Last week, NBA commissioner Adam Silver handed Los Angeles Clippers owner Donald Sterling a lifetime ban from the NBA and a $2.5 million fine to boot.
Winners and Losers in the Donald Sterling Scandal
A lifetime suspension is the harshest possible punishment a commissioner can give a team owner, and $2.5 million is the largest fine permitted by NBA laws. To boot, Silver also requested team owners to force Sterling to sell the Clippers. A step only team owners can take and that requires the votes of three fourths of the owners.
These sanctions come in the wake of a string of racist remarks by Donald Sterling, which were taped by his ex-girlfriend V. Stiviano and published by TMZ. According to reports by the gossip e-rag, Ms. Stiviano, who is being sued by Sterling’s wife for stealing $1.8 million, taped over 100 hours of conversations as leverage to “encourage” the Sterling’s to accept a settlement.
Fans, the media, and franchise owners applauded the decisive measures taken by the rookie commissioner. However, how much of a choice did Silver have? Did he make a hard call, or was he simply riding the wave of public opinion and making the only decision he wouldn’t get flak for?
Of course, the motivations behind Silver’s decision don’t determine whether it was a good or bad call. Even if Silver only suspended Sterling because he thought it was the popular choice, it wouldn’t make his sanctions any less or more appropriate. They stand on their own. Yet, you don’t have to be a complete cynic to wonder about the financial consequences the NBA, the Clippers, and the other NBA teams would have had to face had Silver taken a more lenient approach to Sterling’s outrageous comments.
What Would It Have Cost to Not Suspend Sterling?
According the NBA Players Association vice president Roger Mason JR., players throughout the NBA were ready to boycott the playoff games, if Sterling hadn’t punished Sterling adequately. Even if the boycott had only lasted for one day, which is unlikely, it would have canceled three games: Wizards vs Bulls, and of course, Grizzlies vs Thunder and Warriors vs Clippers.
So what are three NBA games worth? Ticket revenue varies widely depending on the teams playing, venue and ticket price. In the 2012-2013 season, the New York Nicks averaged $2.3 million a game in ticket revenue, while the Oklahoma City Tunder averaged $860,000. A representative figure of the entire league is $1.4 million a game. That doesn’t include concessions, add a couple hundred thousand dollars each game for that. Of course the main source of income is not tickets and concessions but TV rights, which average $5 million a game.
Another big incentive to put a lid on the scandal was its effect on LA Clippers’ sponsors: Mercedes-Benz, CarMax, and Virgin America who terminated their sponsorships, and State Farm, Kia Motors, and Sprint, who suspended advertising. This would have hurt all NBA teams. Each of the NBA’s 30 teams contribute an equal percentage of its franchise sponsorship revenue, which is then evenly distributed back to the franchises. This flood of sponsorship cancellation more than likely scared the living daylights out of NBA team owners concerned that other sponsors would also get on the sponsorship-cancellation bandwagon.
The Clippers also happen to be in one of the largest media markets in the country, and sponsors are willing to pay a premium to get into that market. What hurts one NBA team hurts them all. Now that Silver laid down the law on Sterling those sponsors have come running back to the fold.
What Took So Long?
They say hindsight is always 20/20, but the most surprising thing about all this mess is what took the league so long? Many of the big players in the NBA business made a big deal of how shocked they were by Sterling’s comments. Really? Sterling’s racist opinions and actions have been a matter of public record for years.
Sterling paid huge settlements in 2005 and 2009 for housing discrimination lawsuits, which in both occasions were described as “one of the largest ever obtained in this type of case” and, at the time, “the largest payment ever” to the Justice Department, for a housing discrimination lawsuit. Witnesses at those cases claimed Sterling had made comments like “”I don’t like Mexican men because they smoke, drink and just hang around the house,” and “that’s because of all the blacks in this building, they smell, they’re not clean.” You can argue those statements were based on the recollection of hostile witnesses, but in both cases it was proven that Sterling harassed minorities with abusive tactics, such as not making repairs and refusing rent checks and then suing for failure to pay.
In 2011, he was again sued for employment discrimination. This time by Elgin Baylor, a Clippers executive for 22 years, who claimed Sterling wanted a white coach for the Clippers and that he regularly said he was “giving these poor black kids an opportunity to make a lot of money.” That suit was rejected by a jury – probably because Elgin Baylor had seemed happy enough to take Sterling’s money for over 20 years before suing him. Nevertheless, it’s hard to see Sterling as a credible witness. Sterling testified he hadn’t even known Baylor, an All-Star player on 11 occasions, had been invited to the Hall of Fame. Hard to believe that tidbit didn’t come up in his interview or that an NBA team owner wouldn’t know that.
How did the NBA and the NAACP react to Sterling’s treatment of one of basketball’s most distinguished players? The NBA had no comment and the NAACP gave Sterling a lifetime achievement. Sterling was about to receive another NAACP lifetime achievement award this year — yep, you guessed. He’s a big-time donor — until the tapes hit the media and it was revoked.
Ironically, The Suspension and Fines May Actually Benefit Sterling Financially
There’s no doubt Sterling’s public life and reputation are dead. He is toxic, an absolute social pariah. Public personalities and celebrities won’t touch him with a bargepole. And I can’t see many of his friends going out of their way to be seen with him in public either. His bank account, however, has never looked better. He may have been hit with a $2.5 million fine, but the NBA may have saved him hundreds of millions of dollars in taxes. How come?
As of today, Sterling is adamant The LA Clippers are not for sale, but if he were forced to sell the franchise, he could potentially claim special tax treatment because his property was “involuntarily converted.” This loophole is designed to compensate taxpayers who are forced into selling property against their will.
Forbes valued the LA Clippers at $575 million in January 2014, but most experts claim this is not an up-to-date valuation. If the sale of the Sacramento Kings ($534 million) and the Milwaukee Bucks ($550 million) – both are teams in much smaller markets than LA – is anything to go by, The Clippers could sell for much more. A price tag many pundits are throwing around is $1 billion. Not bad for a team Sterling bought for $12.5 million.
Assuming a $1 billion sale price, Sterling would save $200 million in federal income tax and $123 million in California state tax. The only catch is he would have to convert the money from the sale into what the IRS so artfully describes as “property similar or related in service or use to the property so converted” to benefit from the special tax treatment. The LA Clippers is a sports team, so the most obvious way to meet the IRS special tax treatment requirement is to buy another sports team.
Good luck, Mr Sterling, finding a sports team that wants you as its owner.