30Apr

The NBA – It’s A Franchise

I’ve read a few posts lately from some celebrities like Mark Cuban as well as friends of mine via their FB and Twitter updates or comments. The theme of the ones I am referring to go something like this:

“Sterling is a horrible person. Racism is despicable and cannot and should not be tolerated.”

After that, a few different types of arguments come up. Some include references to the Constitution, First Amendment and the right to free speech. Something along the lines of Sterling is an idiot, yes, but in the USA that type of speech is protected and even though deplorable, it’s not illegal. A few others talk about privacy and how his comments were recorded without his knowledge. What is the legality of such recordings some ask? Shouldn’t his comments in private be allowed to stay private and not impact his business dealings? A final grouping talks about how this is America and property should not be allowed to be taken because someone has an intolerable perspective.

I’ve read all of these and I keep coming back to the same thought over and over again.

The Los Angeles Clippers basketball team is a FRANCHISE. As someone that has owned, operated and invested in many franchises over the years, I am sure this is why I keep thinking about this amidst the discussion. Why? Because when Mr. Sterling purchased the franchise rights for the Clippers, he signed a lengthy legal agreement with the NBA outlining what that meant. While I’m not privy to what an NBA franchise agreement looks like, I am very much in tune with what other types of franchise agreements resemble. A franchise is a unique type of investment and business. The franchisee, in essence, pays up front and ongoing fees in order to rent the brand that the franchisor has built. They get support and they often get to make a lot of money. But, at the end of the day, the brand and the business are owned by the franchisor, not the franchisee. My guess is an NBA franchise agreement is probably more in favor of the franchisor (NBA) than just about any other franchise agreement in the world.

Why?

Because the NBA really is selling the rights to it’s brand and reputation. The fees paid and shared are about building and protecting an entertainment brand. Since that is such a fickle and public thing to do, I’m pretty sure the NBA has the right to do whatever they want when an owner acts like Sterling did.

So spare me the first amendment, free speech, privacy arguments. This is about business, plain and simple. No one made Sterling sign the NBA franchise agreement. He’s a big boy and put his money at risk. He acted in a way that hurts the NBA brand and now they have told him they don’t want him to represent their franchise anymore. This happens every month around the world in franchise businesses of all shapes and sizes. It just so happens this is a much bigger stage, with much bigger stakes, and with a much bigger jerk.

He got exactly what he deserved. His freedoms nor privacy were trampled. He simply violated the terms of his franchise agreement and now has to pay the price for it. Good job, NBA.

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About Alex Lawrence

Alex has been a successful entrepreneur for 20+ years. His current venture Lendio ranks #34 on the Inc. 500 list. Alex earned a BS degree at the University of Utah and his MBA at Weber State University, where he is Vice Provost and Director of the Entrepreneurship Program. If you want to talk with Alex about business and entrepreneurship (or other questions), email him (alex AT startupflavor DOT com), or you can find him on Twitter @_AlexLawrence.
  • Charles Lewis

    well put…I can dig it.

    • alex_lawrence

      Thanks, Charles.

  • TySpace

    You pretty much hit the nail on the head, Alex. This is not a free speech issue, it is not a slippery slope issue, it is an issue of the NBA protecting its image and going to great lengths to do what its officials (that is, Adam Silver) thought right.

    If the government were stepping in and saying “Donald Sterling, you cannot own your business any more because of these comments you made” then yes, that would be an obvious First Amendment issue. That’s not the case. Anyone who equates this situation to a First Amendment issue is simply not educated on what constitutes (heh) a Constitutional issue.

    The NBA is an incredibly diverse league and it is very important for league officials to foster that image. Donald Sterling is entitled to his opinion. As sickening and disheartening as his opinion is, he is entitled to it. But he is not entitled to both sharing that opinion and owning and operating a team as part of the NBA, simply because, when he bought into his franchise, he — as you mentioned — agreed to a set of rules, of code and conduct, and of decorum. He violated those rules. He admitted it was him who violated the rules. He now suffers the consequences.

  • Wayne Sleight

    Great points and thoughts, Alex. Here are a couple of mine that go along with yours.

    “…and now has to pay the price for it.”

    Yes, he pays a price of not being an owner anymore but let’s not feel sorry for him since this is just about business, like you say. He bought the Clips for $12.5 million in 1981 (let’s say around $30 million today) and he’ll probably be getting over $1 billion for the team. That’s pretty good ROI. Being forced to sell isn’t really devastating at all for the guy. If he wasn’t forced to sell, his employees (mostly players and coaches) would leave, sponsors would leave (most already did but more long term) and his franchise’s value would plummet. He’s kind of lucky that he’ll most likely get forced to sell because he’ll be getting top dollar right now.

    I also thought Charles Barkley brought up a good point of how this relates to all businesses: http://www.youtube.com/watch?v=kExWmY-cOW0#t=77 (1:18-2:05). We talked about this in our company meeting today about how important such basic concepts of respect and appreciation of each other as people are in our company culture. We talk a lot about an “A” Player culture as it relates to the work. But we also want an “A” Person culture. As Reed Hastings puts it on slide 35 (http://www.slideshare.net/reed2001/culture-1798664), you can’t just be brilliant and talented…you need to be a good person too. No jerks or in the Clippers case, no racists.

    • alex_lawrence

      Wayne — totally agree. Cool links, some I had not seen. And I love Sir Charles!

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