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Can The NBA Force A Sale Of Sterling's Clippers Without Running Afoul Of The Antitrust Laws?

Posted  April 30, 2014

By Jeffery I. Shinder and David Scupp

We applaud the NBA for the firm stance it took against racism, which we believe should have no place in our country.  Having said that, we note that some have suggested that Donald Sterling may file an antitrust lawsuit to maintain his grip on the Clippers, or to gain some leverage to get full value for the team in a forced sale.  Notwithstanding our views on his conduct, we will attempt to analyze the antitrust legal issues dispassionately.

The sordid tale of Los Angeles Clippers owner Donald Sterling may weave its way into court via an unlikely route – the antitrust laws.

For the past week, the sports press has been abuzz regarding Sterling’s odious remarks that were caught on tape and released to the public.  Yesterday, NBA commissioner Adam Silver pulled no punches, fining Sterling $2.5 million (the maximum allowed under the league’s constitution), and banning him for life from any association with the Clippers organization or the NBA.  Sterling can no longer attend NBA games or practices, participate in Clippers player or personnel decisions, or even enter any Clippers facility.  Sterling is also barred from attending any NBA Board of Governors meetings, or participating in any other league activities.  He is effectively exiled from the league.

But can Sterling actually be exiled from the franchise that he continues to own?  In addition to instituting the fine and lifetime ban, Silver has also urged the NBA owners to force a sale of the Clippers.  Under certain enumerated circumstances, the league’s constitution permits the league to take control of a team and sell it, provided three-fourths of the league’s owners agree.  Assuming that Sterling’s offensive conduct constitutes one of the enumerated events required to force a sale (and that is not a foregone conclusion), the question arises as to whether a forced sale would violate the antitrust laws or at least raise antitrust claims that Sterling could use to enhance his weak, or non-existent, bargaining position with the league.

In virtually any other context, competitors banding together to oust another competitor from the market would amount to a per se violation of the antitrust laws.  Imagine if General Motors and Ford joined forces to force a sale of Chrysler to the owner of their choice.  It would be hard to view that as anything but a naked restraint of trade.

Sports leagues, however, are different.  They require a substantial degree of coordination and cooperation among competing teams and their owners.  Without it, there could be no leagues at all.  And the teams compete in some respects but not in others.  The antitrust laws are therefore applied differently when the restraint is reasonably related to the functioning of a sports league.

It seems likely, then, that a forced sale of the Clippers would be analyzed under the Rule of Reason used to decide most antitrust claims.  A court would have to determine whether the sale’s procompetitive benefits outweigh its anticompetitive harms, if any, and, if so, whether there are any less restrictive alternatives that would provide the same benefits.  As an initial matter, Sterling would be hard pressed to show harm to competition, particularly because the sale of the Clippers likely will be necessary to preserve the value of the franchise and maintain it as a vigorous competitor in the league.  Lest there be any doubt about that, consider the Clippers’ future with Sterling at the helm; it would devolve into a pariah team with shrinking ticket sales and sponsorships and would be hard pressed to attract and maintain talented players and coaches.

The league should be able to make a strong showing that allowing Sterling to continue as owner of the Clippers would cause substantial harm to the league’s brand and its ability to successfully market its product.  Fans are outraged.  Players, both current and former, as well as coaches have made it clear that they would not want to be associated with Sterling’s franchise.  There have been calls in the sports media for boycotts.  Companies such as CarMax, Virgin America, State Farm, and Kia have pulled their Clippers sponsorships.  It seems likely that as long as the Clippers belong to Donald Sterling, the quality of the product sold by the league and its franchises will continue to be affected.  Consequently, Sterling would probably have to show that his effective exile imposed by Silver is a less restrictive means to achieve the procompetitive benefits of a forced sale.

Sterling might also look to Sullivan v. National Football League, 34 F.3d 1091 (1st Cir. 1994), for support.  Sullivan concerned the NFL’s refusal to allow the Patriots’ owner to sell shares of the team to the public.  After trial, a jury found that NFL teams compete not just for touchdowns and fan support, but for the sale of the teams’ ownership interests themselves.  The jury found that the NFL’s policy of precluding public offerings had a detrimental effect on competition in that market.  The situation here is the reverse in that the league is forcing, not precluding, a sale of a team.  Sterling might therefore be hard pressed to show antitrust injury.

While Sterling probably could fashion a non-frivolous antitrust lawsuit against the NBA, he would still have an uphill battle against a very motivated opponent that is no stranger to antitrust litigation.

For the sake of the NBA and our broader culture we hope that Sterling goes quietly, accepts his punishment, and maximizes the value of his now valuable franchise.  Nothing will be gained by prolonging this tawdry situation through a tactical antitrust lawsuit.

Edited by Gary J. Malone

Tagged in: Antitrust Litigation,