Explaining the biggest story in the NBA
The Los Angeles Clippers and owner Steve Ballmer are under investigation for potential salary cap violations. Here's what you should know.
This week, instead of six, we’re doing eight nuggets about the biggest story in sports business.
Before we dive in, here are the basics in less than 150 words. The Los Angeles Clippers and owner Steve Ballmer have been accused of circumventing the NBA’s salary cap by funneling extra money to star forward Kawhi Leonard via a start-up that later went bankrupt. Ballmer invested $50 million into Aspiration, which committed $48 million to Leonard in stock and cash via a four-year marketing contract. There’s no evidence that Leonard ever endorsed the company in any way, and a former executive, speaking anonymously, said it was a no-show arrangement to circumvent the salary cap. In December 2022, as the company was struggling financially, Clippers co-owner Dennis Wong invested another $2 million a mere days before the company cut Leonard a $1.75 million check. Ballmer has denied any wrongdoing and the NBA is investigating.
Pablo Found Out ⌨️: This scandal was broken by Pablo Torre, whose podcast Pablo Torre Finds Out is on an absolute heater. Torre has shared some added detail on social media, but the bulk of his reporting has come in two podcasts (Part 1 and Part 2). If you really care about this story and haven’t watched them, I recommend you do so. Torre has a unique style of storytelling, semi-scripted and semi-improv, that takes his listeners along for the ride at each step of his reporting. Here’s a clip of his co-hosts learning, in real time (I think?), about that Dennis Wong connection.
“One of the Most Far-Reaching Frauds” 🐺: NBA executives talk about salary cap circumvention as one of the league’s cardinal sins, but do they actually act that way? The most recent major circumvention scandal was in 2000, when it was revealed that Minnesota Timberwolves owner Glen Taylor signed a secret agreement to pay forward Joe Smith $86 million in exchange for him taking a much smaller contract up front. Then-commissioner David Stern called it “one of the most far-reaching frauds we’ve seen.” The team was docked $3.5 million and five first-round picks. Smith’s contract was voided and team leaders were suspended.
If that all looks like a harsh punishment, there’s a coda that people tend to leave out: Two of those five picks were later returned to the team, and Taylor went on to serve as chairman of the NBA’s board of governors for a decade.
Snowball Effect ⛄: After the Timberwolves scandal broke, general manager Kevin McHale said, “there are eight to 10 teams that do this all the time. They’re just good at it. We’re bad.” The biggest concern for the NBA right now, in my opinion, is that this Clippers debacle could grow into an indictment of other teams, and therefore fairness across the league1. There have been smaller infractions since the Timberwolves. In 2015, for example, Ballmer and the Clippers were fined $250,000 for offering an unauthorized third-party endorsement to DeAndre Jordan during their pitch to keep him in Los Angeles. That was reportedly a $200,000/year deal with Lexus.
I don’t think $48 million no-show deals are standard by any means, but reporters much closer to the league have talked in the past few weeks about the myriad other ways owners can help star players financially. That includes use of the owner’s private jet or real estate, ticket packages, or investment deal flow. Here’s Bill Simmons on the topic 👇. This becomes a much wider issue for the league if this mindset takes hold among fans.
Good Luck, NBA 👮: And in what way could the NBA ever actually expect to police that? After NBA board meetings last week, I asked NBA commissioner Adam Silver a more narrow version of that same question. It’s common for companies that sponsor a team to also sign endorsement deals with that team’s star player. Is that grey area enforceable? Here is that question and answer 👇
Some Humor 🤣: The memes have been good, of course. Here are two of my favorites.
Where is Kawhi?👻: Leonard is among the more reclusive NBA stars, but I’m shocked that he hasn’t commented on this at all. According to the Toronto Star, when Leonard was a free agent in 2019, his uncle/manager Dennis Robertson asked the Raptors for no-show endorsement deals and equity in outside companies. As rough as this all looks for Ballmer, it doesn’t look too much better for Leonard.
Leonard hasn’t rushed to the Clippers’ defense. He hasn’t rushed to his own defense. He hasn’t rushed to his uncle’s defense. He hasn’t rushed to say… anything. The strategy has been effective so far—few people actually seem to be focusing on him—but that will change as he steps back into his very public actual job.
$2 Billion Mystery 🏟️: This is the biggest NBA scandal since the league forced Donald Sterling to sell the Clippers (lol), following racist comments he made to his mistress. I would be shocked if this reaches a similar point, but it’s not inconceivable. If that were to happen, and Ballmer feels railroaded, what happens to the Intuit Dome? The team’s new $2 billion venue has been Ballmer’s passion project for the past five years. I could be wrong, but I don’t believe the league can force him to also sell it (the Clippers were a tenant in the Staples Center under Sterling). So what if he refuses to include it, or refuses let the team play there?2 Sportico values the Clippers at $5.68 billion, and I asked Kurt Badenhausen how he would price it without the venue or access to it. “Around $4 billion.” Oof.
What’s Next? 🔮: It’s likely going to be months before the NBA’s formal investigation turns up results, and that’s exposed an issue with the way major sports leagues typically handle stories like this. The playbook, which the NBA is running here, is to talk gravely about the severity of the allegations ✔️, preach about the importance of due process ✔️, and then hire a white-shoe law firm to conduct a lengthy investigation ✔️.
But in the meantime, reporters like Torre will continue to pick away details, and they’ll trickle out long before the investigation is over. Besides former Dallas Mavericks owner Mark Cuban, who has clashed with Torre about his conclusions, there are very few prominent people around the NBA defending Ballmer at all. The court of public opinion appears to have already ruled here. And if you think the temperature is high now, just wait until the Clippers host All-Star Weekend in February… and then next April the NBA announces that there wasn’t enough direct evidence here to fully hold Ballmer accountable.
Club Sportico is a community organized by Sportico, a digital media company launched in 2020 to cover the business side of sports. You can read breaking news, smart analysis, and in-depth features from Eben, Jacob and their colleagues at Sportico.com, and listen to the Sporticast podcast wherever you get your audio. Contact us at club@sportico.com.
It feels kind of like the early stage of the Tim Donaghy referee scandal from 2007.
Something kind of similar happened recently in NWSL. The Portland Thorns were sold in the wake of the league’s abuse scandal, but the seller (Merritt Paulson) retained control of Portland’s MLS team and the venue where the Thorns play. The relationship wasn’t strained, however, and the team remains a tenant of their old owner.