Why the NBA won't allow Shelly Sterling to control the Clippers
Donald Sterling has reportedly authorized his wife and team co-owner, Shelly Sterling, to sell the Clippers. The purported authorization presents new complications for the NBA, which in a statement released Friday made it clear it will ignore Sterling's latest plan and continue along its path of ousting him -- and her -- on June 3.
The NBA does not want to cede control of the Clippers to Shelly Sterling
At first glance, Donald Sterling's gesture may seem like serendipitous news for the NBA. Taking him at his word, Donald Sterling has agreed to leave the league without a fight and has signed off on the sale of his team. Digging deeper, however, reveals possible ulterior motives on Sterling's part to delay and potentially block the sale of the team. Do not forget a crucial point: capital gain taxes. As first reported by SI.com, the Sterlings have significant incentives under capital gain tax law to avoid the sale of the team and keep it in the Sterling family. Doing so, would save them hundreds of millions of dollars. Also, contrary to some reports, the Sterlings are unlikely to benefit from the "involuntary conversion" tax avoidance provision of the Internal Revenue Code. The bottom line is if the Sterlings have to sell the Clippers, they will probably pay hundreds of millions in state and federal taxes.
Along those lines, Donald Sterling's proposed maneuver does not accomplish the NBA's goal of ousting the entire Sterling family on June 3. As explained in a previous SI.com article, the NBA interprets its constitution to mean that ousting Donald Sterling on June 3 would also automatically oust Shelly Sterling as co-owner, with the Clippers then falling under the control of commissioner Adam Silver. Donald Sterling's proposed maneuver risks the prospect of Shelly Sterling undertaking a slow-moving effort to sell the team. A sale process that takes months or years would clearly aggravate the NBA, which wants to erase the Sterling family name from the league as quickly as possible. A protracted sale of the Clippers by Shelly Sterling might also constitute a potential rationale for players to boycott NBA games.
Even of greater risk to the NBA, what is to stop Shelly Sterling from deciding to keep the Clippers? She could plausibly reason, on various grounds, that now is not the right time to sell the team. Also, her instruction from her husband to sell the team would not be legally binding; it would be a mere suggestion the moment she takes over the team.
Donald Sterling cannot unilaterally make Shelly Sterling controlling owner
There are two types of owners in the NBA: controlling owners and non-controlling owners. There are 30 controlling owners and each represents one team on the league's Board of Governors. Controlling owners cast votes on behalf of the team and are considered the final authority for a team. This authority includes negotiating the sale of a team, provided the league approves any new owner.
In contrast, there are hundreds of "non-controlling" owners of NBA teams. Non-controlling owners are afforded certain privileges, such as access to players and attending team meetings, but they are not the official voice of the team and cannot sell a team. Non-controlling owners' influence is less formal and in some cases more ceremonial than authoritative.
Donald Sterling is the controlling owner of the Clippers, while Shelly Sterling is a non-controlling owner. Importantly, and as explained fully here, the NBA must approve a change in designation from a non-controlling to a controlling owner.
Sources familiar with the NBA have told SI.com the league will not approve Shelly Sterling as controlling-owner. The league does not want the Sterlings involved with the NBA. The league also has wide discretion to reject new owners, including for reasons of moral character. Shelly Sterling's ties to her husband in the housing lawsuits could be grounds alone for the NBA to reject her as controlling owner (the fact that Donald Sterling was not disciplined over the housing litigation does not preclude the league from using the litigation against Shelly).
Donald Sterling may be setting up a legal challenge under antitrust law
Donald Sterling's moves are not being made in a vacuum. He has hired renowned sports antitrust attorney Maxwell Blecher, who is one of a small group of attorneys to defeat the NFL in court, presumably because of Blecher's expertise in sports antitrust law. Today's developments should be viewed with potential antitrust litigation in mind.
To be sure, most antitrust experts are highly skeptical that Sterling could win an antitrust case against the NBA. Sterling -- an attorney by trade -- signed multiple legal documents with the NBA that authorize the NBA to take the steps it is taking against him. As antitrust attorney and law professor Chris Sagers told SI.com, Sterling would struggle to show antitrust injury. "[T]he only injury he'll be able to state would be that he is forced to sell when he doesn't want to and that he'll have to recognize taxable gain at an inopportune time . . . neither seems like an antitrust injury. Merely forcing the sale of the Clippers doesn't remove the Clippers from competition with the other NBA teams and with other entertainment products."
Still, Sterling could argue that the NBA and its teams have joined hands to force a sale the league would control, with the league picking the winner. In theory, Sterling might assert that a forced sale run by the league could motivate the league to hand-pick a new owner who may not offer the most money, but would be positive for the league's image. For instance, if Magic Johnson --Sterling's apparent nemesis -- offered less money to buy the Clippers than other bidders, but the NBA nonetheless selected Johnson's bid, Sterling could argue the league has engaged in anticompetitive conduct.
Sterling would have clear incentives to pursue this line of legal argument. For starters, he would know that he would be owed treble damages if he could win an antitrust case. This means if he could prove he lost $100 million in the sale of the team and it violated antitrust law, he would be owed $300 million from NBA owners. Sterling would also know that even unsuccessful antitrust litigation could take years, casting a cloud over the team's ownership. Lastly, Sterling might use an antitrust lawsuit (or a lawsuit citing other areas of law) to force owners and former commissioner David Stern to testify under oath about uncomfortable topics. Sterling would want them to address whether they too made racist comments or knew owners who made racist comments, and what, if anything, they did about it. His strategy would be to embarrass owners as hypocritical.
Sterling would surely use his attempted empowerment of his wife to sell the team in any antitrust lawsuit. He would argue that he tried to mitigate the controversy by stepping aside without a fight and merely allowing his wife to sell the team. The NBA rejecting this attempt, Sterling would assert, reveals two characteristics about the NBA: (1) the league, not Sterling, is uncooperative and (2) the NBA is ousting him to handpick an owner.
The legal problems for Sterling in raising this type of argument are many. First, as described above, Sterling would struggle to show the requisite injury to prevail in an antitrust lawsuit. Second, regardless of whether the Sterlings are involved in the sale of the Clippers, the NBA would have to approve any new owner. This is not unique to the Sterlings and would be true in the sale of any NBA franchise. Third, the NBA would insist there cannot be anticompetitive conduct because the NBA and the Sterlings have a unity of interest. Both groups want the Clippers sold for the most amount of money. The Sterlings obviously earn more if the team is sold for more. The same is true of the NBA and owners of the 29 other teams. After all, if the Clippers sell for $1.2 billion rather than $1 billion, other NBA owners would benefit, since their franchises' values would increase as well.
Even with today's news, an antitrust case waged by the Sterlings seems unlikely to prevail. But keep in mind that all moves are now being made with potential litigation in mind.
Michael McCann is a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. He is also the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law.