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SBJ/May 5-11, 2014/Leagues and Governing Bodies
Shown the door: Now comes uncertainty, perhaps a showdown
The NBA makes an unprecedented pledge to usher Clippers owner Donald Sterling out of the league. How will that process play out, and will he go quietly?
Published May 5, 2014, Page 1
While Silver has been universally lauded for his swift and firm actions to drive the NBA’s longest-tenured owner out of the league just days after Sterling’s racist comments rocked the sports industry, there is no proven playbook for forcing an owner to sell. That sets up a showdown between Sterling, an NBA team owner for three decades, and Silver, an NBA veteran in his own right with 20 years of experience at the league but finding himself now at a seminal moment only three months after becoming commissioner.
Sterling’s reaction will determine: clean sale or messy litigation?
The cleanest path has Sterling quickly complying with Silver’s demand to sell, setting up what figures to be a blockbuster sale of the Clippers that some sports bankers expect will fetch at least $800 million and possibly even $1 billion, with multiple bidders expected — all of it coming despite a week that had both team sponsors and players distancing themselves from the Clippers brand. A sale price of that level would put the Clippers into NFL franchise-value territory and would represent a huge run-up compared with the NBA’s current record $550 million sale of the Milwaukee Bucks, a deal reached just last month.
Driving the value of the Clippers despite the current controversy is the team’s Los Angeles market, the league’s expected new national television deal, a local TV deal for the team with Fox Sports that is up after the 2015-16 season, and the league’s growing international business.
The other road is a messy, litigious and expensive battle between the league and Sterling. It’s also the path that was most widely being prepared for last week in the days that followed Tuesday’s announcement of the league punishing Sterling. A cadre of NBA attorneys, led by Joel Litvin, president of league operations, and Rick Buchanan, executive vice president and general counsel, would be responsible for preparing Silver and the league for any and all legal obstructions that could come next.
“Two things I know about Sterling: One is that he’s 100 percent unpredictable; the other is that he’s very litigious and has a history of that,” said Alan Rothenberg, a former attorney for Sterling and Clippers president from 1982-89. “To my knowledge, this is uncharted waters. If you ask me whether Donald Sterling will continue to own this team, that’s something I would bet against — but whether that will be five years from now or one year from now is a different story. Adam Silver is an extraordinarily capable person and attorney, and he has some of the best sports lawyers working for him who will do everything as carefully as possible in anticipation that it all gets challenged.”
A three-fourths vote of the NBA’s 29 other owners is needed to determine whether to separate Sterling’s ownership from the NBA.
“No. 1 is that the [board of governors] will be required to vote to authorize the commissioner to exercise his power to rescind Sterling’s membership,” said Rob Tillis, chief executive officer of Inner Circle Sports, which took part in the recent Milwaukee team sale after being retained by prospective new Bucks owners Wesley Edens and Marc Lasry. “Then, before any sales process would kick off, any litigation would have to be resolved.”
None of that, Tillis said, would affect the end result of the process, in terms of selling the Clippers. “It will be a record price,” he said.
“Sterling can challenge, but it serves everyone’s interest to achieve an accommodation where the team is sold in a manner that generates the highest sale price,” said Marc Ganis, president of SportsCorp Ltd., which advised Tom Benson during his 2012 purchase of the New Orleans Pelicans. Ganis added that any delays by Sterling would be like “holding a snowball in his hand in July in Los Angeles.”
After news of the ban, fans flocked to support Paul (below) and the team.
Based on the steady stream of support seen and heard from the league’s owners beginning minutes after Silver announced he was banning Sterling for life from the NBA, along with issuing a $2.5 million fine and forcing his sale of the Clippers, little ownership opposition is expected. The process to get there began last week, with Silver turning to the league’s advisory/finance committee to
That committee is made up of owner representatives for 10 teams (see box), with most of the committee members having deep experience in dealing with the league’s most critical issues — such as collective bargaining, team sales and franchise relocations. The group began meeting last week via conference call. Ultimately, they will inform and update the rest of the league’s owners on the process and suggested next steps.
The NBA itself could assume ownership and operations of the Clippers while a new buyer is sought, as the league did in 2010, when it bought the then-New Orleans Hornets from George Shinn after his inability to find a buyer for the franchise. The league went on to sell the team to Benson in 2012. Last week, though, the focus was on forcing a sale to a new, outside buyer in Los Angeles rather than having a league-owned Clippers franchise.
Silver and other league officials have put no timeline on a Clippers sale. One sports finance industry executive said the league would only be able to complete a sale by the start of 2014-15 season — roughly six months from now — if Sterling were to immediately follow Silver’s demands. “It will be awhile before we have clarity in the sales process unless he completely capitulates,” said this industry finance expert, who requested anonymity because of the sensitive nature of the situation. “The only way this asset goes into a distressed sale [and the price goes down] is if Sterling remains the owner.”
Other sports bankers were unconcerned about the effect of any protracted litigation — even though the immediate impact of Sterling’s comments included some 15 team sponsors quickly dropping or suspending their deals with the team. The Clippers’ first home game since the Sterling story broke on April 26 saw the team hosting a playoff game in an arena that was nearly devoid of sponsorship signage after the team removed or covered up brands that dropped the team due to the controversy.
By later in the week, after the announcement of the punishment, some of those sponsors changed tack and said they would re-engage with the franchise. But the impact of the sponsors’ quick response to the story remained.
“If Sterling and his representatives decide that the best thing would be to do whatever helps maximize the price, that suggests that he will work with the league to generate the highest price,” said Bob Caporale, chairman of Game Plan, which has been involved in numerous professional sports team sales. “The interesting thing is how it won’t make a significant difference because of the market.”
The Clippers played to full capacity this season at the 19,060-seat Staples Center and entered this season ranking among the NBA’s top franchises for full-season-ticket sales. Going forward, it’s unknown how anyone from current players and coaches to prospective free agents, new ticket-buyers and other business partners might view (and engage with) the franchise over the summer, depending on how the league’s desired sale of the franchise is playing out. What was certain last week was that the Clippers will remain in the spotlight for the months ahead, and that Silver had firmly established himself as the NBA’s commissioner.
Said Ed O’Hara, senior partner and chief creative officer at SME Branding, which has helped brand various NBA teams: “Silver did a great job in stemming the tide of the rapid decline in value not only for the Clippers brand but for all of the NBA franchises and for the NBA itself.”
Staff writer Terry Lefton contributed to this report.