provisions Sterling has violated. The league may be forced to rely on a sort of catch-all provision that makes it “misconduct” to make a statement detrimental to the league. But, that provision has an exclusive penalty of a $1 million fine. The NBA contemplated lifetime bans for other forms of misconduct, by including one for betting on the sport, but it imposed no such ban for improper statements. Given that Sterling was never warned, that there is a remedy suggested for detrimental statements, and given the unprecedented nature of the sanction, Sterling will have grounds to pursue an action. 

The league needs to develop an explanation for how, in terminating Sterling’s ownership, they are not creating a precedent where owners can vote to remove another owner as a regular occurrence. Are offensive comments now sufficient to lose ownership? Can lawsuits against an owner, unrelated to their conduct in the NBA, be grounds for terminating his franchise? Most people are pleased that Sterling is being kicked out, but the league needs to set parameters to avoid opening the door to slippery-slope arguments. In the end, they will likely prevail due to the discretion afforded the league’s Board of Governors and due to the way that Sterling’s statements and actions could have had severe negative consequences to the league in creating labor unrest and leading to a loss of sponsorships. 

In addition, Sterling will likely bring an antitrust suit, which, if successful, could entitle Sterling to treble damages. The antitrust matter raises a host of interesting legal issues. Sports leagues pose unique antitrust concerns because, while the teams are all competitors, they need these competitors to succeed in order to survive. Courts are clear, however, that antitrust laws do apply to sports leagues. The Supreme Court rejected the NFL’s efforts to say that the teams should be considered a “single entity” for antitrust purposes in the 2010 case of American Needle v. NFL. The Court noted that: “The mere fact that the teams operate jointly in some sense does not mean that they are immune” from antitrust liability. 

Antitrust law is focused on anti-competitive behavior. In most cases, the inquiry is: does the challenged action inhibit competition, and if so, is it otherwise justified? When the owners strip Sterling of his ownership, 29 purported competitors are joining together to kick one competitor out of the league and then deciding themselves who will replace it. It is a situation that could be rife for anti-competitive behavior. What if the league wanted to kick out an owner who was paying too much in salaries to players and staff? Or who was charging too little for his or her product? Or who was too successful on the court? (Don’t shed too many tears for Sterling, as he will receive the revenue from the sale, which could be more than $1 billion.) 

These motives could all subject the league to antitrust liability and differentiate the case from other cases where potential owners have been unable to show an antitrust injury. In those cases, the plaintiff generally was thwarted in his effort to join a league. Multiple courts have found that exclusion from joining the league rather than exclusion from competing against a league does not cause an antitrust injury. In other cases, courts have recognized that intra-league competition among owners could give rise to a claim, and the First Circuit specifically recognized competition for the sale of ownership as potentially causing an antitrust injury. 

In this case, the owners’ motives are clearly not anti-competitive, but it is uncertain if they can prove that early enough in litigation to avoid messy discovery and protracted litigation. If they fight through, they will likely prevail. But, does the NBA really want their books examined, as Sterling attempts to prove damages? And, perhaps more dangerously, does the NBA want Sterling sniffing around the personal views and business practices of other owners, in an attempt to show that he was treated differently than his peers? 

The NBA appears undaunted and willing to push forward to remove the cancer that is Sterling and worry about the consequences later. This is commendable on moral grounds, but it does not mean there will not be consequences. As unfortunate as it may be, we will likely hear from Sterling again. 

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Ned Macey is an attorney with Nacht Law in Ann Arbor, a firm that also has offices in Birmingham and Traverse City.

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