Donald Sterling Transfers Clippers To His Wife
Facing a June 3 hearing to terminate the Sterling family ownership of the Clippers, Donald Sterling has transferred his ownership to his wife, Shelly Sterling, who reportedly will seek to control the sale of the team to a third party. Under the NBA Constitution, this transfer can only take effect with the approval of the NBA. The NBA will only approve the transfer if it has a binding commitment from Shelly Sterling to immediately sell the team. Reportedly, Shelly Sterling has backed down from her earlier vow to fight to keep control of the team and will bind herself to immediately sell.
Donald Sterling Needs League Approval To Transfer The Team To Shelly
Article 5 of the NBA Constitution bars the transfer of any ownership interest in an NBA franchise without prior league approval. Under Article 5, any proposed transfer must be made by a written application, and the NBA Commissioner has "sole discretion" to demand any additional information he believes "relevant." Once the Commissioner has concluded his investigation, he must submit the proposed transfer for vote by the other NBA team owners. Approval of a transfer requires a favorable vote from at least 75% of teams.
The Sterlings Are Apparently Backing Down From The Fight
On May 22, the NBA served Donald Sterling with notice that a hearing would be held on June 3 to terminate the Clippers Membership in the NBA and a formal statement of the charges against him. Donald Sterling was required to file his response by May 27.
The Sterlings were preparing to battle the NBA. Donald Sterling and Shelly Sterling had retained separate attorneys. Even before the formal termination was filed, Donald Sterling's attorney, Max Blecher, had sent the NBA a letter stating that Donald Sterling had done nothing wrong and refusing to pay the $2.5 million fine that Commissioner Adam Silver had imposed. Shelly Sterling's attorney, Pierce O'Donell, had publicly stated that Shelly Sterling had done nothing wrong and would fight to keep her 50% stake in the team.
Now, the Sterlings apparently have backed down from their threats to tie the team up in litigation.
A Quick Sale By The Sterlings Was The NBA's Preferred Outcome
One day after the NBA served its notice to Donald Sterling, on May 23, Commissioner Adam Silver publicly stated that the NBA would prefer for the Sterlings to sell without need for termination of their Membership:
"I'll only say that Mr. Sterling still owns the Los Angeles Clippers. Mrs. Sterling as I understand it through a trust owns 50% of the team, as well," Silver said. "It is their team to sell, and so he knows what the league's point of view is, and so I'm sure if he wanted to sell the team on some reasonable timetable, I'd prefer he sell it than we go through this process. … I'm open to that."
A quick sale by Shelly Sterling eliminates many problems for the NBA.
No possibility (however slight) that the NBA owners would fail to vote to terminate the Sterlings' Membership. In that scenario, the NBA would have faced a potential boycott by its players, sponsors and fans. It also would have virtually assured that Adam Silver could not continue as Commissioner, if he was rebuffed on his first major decision.
No need for NBA owners to set the precedent of terminating an owner for comments that were not intended to become public. Dallas Mavericks owner Mark Cuban voiced concern that the NBA was about to create a "very, very slippery slope."
No possibility that the Sterlings could get a court to impose an injunction to delay the sale of the team until litigation was concluded.
No possibility that embarrassing facts about other NBA team owners would have to be disclosed during the course of a litigation.
No cloud on the title to the Clippers, which might have reduced the team's sale price.
The Upside For The Sterling Family Is Control Of Process
Donald Sterling purchased the Clippers for $12.5 million in 1981. Shortly before this scandal erupted, Forbes estimated that the Clippers were worth $575 million. After Adam Silver banned Donald Sterling for life on April 29, 2014, informed sources estimated that the bidding for the Clippers would top $1 billion.
If the NBA had terminated the Sterlings ownership of the Clippers, the NBA would have controlled the sale process. Although the Sterlings would have been entitled to the net proceeds of the sale, they would not have had any ability to shape the transaction in order to lessen its tax consequences. The Sterlings might be required to pay hundreds of millions of dollars in federal and state capital gains tax on the sale of the team. By taking control of the transaction, the Sterlings, their lawyers and accountants can structure the transaction in a manner designed to mitigate the taxes they will have to pay.
Beyond the financial consequences, the Sterling family also will have control over the ultimate purchaser of the team. Anthony Resser, a billionaire friend of Sterling, reportedly is preparing to bid for the team. To the extent that Sterling does not want the ultimate indignity of having Magic Johnson (and Guggenheim Partners) buy the team, he could avoid that outcome. Sterling might also seek a "non-disparagement" clause in any agreement with the new owners, in an attempt to avoid additional damage to Sterling's tarnished reputation.