Sterling suing the NBA and owners
In addition to concern about proper interpretation of the relevant language, some owners may worry about the prospect that Sterling will sue. Sterling, an attorney, is regarded as one of the most litigious owners in professional sports. If there is one owner who would sue over expulsion, it's probably him. Sterling could seek a court injunction preventing the NBA from expelling him. Such a move would likely happen immediately after he is voted out. He could also file a lawsuit raising breach of contract and antitrust claims.
A breach of contract claim would contend that Sterling's contract with the NBA through his franchise agreement has been unlawfully severed. The NBA, however, is poised to stress that owners agree to language limiting opportunities for owners to sue the NBA and fellow owners. In their franchise agreements, NBA owners agree to "waiver of recourse" verbiage. The language has the effect of eliminating opportunities for owners to pursue legal recourse against the NBA and fellow owners.
An antitrust claim would likely center on both California and federal antitrust laws, and contend that the NBA and its teams have conspired in an anticompetitive way to oust Sterling and make him sell his team at below-market value. Sterling would likely cite reports the NBA may be interested in Magic Johnson buying the Clippers as evidence the league is trying to force a sale to a specific buyer, rather than permitting open bidding. Sterling might also highlight Silver's remarks today that he's confident owners will oust him as evidence of collusive activity between Silver and the owners. If Sterling were to sue under antitrust law and prevail, he would also be entitled to treble damages. Several attorneys familiar with NBA litigation tell SI.com that the possibility of an antitrust lawsuit by Sterling is high.
The prospect of Sterling suing could be a source of worry to NBA owners for at least three reasons:
1. Sterling suing over franchise ouster could undermine the lifetime ban. The ban is intended to separate Sterling from the Clippers and the NBA, and as discussed above, Sterling likely has no viable case against it. If, however, Sterling sues over franchise ouster, it would be a high-profile lawsuit and he would remain in the news. Whatever distancing of Sterling is achieved through a ban could be lost in a high-profile case. It is also a case that could last years, as antitrust cases often do.
2. Sterling suing may lead to pretrial discovery, which could be designed in part to embarrass other owners and NBA officials of any bigoted remarks or beliefs on their part. Keep in mind, if Sterling is ousted because of racism, he would likely demand that evidence showing that other owners and officials are also racist be shared. He would use such information to portray his penalty as unwarranted and contradicted by the conduct of those who ousted him. Sterling might request emails and other records from owners and officials that depict them in a negative light. Sterling has owned the Clippers for 33 years, which suggests that he has had many interactions -- including private conversations with league officials and owners. If there are other owners who are racist or bigoted, it stands to reason Sterling knows who they are.
3. If Sterling wins or extracts a settlement, not only could NBA owners be on the hook for an expensive fee, but Sterling would seem victorious. The appearance of him winning in court would greatly detract from the important social message accomplished by the lifetime ban.
Important tax law considerations: avoiding capital gain taxes
Sterling, who is 80 or 81 years old (his exact birthdate remains a mystery), has a key financial reason to fight the sale of the Clippers: to avoid capital gain taxes. This insight is from Robert Raiola senior manager in the Sports & Entertainment Group of the Accounting Firm O'Connor Davies, LLP. Sterling reportedly purchased the Clippers for $12.5 million in 1981. If he sold the team today, it would be worth at least $600 million, perhaps closer to $1 billion. Between federal and state capital gains taxes, Sterling would pay an approximately 33 percent tax rate on the difference between what he paid for the team and what he sold it for. For instance, if he sold the Clippers today for $1 billion, Sterling would pay capital gain taxes of 33 percent on a gain of $987.5 million. As a result, Sterling would owe Federal & state capital gain taxes of approximately $329 million.
If instead Sterling holds onto the Clippers and some time from now passes away, his family would inherit the team. The family would inherit the team with a value pegged to its fair market value. As Raiola stresses, the new value of the team would be crucial for purposes of capital gains tax. Here's why: if the family inherited the Clippers and then sold it, they would only pay a capitals gain tax on the difference between the value of the team when they inherited it and the value of it when sold. For instance, if the family inherited the team and it was worth $700 million and then they sold it for $800 million, they would only pay capital gain taxes on a gain of $100 million. In that instance, there would be a comparatively modest tax bill of $33 million.
If the Sterling family inherited the Clippers and simultaneously sold it, Raiola tells SI.com, they would pay no capital gains tax, but still have estate tax issues. However, a transaction could be structured whereby the employees of the Clippers organization could own a percentage of the team. In such case, the capital gain taxes on a sale could be partially or fully avoided.
These tax considerations make it more likely that Sterling will fight the NBA to hold onto the Clippers. Even if he ultimately loses a legal battle, the process of losing could take years to play out in court. At the risk of sounding macabre, Sterling may be motivated to wage a protracted legal battle in order to keep the team for as long as he lives.
Important family law considerations: what if Mrs. Sterling files for divorce?
Sterling and his wife, Shelly, are reportedly estranged but not divorced. One potential legal complication for the NBA would be if Mrs. Sterling filed for divorce before the NBA terminated her husband's ownership of the Clippers. California is a "community law" state, which means Mrs. Sterling would likely be entitled to half of her husband's assets. One of his key assets is obviously the Clippers. Mrs. Sterling could potentially use divorce court proceedings to slow down the NBA's ouster of her husband, as she would have a vested stake in any sale of the Clippers.
Could Sterling transfer ownership to Mrs. Sterling?
It is possible that Sterling could try to transfer ownership of the Clippers to Mrs. Sterling before the NBA ousts him. The NBA, however, would have to approve such a maneuver, as Mrs. Sterling would be subject to requirements the league uses to evaluate prospective owners. There is virtually no chance the NBA would approve Mrs. Sterling in this scenario as it would be a clear attempt to evade the NBA's discipline of her husband.
