Steve Ballmer
The Clippers salary cap circumvention scandal is now under federal investigation. Design by Grace Hughes, Photos by Sean M. Haffey/Getty Images, Kevork Djansezian/Getty Images
The U.S. Department of Justice has reportedly launched an investigation into whether the Los Angeles Clippers committed crimes in allegedly arranging for team sponsors to pay Kawhi Leonard for no-show endorsement deals.
The New York Times reported Thursday on the probe, led by the U.S. Attorney’s Office in Brooklyn. The U.S. Attorney’s Office for the Eastern District of New York is the same office that has prosecuted several NBA figures, including Terry Rozier, Damon Jones and Chauncey Billups, in criminal cases involving alleged illegal gambling schemes, wire fraud, money laundering and related offenses. About a decade ago, this office also prosecuted FIFA officials and sports-marketing executives for racketeering, wire fraud and money laundering over bribes and kickbacks.
The DOJ’s interest in the Clippers scandal might seem surprising given that the NBA has punished the team, owner Steve Ballmer, several executives and Leonard for what amounts to basketball cheating—circumventing the league’s salary cap, undermining fair play and obtaining an unfair advantage over competitors.
Those aren’t crimes. They’re contractual violations governed by business agreements.
To that point, NBA teams and owners are bound by the league’s constitution, a contract governing the relationship between the commissioner, the league, teams and owners. That constitution expressly states that all decisions of the commissioner are “final and binding” and should be understood as arbitration awards. Another key contract is the collective bargaining agreement, which prohibits salary-cap circumvention.
The NBA retained a prominent law firm, Wachtell, Lipton, Rosen & Katz, to investigate the Clippers. The firm conducted 73 interviews with 60 people and reviewed more than 200,000 pages of documents obtained from individuals and organizations. The report accuses the Clippers of arranging for Leonard to land deals with Aspiration, Boingo Wireless, Daktronics and Lockton Insurance.
The NBA stripped the Clippers of five first-round picks, suspended Ballmer for a year, fined Leonard $700,000 and imposed other punishments. The Clippers deny any wrongdoing and insist their conduct amounted to an ordinary practice for NBA and other professional teams: introducing a star player to sponsors, or vice versa, for endorsement talks.
As Sportico detailed, the Clippers could sue the NBA but would face an uphill fight, given that teams contractually accept the NBA and commissioner Adam Silver’s final, unreviewable discretion on disciplinary matters.
The DOJ’s investigation into the circumstances of the scandal doesn’t mean criminal charges will be sought. Sometimes probes are launched and conclude without a finding of criminal behavior.
But the DOJ’s interest brings with it the power of federal prosecutors to compel the disclosure of evidence and testimony. Unlike the NBA or a law firm—both of which have contract-based authority—the DOJ’s governmental authority is much scarier for an investigation’s target.
The DOJ can obtain subpoenas requiring witnesses to testify and individuals or companies to turn over emails, texts, bank statements, contracts, phone records and other materials. The DOJ can also require witnesses to provide sworn testimony. Failure to cooperate or lying can lead to criminal charges, including contempt, perjury, obstruction and related offenses that threaten incarceration. Lost draft picks, workplace suspensions and fines are severe sports sanctions, but they’re nowhere near as life-altering as the prospect of landing behind bars.
To that point, witnesses who might not have fully cooperated with NBA investigators or who exaggerated points or omitted details, could become much more compliant and forthcoming with federal investigators.
Especially in cases involving financial and banking transactions, the feds could threaten witnesses with wire fraud or conspiracy charges. Those charges cover a wide range of behaviors related to schemes in which money or property is obtained through deception and interstate electronic communications. Those communications include ordinary, day-to-day exchanges including emails, texts, phone calls, messages sent through apps, and Zoom or Teams meetings involving participants in multiple states.
The threat of being charged by the federal government can lead witnesses to negotiate agreements with prosecutors to share evidence or testimony used to incriminate others in exchange for immunity or lighter punishments. Federal criminal charges often place a defendant in an extremely difficult position. A Pew Research Center study found that nearly 90% of defendants plead guilty, and fewer than 1% are acquitted in trials.
With those enhanced powers, it’s possible the DOJ could uncover much more than the NBA did.
There are already signs that the scandal could go much deeper than rigging the salary cap and arranging no-show endorsement deals. In June, Aspiration co-founder Joe Sanberg was sentenced to 14 years in prison for fraud. Earlier this month, Daktronics, a publicly traded company, revealed that the Securities and Exchange Commission “is seeking information from us” regarding the Clippers and Leonard.
The DOJ’s interest might be focused on whether the allegedly sham endorsement deals amounted to criminal fraud, conspiracy or money laundering. For instance, if those involved in the sponsorship/endorsement transactions schemed to distort their actual purpose, that type of activity could be construed as money laundering.
In other high-profile prosecutions, including the “Operation Varsity Blues” college-admissions case, the government has pursued a theory of honest-services wire fraud. The key to such a theory is that there is a victim deprived of owed honest services, such as a school deprived of the honest services of its admissions officials or coaches who were bribed to facilitate an applicant’s admission.
It’s plausible that NBA officials or investors in companies that negotiated with the Clippers and Leonard could have been deprived of honest services. But it’s uncertain whether the government could establish the kind of duties necessary to support that theory, and prove that the alleged conduct involved a bribe or kickback.
A wildcard factor is President Trump’s influence over the DOJ and whether the agency ought to pursue or drop charges, such as the DOJ recently dropping FIFA bribery charges. It remains to be seen if that factor plays any role in the Clippers investigation.