Ever since NBA Commissioner Adam Silver banned (now former) LA Clippers owner Donald Sterling for life, arguments have emerged for and against the decision. Dallas Mavericks owner Mark Cuban recently commented that the action is a ‘slippery slope’, likely out of fear that the same could happen to him or any of the other owners someday. Others have argued that the punishment fits the crime and have no problem with Silver banning Sterling. The inevitable issue that is raised however, is whether Silver and the NBA have the power to enforce such a punishment. Why not? Players, after all, are disciplined by the league all the time and rarely attempt to fight these punishments in court. It should follow then that owners can be disciplined the same way right? Let’s take a look at why disciplining an owner is different from disciplining a player and analyze some of the arguments Sterling and the league make:
Discipline: Owners vs. Players
Previous posts on this blog have explained the significance of Collective Bargaining Agreements (CBA’s) in professional sports. CBA’s govern the relationship between the players and the league including minimum and maximum salaries, length of practice times and player conduct policies among other issues. So when the league decides to fine or suspend players, it is done under the CBA and while players generally are allowed to appeal, it is done through the league, not through the courts. In contrast, an owners relationship with the league is governed by the NBA’s Constitution and By-Laws. The Constitution and By-Laws outline terms such as the rules to conduct the NBA draft, television and radio contract terms, and the authorities and duties of the Commissioner, among others. The document also outlines under what circumstances ownership of a team may be terminated in Article 13. Article 13 provides that “the Membership of a Member or the interest of any Owner may be terminated by a vote of three fourths (3/4) of the Board of Governors if the Member or Owner shall do or suffer any of the following…” The provisions that have been discussed and raised in Sterling’s response to the NBA’s punishment are 13(a) and 13(d).
Article 13(a) provides that a Member or Owner’s interest may be terminated by a 3/4’s vote if he “Willfully violate[s] any of the provisions of the Constitution and By-Laws, resolutions, or agreements of the Association”. Sterling rebuts the charge under 13(a) in his response stating in part that he could not have “willfully” violated a league document as the comments were made in a private conversation which was never intended to be made public. The league can argue against the rebuttal by asserting that the conversation was made very public and quickly harmed the NBA.
Article 13(d) provides that a Member or Owner’s interest may be terminated by a 3/4’s vote if he “Fail[s] or refuse[s] to fulfill its contractual obligations to the Association, its Members, Players, or any other third party in such a way as to affect he Association or Members adversely.” The obligations in this Article do not need to be contained in the NBA’s Constitution or By-Laws but may include other agreements including the franchise agreement to buy a team and the joint venture agreement in which owners agree to league authority which both contain covenants. The NBA will argue that Sterling agreed to abide by a certain ethical standard and breached that by making unethical comments in opposition of the NBA’s position. In response to this charge, Sterling asserts that 13(d) only applies to Owners who fail to meet financial obligations under contracts. The league will likely respond that the language in the article contains no such limitation. Sterling will also be hurt by his interview with Anderson Cooper on CNN in which he is charged by the NBA for “criticiz[ing] African Americans for not supporting their communities; and publicly disparag[ing] NBA legend Magic Johnson.” The NBA will likely use the CNN interview and Sterling’s comments to V. Stiviano to show that Sterling severely hindered the NBA’s efforts to enhance diversity and that his comments resulted in massive harm to the league.
Do the Commissioner and the league have the legal authority to enforce such a harsh punishment?
The standard that has been used by courts to determine whether a governing body in sports has overstepped its authority and failed to follow it’s own By-Laws is “arbitrary and capricious”. The standard is normally used in Administrative Law to determine whether regulations made by government agencies are appropriate. To prove that the NBA’s decision was “arbitrary and capricious” and that the league did not follow it’s own Constitution and By-Laws, Sterling would have to show that the NBA acted arbitrarily in handing out his punishment. To do so, Sterling will likely point to past transgressions by owners who may have received a “slap on the wrist” compared to his banishment from the league.
In his response, Sterling gave examples of “Speech-Related Conduct” including Kobe Bryant’s use of an extremely offensive term for homosexuals towards a referee in which he received a suspension and $100,000 fine; Sterling also cites a former NBA player who referred to his legal counsel as “big-time Jew lawyers” and referred to Jewish people as “some crafty people” because “they are hated all over the world”. The problem with these examples is that they refer to players and former players rather than owners. As explained above, players are disciplined under the CBA, not the NBA’s Constitution and By-Laws. Sterling does give a more relevant example of Magic owner Rich Devos, who donated $100,000 to the National Organization of Marriage, an organization who advocates against marriage equality. Sterling states that despite LGBT groups advocating for a boycott, the NBA took no action in disciplining Devos for his support of the organization.
The issue of capital gains taxes owed by the Sterlings should the team be sold.
One issue which was raised at the end of Sterling’s response to the league’s charges stuck out to me; should the league force the sale of the team (which it essentially has now), the Sterlings would be subject to capital gains tax on the difference between the amount he bought the team for and the selling price. This issue stuck out because it seems to be a valid concern in that the team has now been sold for $2 billion; the capital gains tax the Sterlings would be subject to is calculated at 33%, which includes state and federal taxes. Sterling bought the team in 1981 for $12.5 million and so the tax would be calculated as 33% of nearly $1.9 billion which comes out to over $600 million. Although the Sterlings would come out ahead, that is a large amount of money even for a billionaire.
As the narrative continues, it’s clear that Sterling is going to go down swinging even though Shelly Sterling reportedly reached a deal to sell the team to former Microsoft CEO Steve Ballmer. Despite the possible legal battle that lies ahead, it was in the best interest of the league to replace the Sterlings quickly, so as to put to rest any concerns the league’s players and other employees had of Sterling remaining in power.