An NBA Team in Each Borough
America's sports monopolies have a lot of power, but preventing teams from relocating is not one of them
Donald Sterling purchased the NBA’s San Diego Clippers in 1981 for $12.5 million. A year later, Sterling attempted to move the team to Los Angeles. In 1980, the Los Angeles region had four times as many people as San Diego County. The NBA initially stopped Sterling from moving the team by deeming him, in effect, incompetent. But in 1984 Sterling acted rather than asked and moved the team. The NBA responded by fining him $25 million. Sterling countersued for $100 million, and the NBA settled, agreeing to let Sterling pay a fine of about $6 million. Sterling eventually sold the Clippers for $2 billion to Steve Ballmer. One reason the team was viewed as valuable was its location in Los Angeles. Had the team remained in San Diego, Ballmer and others may not have been interested, or at least not willing to pay $2 billion.
Sterling was reportedly inspired to move the team by Al Davis. Al Davis became a general partner of the Oakland Raiders in 1966, owning a 10 percent stake in the franchise. When he was unable to upgrade the Oakland Coliseum to his liking in the early 1980s, he entered into an agreement with Los Angeles to play at the Los Angeles Memorial Coliseum. At the time, the NFL bylaws required a super majority of league owners to approve a relocation. The owners voted unanimously against the move. Al Davis moved the team anyway and he won the resulting court case, with the NFL paying Davis $18 million in damages. The NFL argued, unsuccessfully, that it was a single entity, not a collection of teams, and therefore could decide where it does business. This “single entity” argument has repeatedly failed in court.
Teams in the NFL, NBA, and MLB that play in smaller markets relocate frequently. Prior to moving to Los Angeles, the Clippers played in Buffalo from 1970 to 1978, and then San Diego. The Sacramento Kings played in Rochester, then Cincinnati, and then Kansas City before settling in Sacramento. A feature of each of these leagues, which are all “closed” (i.e., the same, fixed number of teams compete in the league every year), is that there are many, many more small market cities than their are NFL, NBA, or MLB teams. Small market cities therefore compete with each other to lure franchises with stadiums, infrastructure, and tax breaks. These types of moves are generally lateral in terms of team valuations, i.e., the upside of moving from, say Kansas City to Sacramento, is neutral in terms of market value. The smart move, as modeled by Donald Sterling and Al Davis, is to move to a big market.
Limits of Antitrust Protections
The NFL, NBA, and MLB are permitted to engage in numerous anticompetitive behaviors, including salary caps/luxury taxes, revenue sharing, and player drafts. These protections are made possible by the Sports Broadcasting Act of 1961, the Curt Flood Act of 1998, and a hodgepodge of court rulings. The Curt Flood Act gives the league’s wide latitude in engaging in anticompetitive activities provided the player’s union is agreeable.
The treatment of the NFL/NBA/MLB by the courts with respective to antitrust laws is inconsistent and often strange. The two most useful perspectives, that tend to win the day, are as follows:
Teams can cooperate anticompetitively to put on matches. A sports team in isolation has no value; the value comes from competing against other teams. This theory is best articulated in the American Needle versus NFL ruling, in which the NFL tried to, acting as a single entity, license merchandise. The NFL lost the case: licensing merchandise was not integral to setting up matches.
Teams can put in all manner of restrictions on how they compete, provided the player’s union agrees to the rules. The theory here is that labor, in this case the players, cannot be harmed by the league if the league is bargaining in good faith with a formal players’ union. The Clarett versus the NFL case, in which Maurice Clarett, the former Ohio State running back, wanted to enter the NFL prior to when he was, per the NFL’s rules, eligible, is the best articulation of this theory. Clarett lost the case: unions had the right to set standards for their members to join.
If an NBA team, say the NBA’s Memphis Grizzlies, wanted to relocate to, say, Manhattan, in New York City, they must abide by the NBA’s bylaws, which are extensive. The bylaws require a majority vote by the owners of existing NBA teams to allow a relocation. The existing teams would almost certainly vote “no” in this hypothetical, as voting yes would set a precedent that other teams could move to each owner’s city, thus threatening the monopoly rights they currently have (e.g., the Boston Celtics are the only NBA team that plays in Boston). The NFL and MLB have similar provisions.
The owners of our hypothetical Grizzlies could then sue, arguing that prohibiting a move from Memphis to New York runs afoul of antitrust regulations. To understand whether the Grizzlies would prevail, we can consider the two arcs in which the NBA is allowed to act anticompetitively.
First, the American Needle test: does the NBA need to restrict relocation in order to facilitate matches between two NBA teams? The clear answer here is no: the Manhattan Grizzlies would provide the same opportunities for organizing matches as the Memphis Grizzlies.
Second, the Clarett test: does the NBA need to restrict relocation as part of an agreement that could otherwise be seen as harmful to labor, but labor has agreed to the rule via collective bargaining? The clear answer here is also no: the NBA’s relocation laws are included in its bylaws, not in its collective bargaining agreement with the players. If the relocation terms was relevant to the compensation or working conditions of players, it would be included in the collective bargaining agreement.
While you never know how a court may rule, the precedent set by Al Davis and Donald Sterling, as well as the framework outlined above, suggests the leagues would lose. And, perhaps more importantly, the leagues know they would lose.
Compliant Robber Barons
Because the NBA/NFL/MLB know they are vulnerable to savvy investors purchasing small market teams and moving them to larger markets, they are very careful in determining who owns an NBA/NFL/MLB team. While the leagues would be supportive of small-to-large market moves when the large market does not currently have a team (e.g., the Sacramento Kings’ flirtation with Seattle), they would aggressively oppose moves to places, like Los Angeles, where teams are already present. Hence the need for Al Davis and Donald Sterling to defy the leagues.
The leagues’ solution to this problem is to be very selective with who is awarded and allowed to purchase NBA/NFL/MLB franchises. The leagues are not trying to find savvy entrepreneurs; they are looking for robber barons: people who realize the value in being part of an oligarchy running a sports monopoly. In any other American industry, the owner of a business can sell the business to the person of their choosing. But not in America’s professional sports. In the NBA, for example, three-quarters of existing team owners must approve the deal and to even be considered as a potential buyer, the Commissioner must approve a membership application. These requirements are both absurd and, if challenged in court, illegal. But they are a tell: the NBA is terrified of a rogue owner. And they should be worried, because they do not have the ability to stop them.
To date, this strategy has been successful. But it would only take a small number of enterprising owners to shake things up, to bring a team in each of New York’s boroughs.