The Los Angeles Clippers this week asserted that a team making introductions between players and team partners for potential player endorsement deals not only doesn’t violate any NBA rule but is “both an ordinary practice by NBA teams and a common request of players and representatives.”
That “ordinary practice”—which in the past has involved stars such as Michael Jordan and Steph Curry—is likely to become more fraught for teams and star players with intersecting or overlapping sponsor relationships.
The Clippers’ assertion came after ESPN reported two key points regarding the NBA’s ongoing investigation into how Kawhi Leonard was compensated during his tenure with the team.
First, ESPN says, the NBA didn’t find evidence that the Clippers funneled money to team sponsors, including fintech and environmental sustainability company Aspiration, for the purpose of providing Leonard with additional compensation outside of his employment contract—and no obligation to render services. Second, the league is weighing whether to punish the Clippers for how they supervised employees who made introductions between Leonard’s representatives and those sponsors.
The NBA hasn’t issued a decision on the salary-cap circumvention allegations. It continues an investigation led by league officials and David Anders, a partner at Wachtell, Lipton, Rosen & Katz, whom the NBA retained to probe the Clippers and owner Steve Ballmer.
In June, the Clippers agreed to trade Leonard to the Toronto Raptors. However, the deal is on hold, since one possible league-imposed penalty for salary-cap circumvention would be the termination of Leonard’s player contract. In that scenario, Leonard would become a free agent, and the Raptors might lose out on Leonard despite having just traded for him.
The NBA disputed ESPN’s reporting about its findings, writing in a statement that the article contains “numerous and significant inaccuracies.” ESPN said it stands by the story.
Whether ESPN’s reporting proves correct remains to be seen, but the Clippers’ response to the story raises an interesting and important legal question.
Can a league restrict opportunities for a business to engage in sponsorship and endorsement negotiations with a team and a player on that team?
This is a dicey topic, because there are businesses that enter into contracts with teams and players on those teams, and the inability to continue doing so could raise antitrust law, labor law, intellectual property law, freedom-of-contract and other legal problems.
Forget the Clippers and Leonard for a moment. Consider when Michael Jordan owned the Charlotte Hornets. Several Hornets players, including Kemba Walker and Cody Zeller, had endorsement deals with Jordan Brand, the Nike-owned company closely associated with Jordan. That might have seemed like a conflict of interest, but it broke no NBA rules.
Also, as The Ringer’s Howard Beck detailed last year, online shopping platform Rakuten had a sponsorship deal with the Golden State Warriors and an endorsement deal with Warriors star Steph Curry.
Meanwhile, the H-E-B supermarket chain has deals with the San Antonio Spurs and their players. Those arrangements haven’t triggered allegations of “no show” features akin to those reported by journalist and podcaster Pablo Torre. Through Pablo Torre Finds Out, Torre revealed suspicious details concerning the relationship between Leonard, Aspiration and the Clippers.
Sponsor contracts with a team that coincide with separate deals involving an individual player or players occur in other sports, too.
Last year, longtime Boston Red Sox sponsor Samuel Adams partnered with third baseman Alex Bregman, who played for the Sox, on the release of Bregman’s Beer. Nike has sponsored the Brazil’s national soccer team and signed an endorsement deal with team star Neymar, and Adidas has supplied Manchester United with jerseys and other apparel while also signing individual Man United players, including Paul Pogba when he played for the club, to endorsement deals.
There’s no shortage of examples of companies entering into contracts with a team and at least one of its players. Those examples haven’t been viewed as controversial or nefarious, but in a post-Kawhi saga world, they’re likely to attract closer scrutiny.
Also at issue are leagues and players’ associations negotiating detailed rules governing the use and licensing of players’ rights of publicity. Those rights protect against the unauthorized commercial use of an athlete’s name, image, likeness, signature, voice, nickname and other commercially valuable traits.
To that point, the NBA and NBPA have a group-licensing arrangement that governs the use and revenue sharing of players’ rights of publicity in broadcasts, video games, trading cards, apparel, equipment and other products officially licensed by the NBA. The arrangement also stresses that players generally retain the right to enter into individual endorsement deals, so long as they don’t conflict with group licensing.
If a team were punished because of communications that contributed to a player on the team signing a deal with a team sponsor, the player could argue that such a move would have a chilling effect on his endorsement opportunities. The player and NBPA might go so far as to argue that the league has suppressed or damaged players’ rights of publicity and freedom to enter into individual contracts.
If that line of reasoning sounds familiar, it’s because it has come up in college sports amid controversy over how the College Sports Commission regulates NIL deals involving college athletes with multimedia-rights companies and third-party brand sponsors that also have business relationships with those athletes’ schools.
There, the concern is that schools are using those relationships to enhance their recruiting by facilitating NIL deals and increasing compensation to athletes that border on “pay-for-play.” While that’s a distinguishable fact pattern from pro sports, the underlying concern is comparable: whether restrictions tied to existing business relationships improperly limit opportunities and discourage athletes from pursuing lawful endorsement arrangements.
Businesses might also question whether it would be a mistake to partner with a team if doing so could preclude, or at least complicate, the opportunity to sign a player on that team to an endorsement deal. If a business believed a league policy effectively foreclosed opportunities to do business with a team, it might contend that the policy presents an antitrust problem—an unreasonable restraint on commercial relationships that would otherwise occur in a competitive market.
If the NBA punishes the Clippers for how they introduced Leonard’s representatives to team sponsors, expect the punishment to be carefully worded. The league will strive to avoid the potential unintended consequences referenced above. The league will also be mindful that a punishment of the Clippers would set a precedent for other NBA teams and their business partnerships going forward.
One possibility: The NBA reasons that while introductions are generally permissible, the manner in which the Clippers conducted the introductions created the appearance that compensation was being routed through sponsors.
If that league goes in that direction, it might contemporaneously issue introduction guidelines for other teams, so as to educate them on their sponsorship arrangements and mitigate the risk of potential legal fallout.