Banning Sterling makes a lot of cents for the NBA

By Adam Grossman

Donald Sterling’s lifetime National Basketball Association (NBA) ban, $2.5 million dollar fine, and potentially forced sale of the Clippers may seem to fit in the category of previous owners who received a comparable punishment. Marge Schott was forced to sell the Cincinnati Reds for her anti-Semitic and racist comments while owner of the team. George Steinbrenner was suspended twice as owner of the New York Yankees, with the last occurrence spurred by his allegedly hiring a private investigator to examine the history of his team’s star slugger Dave Winfield.

However, Sterling’s comments and the reaction they provoked is an example of the evolution of the modern crisis. This includes:

• Convergence of Sports and Entertainment — Sterling’s comments were first reported on TMZ.com, a site known for celebrity gossip more than sports coverage. This made sense, as TMZ created TMZ Sports because of the convergence of sports and entertainment. More specifically, players, coaches, and even owners are some of the most well-known celebrities in entertainment.
• Influence of Technology on Sports Crisis — Ten or even five years ago, there would have been less of a chance that a crisis would have emerged because of Sterling’s comments. The only reason the Clippers’ owner’s statements were made public is that someone recorded a private conversation on a mobile phone. The comments were then posted on TMZ.com and quickly spread throughout social media. While Sterling’s comments were abhorrent, it was unlikely he thought they would ever be made public. Rather than relying on hearsay of a fan sitting near the Clippers owner at the game, the league, media, and public could directly hear what Sterling had to say in his own words. This is a reminder that every sports fan can become a citizen journalist by turning on their smart phone.
• Pre-crisis Preparation — Sterling’s racial views have been well known and well documented. On his ESPN 980 radio show in Washington D.C., Tony Kornheiser and his Pardon The Interruption co-host Michael Wilbon recently discussed that they had conversations about Sterling’s views ten years ago. In addition, the Department of Justice had filed suit against Sterling alleging that his housing practices violated anti-racial discrimination laws. The NBA could have recognized this as a potential crisis and moved earlier to oust him before these events forced the league’s hand.

Virtually every one from players, coaches, and owners to media critics, pundits, and morning newscasters have analyzed the impact that Sterling’s comments had on his team’s and the NBA’s brand. What has received less coverage is why the NBA needed to take this type of action to try to resolve this crisis from an economic perspective. Sterling’s crisis potentially impacts three key revenue streams that demonstrate why his immediate ban makes sense for the NBA.

• Subsidy / Revenue Sharing — Like most major professional sports leagues, the NBA shares revenue among all 30 teams. In fact, the NBA rules dictate that teams keep 50% of their revenue with teams sharing the remaining 50% with the entire league minus expenses for items such as arena operating costs. Therefore, any revenue lost by the Clippers impacts every NBA team. Sterling has taken steps in the past to ensure that the Clippers have remained profitable even when the team is losing. His team’s recent success combined with the Lakers relative decline has made the Clippers a more important franchise for the NBA in the large Los Angeles market.
• Sponsorship – Corporate partners spend millions of dollars with the league and its teams to increase their brand awareness and enhance their brand perception. In particular, the NBA can help companies target young, male, and often African-American audiences. It would be extremely difficult to sell or with current corporate partnerships and sign future corporate partners when their brands could be associated with Sterling. The immediate exit of State Farm and Kia illustrates the possible crisis consequences. While some sponsors have already returned, Sterling’s comments and the uncertainty of whether he will sell the team still threatens their brand.
• In Game – In Game revenue consists of money a sports organization generates through competition. Most in game revenue comes from tickets, concessions, and parking that occurs on game days. The question here is whether fans would stop attending Clippers’ games because of Sterling’s comments. Unfortunately for Los Angeles sports fans, there is an example of another owner who had a similar impact on his organization. When Frank McCourt owned the Dodgers, he was embroiled in a bitter divorce and also took steps that forced the team into bankruptcy. During McCourt’s final year owning the team in 2011, average game attendance declined to 36,173 as compared to 46,172 in 2013. One could have expected a similar 22% decline for the Clippers with Sterling continuing to be the team’s owner.

Sterling’s past actions and recent comments deserved the harsh punishment. Understanding the relationship between crisis and revenue, however, can outline and forecast the possible financial questions of crisis responses. If Sterling fights the ban or refuses to sell the team, the above analysis will play an important role in the future of the club and revenue for the league.

Adam Grossman is the Founder and President of Block Six Analytics (B6A). He has worked with a number of sports organizations, including the Minnesota Timberwolves, Washington Capitals, and SMG @ Solider Field, to enhance their corporate sponsorship and enterprise marketing capabilities. He is the co-author of The Sports Strategist: Developing Leaders for a High-Performance Industry with Irving Rein and Ben Shields.

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