Have the Maloofs threatened the NBA’s billion dollar arena subsidy industry?
What do Faye Vincent, George Steinbrenner, and David Stern have in common?
They’re each relevant characters in the relocation saga of the Maloof family, owners of the Sacramento Kings, who are increasingly becoming a liability for the NBA.That’s because Chris Lehane, executive director of arena group Think Big Sacramento and big-time political consultant to be played by Rob Lowe in the upcoming film Knife Fight – mashed those characters together when he sent a scathing letter to U.S. Attorney General Eric Holder on Monday. In that letter, he described the Maloofs’ harassment of at least one Sacramento business owner using an ex-FBI agent and asks for a federal investigation into the matter.
On Friday night, CBS13, the local CBS News affiliate, reported that the Maloof Family is employing a former FBI Agent whose purported activities appear designed to intimidate citizens of the Sacramento region who in recent weeks have expressed their concerns about the Maloof Family’s ownership of the Sacramento Kings.
If accurate, the report that the Maloof Family is potentially party to such unscrupulous conduct shocks the conscience at any number of levels.
First, in an era where professional sports organizations have been heavily punished for engaging in “spying” on opposing teams and putting “bounties” on opposing players - the idea that a professional sports team’s ownership group would target its own fans, including prominent and respected local business leaders who are financial supporters of the team, is simply unconscionable.
Lehane then goes in on what happened when Steinbrenner got caught paying Howie Spira, a man with an extremely questionable background, $40,000 to dig up dirt on then Yankee Dave Winfield.
And for the cherry on top, Lehane asks for the federal investigation:
The complete text of the letter can be found here. It goes on to identify federal harassment statutes that could apply to the use of a private investigator, it poses the question of whether or not a federal law enforcement official was impersonated, and to tie a bow on things Lehane points out that the act occurred in Sacramento and the Maloofs reside in Las Vegas – creating a jurisdictional argument to be made in favor of federal prosecution.
Even though this seems jarring when taken at face value, unless there is a real smoking gun that could translate into serious charges against the Maloofs this is just a way to shine a light on their behavior. It’s more likely the audience here was really Stern and the other 29 NBA owners.
Furthermore, the real reason why Lehane brought the Steinbrenner incident into focus is the “best interest of the league” clause found in each of the major sports’ constitutions and by-laws. Vincent used the clause to give Steinbrenner a lifetime ban for the Spira incident (among other factors), though Steinbrenner later exerted enough pressure to be reinstated after two years of riding the pine.
There has already been some talk, some published and most of it unpublished, that Stern could or should use the NBA’s version of the best interest clause to force the sale of the team or nicely encourage ‘the boys’ to negotiate in good faith with Sacramento. The motivation is simple. The Maloofs don’t appear to have the money to run an NBA team, the NBA doesn’t need another Sonicsgate, and the NBA itself has gone to great lengths to preserve the Sacramento market.
The questions (in order) are, however, can he do it, will he do it, and at some point does he have to do it?
According to the Marquette Sports Law Review, the commissioner’s office is installed within the framework of a “monopolistic business association,” shielding the NBA from being bogged down by litigation so long as the commissioner’s office provides “due process” for disputes between players, owners, and the league itself. The office is supposed to act as a disinterested reviewing body with the power and independence to sanction players and owners alike. This body gives the owners the ability to ‘obviate judicial interference,’ which is a fancy way of saying the courts stay out of their business on a multitude of legal issues. From the league and owners’ perspectives, a commissioner can resolve certain conflicts faster and more effectively (read: cheaper) than the courts can.
This “due process” is also an important mechanism required for the league to avoid antitrust suits in relocation disputes. If you recall during Stern’s press conference just hours after George Maloof and his antitrust attorneys torched the Sacramento deal, he said “I am very sensitive of the rights of the Maloofs to do what they did.” That’s because in past relocation disputes, leagues have lost cases because they did not give owners, such as Al Davis and Donald Sterling, an appropriate forum and process to apply for their relocation requests. As distasteful as the Maloof’s actions were, honoring the application and due process of a relocation request is paramount and the likely motivation behind Stern’s comments.
This doesn’t mean, however, that the Maloofs get to unilaterally hurt other NBA owners or the league as it considers their relocation request. Moreover, the ‘best interest’ clause sits side by side with antitrust law to determine how much, if at all, the Maloofs can hurt the NBA and its other owners with their relocation activities. While all of this gets fleshed out inside of Stern’s due process, not to mention outside of the due process with all of the various arm-twisting that goes on behind the scenes, it’s the due process itself that upholds the commissioner’s office as a viable mechanism to obviate judicial interference.
And none of that interference may be as important to obviate as the monopolistic protection the NBA receives as it leverages limited supply (teams) against tremendous demand when it threatens to leave cities if public subsidies are not provided for owners.
These subsidies are a billion dollar item on the balance sheet over multiple years, and it is in the best interest of the league to ensure that it places its best foot forward in how it markets its product to municipalities and their taxpayers.
Should any NBA owners be found to be negotiating in bad faith during arena discussions, as it appears the Maloofs may have, the association could be found liable for losses derived from a failed negotiation – in this case over $500,000 for Sacramento and thousands of hours of time by its city staff and representatives. And because of the tax dollars at play nationwide, both lawmakers and the courts will look to the commissioner’s office to see that due process is being carried out on behalf of all parties, from owner to taxpayer.
As if the overall issue of the Maloof’s relocation wasn’t enough, it was learned earlier this week that the proprietor of a Sacramento website called Ransacked Media both personally met with the Maloof’s private detective and later released confidential emails between NBA attorney Harvey Benjamin and George Maloof. While all leaks are not created equally, if it is found that the Maloofs materially harmed the league’s ability to negotiate with future municipalities because they leaked this information it is just more trouble for Stern and the 29 other owners to consider right now. And it can’t reflect well that discussion of the team’s television deal with Comcast was made available for the masses, as Benjamin put it “We agree regarding Comcast, but no one thought it would be wise as a public matter to put this in a public document.”
Well, it’s public now.
Clearly, there are questions surrounding the Maloofs’ end-game strategy and why they would want to own a basketball team amidst serious concerns about their finances. The NBA’s owners told us repeatedly over the summer that very few teams are making money. As the Kings have been among the league’s lowest spending teams for years, they’ve shown that they can’t or won’t spend the money needed to be a title contender. By some reports the Kings are enjoying an approximate $10 million revenue sharing stream and while ticket sales and sponsorships may hold steady for now, the chance for another PR blunder to destroy whatever goodwill is left in Sacramento remains high. As for that revenue sharing, Stern alluded to the fact that the owners could always vote to change their mind about the Maloofs’ continued receipt of their share.
Politically, the Maloofs have all-but destroyed any chance of getting a publicly-funded arena in Sacramento that would meet the needs of the NBA and the city. Their solution to renovate the current arena is an obvious attempt to produce evidence in an antitrust lawsuit, as they will likely seek public funds that will be denied because the current arena is nearing the end of its useful life. Putting any money into it, let alone public money, has been decried as ludicrous by every third-party that’s not a puppet for the Kings. But the family will say they did all they could to make a deal work in Sacramento and that everybody else let them down.
So after burning every bridge in California’s capitol, the only option on the table for the Maloofs that doesn’t include them financing their own facility is to move and/or sell the team. And none of the options to keep the team present the Maloofs with a tremendous financial advantage over this last deal that the NBA negotiated alongside them.
Moving a team to Anaheim, for example, will return at least a $300 million relocation fee as the result of infringing upon the Lakers and Clippers’ markets and render the family upside-down in their investment without some serious help. Seattle just reached a Memorandum of Understanding agreement on Wednesday with investor Chris Hansen that is pending, and the city’s investment of up to $120 million for an NBA-only arena will need to clear all the red tape that Sacramento’s did. Regardless, Hansen isn’t spending over $500 million to roll out the red carpet for the Maloofs. Otherwise, you can add Vancouver, Louisville, Columbus, and Kansas City to the list of cities whose names have landed on the radar, and none of them provide the Maloofs a path to improve their financial standing or support their entertainment holdings. All they provide is a lukewarm bidding war to raise the sales price of the team.
Talking with sources close to the negotiations, it’s clear that many of them are done trying to understand what the Maloofs are doing right now. Exasperated would be the appropriate word. Did the Maloofs threaten an antitrust suit and did the NBA respond by threatening a relocation fee in Orlando? Did the Maloofs leave Orlando with an agreement in principal only to decide days later to leverage their antitrust rights? Are they buying time in hopes that a game-changer comes through the pipeline? Has all of this simply been an exercise in selling the team? Does it even matter at this point? The damage is done. Sacramento has spun its wheels for a family with all questions and no answers, and could very well be left without a team if nothing is done about it.
Now, in their apparent pursuit of evidence for an antitrust case, it appears they may have crossed more lines and bitten off more than they can chew. Whatever their motives may be – they continue to encumber the league’s standing with customers, cities, its own owners, and eventually with lawmakers and the courts.
The appropriate question for the league and its owners is – at what point does the behavior become a recognized liability and at what point do they figure out that holding the line isn’t the smartest play.
Ultimately, it’s in the best interest of the league that they figure this out quickly. Billion dollar subsidies don’t grow on trees.