LA Clippers Scandal Shows Reputation Risk Looms Large in Sports

LA ClippersOwners or top executives of companies who say and do stupid things can damage their businesses and have tremendous negative consequences on their brands and the values of those organizations.

Source: Source: Dow Jones - Ben DiPietro | Published on May 6, 2014

As shown by the case of Los Angeles Clippers owner Donald Sterling--who was banned for life and fined $2.5 million Tuesday by the National Basketball Association for racist comments he made that were taped and made public--the risks are especially acute for sports franchises that depend on fan support and corporate sponsors to supply much of their revenue.

NBA Commissioner Adam Silver, in his first major decision since taking over as head of the league earlier this year, said the league will conduct a vote of its Board of Governors to force Mr. Sterling to sell the team he purchased in 1981 for $12.5 million. But forcing a sale could present legal complications depending on how badly the comments of Mr. Sterling have damaged the value of his team, and how much potential buyers may be willing to spend knowing he is being forced to sell.

Regardless of whether the NBA can force a sale, Peter LaMotte of crisis communications company Levick says the league will make it impossible for Mr. Sterling to do business. More than a half dozen sponsors--including CarMax, Kia Motors and Red Bull--already have announced plans to end or suspend their relationship with the club.

"They essentially are saying you can lose everything today or you lose everything tomorrow but you are going to lose everything. They can essentially make it a worthless franchise," Mr. LaMotte said. As of now, the crisis is attached to Donald Sterling, not to the Clippers, he said. "The Clippers brand is salvageable, the Donald Sterling brand is not. The value of the brand was brought down the minute this broke."

Charles "Chip" Babcock, an attorney at the law firm Jackson Walker, said Mr. Sterling may have legal recourse if the NBA forces him to sell and he can't get fair-market value for the team because potential buyers know he is selling a property distressed by the league's mandate to make him sell. "Expelling somebody from a league is a pretty drastic thing that could have some significant repercussions for the ousted owner. He might well have a legal claim against the league and the other owners," said Mr. Babcock, whose clients have included former pro baseball star Roger Clemens, Oprah Winfrey--who on Tuesday denied she has any interest in purchasing the Clippers--and Google Inc.

"The question is whether he's given up his rights when joining the league so they can make him sell under any circumstances," Mr. Babcock said. "That would dictate how strong the legal case is from either side. You would hope everybody just moved on and he sold the franchise and that was the end of it. But he's got plenty of money to fight this...so we might get some lawsuits."

Scott Witlin, a partner at law firm Barnes & Thornburg, said it's not in the interests of the other team owners to have Sterling sell at less than market value, as that could affect the prices they could get should they choose to sell their teams. "The league would be happy to see him voluntarily agree to sell the team in some relatively short time frame. That gives him his best chance of maximizing its value...and the league can be rid of a headache," Mr. Witlin said. Several names have popped up as potential buyers for the team.

Despite the nature of Mr. Sterling's statements, Mr. Witlin said he doesn't think this will lead to lawsuits by Clippers employees that they were subject to a hostile work environment. "People can be jerks and the law looks at these things on a sliding scale, but I don't know that this is so pervasive that it meets legal standard" of a hostile workplace environment, he said.