360° Coverage : Should NBA Constitution Prevent Forced Sale Of Donald Sterling...

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Should NBA Constitution Prevent Forced Sale Of Donald Sterling's Los Angeles Clippers?

Apr 30 2014, 9:17pm CDT | by

On May 1, the NBA’s Advisory Finance Committee will come together to begin formal discussions on how to permanently remove Los Angeles Clippers owner Donald Sterling from the league through a...

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24 weeks ago

Should NBA Constitution Prevent Forced Sale Of Donald Sterling's Los Angeles Clippers?

Apr 30 2014, 9:17pm CDT | by

On May 1, the NBA’s Advisory Finance Committee will come together to begin formal discussions on how to permanently remove Los Angeles Clippers owner Donald Sterling from the league through a transfer of his ownership shares and a selling-off process thereafter.  NBA Commissioner Adam Silver believes that he not only has the support of all NBA owners, but also that under the NBA’s Constitution the owners have the authority to force a sale of the Clippers.  Courts are reluctant to overturn decisions made by private associations as long as such decisions are made within the confines of their by-laws.  However, there is uncertainty as to whether the NBA has foundation to force Sterling out of his ownership position based on the NBA’s Constitution itself.

From a normative standpoint, a forced sale of the Los Angeles Clippers may be the right move.  Donald Sterling purchased the Clippers for $12 million in 1981.  In a very open and public “auction,” the LA Clippers will demand a price well above and beyond the $575 million team value appraisal provided by FORBES in January 2014.  No matter the tax consequences surrounding such a sale, Sterling will come out a winner financially.

Is a normative foundation enough to oust Donald Sterling and sell off his interest in the Los Angeles Clippers?

Twelve years ago, still in the wake of the tragic events that took place on September 11, 2001, a phrase popped up every so often.  That phrase, “the Constitution is not a suicide pact,” was used in connection with the balance between liberty and security and whether the provisions of the United States Constitution should sometimes be suspended (or at least expanded in a liberal sense) if it was understood to be accomplished for the greater good of the citizenry.  It places the perceived survival of the state and its people above the words contained in a document.

The NBA Constitution is not the U.S. Constitution, but it is also a document by which an entity governs a set of individuals.  An applicable question may be, “If the Los Angeles Clippers will not be a viable business as long as Donald Sterling is the owner, does that provide the grounds, in itself, to force him to sell the team?”

“It’s a good question.  I don’t think the concept would hold up under contract law but it has some merit,” said Chicago-based sports lawyer Cari A. Grieb to FORBES.  “The concept worked for [Abraham] Lincoln during the Civil War when he suspended habeas corpus and others because there was a compelling interest in preserving the State but it is always the highest of legal bars.  It is not 100% crystal clear it would work for Adam Silver, at least not today.  I’ve never seen the concept applied to a private association, such as the NBA”

Even though sponsors have completely cut ties with the Clippers or at a minimum suspended their relationships, Grieb still questions the applicability of the suicide pact theory and noted that other teams have kept their financial ties in place.  Yet, imagine a court overturning a sale of Sterling’s shares of the Clippers.  It could make today’s controversy seem like child’s play.

“I think once we see how things play out, and if the league truly loses much revenue from lost sponsorships and if there are player boycotts and the like, then, perhaps the argument can come into play; however, in that circumstance, the argument may be more likely tied to a public good argument from the economic benefits of the league than the individual financial interests of owners who entered into the partnership willingly,” added Grieb.

It is important to realize that this is a person’s property (in the form of his ownership interest in a professional franchise) that is being taken from him without his consent.  If NBA Commissioner Adam Silver would not have taken such a hard-line approach, imposing a $2.5 million fine, suspending Sterling for life and stating his intention to take away his ownership of the team, the Golden State Warriors would have been willing to boycott performing in a Playoffs game against the Clippers.  Failing to completely eradicate Donald Sterling, including his ownership shares, from the NBA could also jeopardize the viability of the business of the NBA as a whole if players take a collective effort and refuse to perform.  Adam Silver said what was necessary, whether he had support of the NBA’s Constitution of not and despite his plan including the conversion of one person’s property because it may be in the best interests of the game.

If Donald Sterling attempts to vacate the imposition of a forced sale of his team through the owners’ voting for his termination, he will have to show that the NBA went outside the bounds of the NBA Constitution, reading in language that does not exist and arbitrarily pushing him out without cause.  The NBA, as the drafter of the NBA’s Constitution, may have a tough time defending such a claim if in fact there is no real foundation for such a harsh penalty, since ambiguities are typically construed against those who create such legally binding documents.

Could an argument that ”the Constitution is not a suicide pact” eventually come into play?  While the judicial system is expected to rule relying on precedent and make determinations based on the law and facts presented, public policy does sometimes win the day and create decisions that may not always seem technically right, but appear to be in the best interests of those affected.  As mentioned, it is difficult to persuade a court to overturn a decision made by a private association in the first place.  Due to the circumstances contained in the Donald Sterling situation, the NBA may get a favorable opinion even though it does not necessarily have the strongest justification for the hammer it drops on the current owner of the Clippers.

Want to learn more about the business of sports? Order my book How to Play the Game and follow me on Twitter.

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Update
2

7 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the workforce o ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

7 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double tragedies of MH370 and MH17 ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

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