Sports Business: LA Clipper's Donald Sterling Situation Parallels Cincy Reds Marge Schott & MLS Chivas USA Oustings
With the debate over what is next for Los Angeles Clipper owner Donald Sterling, and both hoops fans and media members armchair-lawyering the topic into the ground, there has been two precedent situations in other leagues that can be looked at for analysis, as far as the removal of toxic ownerships.
Off the bat, the first person who comes to mind is former Cincinnati Reds owners Marge Schott. Schott should have been a trailblazer in the sports business industry, becoming the first woman to purchase a controlling share of a Major League Baseball (MLB) team, holding the titles of managing general partner, president and CEO for the franchise after buying majority share in 1985. Unlike previous female MLB owners, like New York Mets' Joan Payson, San Diego Padres' Joan Kroc, and Boston Red Sox's Jean Yawkey, Schott bought controlling interest rather than inheriting a team, in an effort to protect the Cincinnati franchise from being bought by an ownership group looking to move the Reds.
Despite the glass ceiling Schott was shattering in the industry, her bigotry always got in the way of her accomplishments. Much like Sterling, Schott made derogatory racial remarks that made their way to the public that, while not illegal, made it uncomfortable for her players and the other MLB owners to do business.
In 1992, Schott was sued by the team chief financial officer, Tim Sabo, for wrongful-firing, alleging in a deposition that she was openly insulting towards minorities within the franchise -- calling outfielders Dave Parker and Eric Davis "million-dollar n-----s", saying that Martin Luther King Jr. Day was "N----r Day" and calling her marketing director Cal Levy a "beady-eyed Jew."
Things got worse for Schott, who was questioned by ESPN's Sal Paolantonio about owning a Nazi armband given to her as a gift, and said that "Hitler was good in the beginning, but he went too far."
"Everything you read, when [Adolf Hitler] came in, he was good" said Schott to Paolantonio. "They built tremendous highways and got all the factories going. He went nuts, he went berserk. I think his own generals tried to kill him, didn't they? Everybody knows he was good at the beginning, but he just went too far."
Major League Baseball commissioner Bud Selig suspended Schott in 1993 for one year and fined her $25,000 for "using language that is racially and ethnically offensive."
Schott was again punished by Selig in 1998 -- eating a two-and-a-half season suspension and being forced to relinquish control of the team despite her previous suspension -- for making derogatory comments about Asians ("I don't like when they come here, honey, and stay so long and then outdo our kids. That's not right"), women ("I'll tell you something, honey, some of the biggest problems in this city come from women wanting to leave the home to work"), and banning her players from wearing earrings because "only fruits wear earrings."
''We thought a period of two-plus years was fair in light of everything,'' said Selig at the time.
The controversy took its toll on business, with the Reds going from being the sixth-ranked National League team in attendance to 12th out of 16 teams. By 1998, the other MLB owners made it uncomfortable for her to continue doing business with them, considering her penchant to offend minority fans. The commissioners office moved to extend her ban until 2000, when her partnership agreement with the team expired. League attorney Robert DuPuy added to Schott's pressure by putting forth a letter of intent to sell her interest of the Reds. In 1999, Schott sold the team to Carl Lindner for $67 million after having bought her controlling share of the team for $24 million.
Schott has not been the only North American sports team ownership whose opinions on race relations may have cost them their franchise. Major League Soccer's (MLS) Chivas USA, owned by Jorge Vergara and Angelica Fuentes, were slapped with a discrimination lawsuit by two of the team's youth coaches, Daniel Calichman and Theothoros Chronopoulos, as well by the team's human resources executive Cynthia Craig in a different complaint, alleging that they lost their jobs because they were not Mexican or of Mexican heritage.
Vergara and Fuentes, who own C.D. Guadalajara in Mexico's Liga MX -- known to their faithful as Chivas -- helped found their American counterpart in 2004, buying out his partners and attaining complete control of the team in 2012.
But Vergara wanted the USA club to mirror their Liga MX counterpart in every way, including maintaining strict Mexican roots that is emblematic to CD Guadalajara's image: a club owned by Mexicans, winning titles with Mexican players. While that business-model makes sense in Mexico, it clearly flies in the face of U.S. labor anti-discrimination laws, which led to Calichman-Chronopoulos and Craig lawsuits, with the plaintiffs alleging that Vergara said in a team meeting that, "if you don't speak Spanish, you can go work for the Galaxy, unless you speak Chinese, which is not even a language."
The league bought out Vergara prior to the start of the 2014 MLS season for $70 million after Vergara and Fuentas having paid $40 million to buy up control of the club, with lawsuit having been settled prior to the sale of the team.
"The way to describe it is it's been resolved," said MLS commissioner Don Garber. "It's no longer a pending case. It was resolved very recently and time for everybody to move on."
While terms of the resolution have not been made public, the settlement helped facilitate the league shedding themselves of Vergara and the baggage that he brought the league, with BusinessOfSoccer.com's Kevin O'Riordan speculating that a confidential settlement was likely reached by all parties involved in the lawsuit.
"For Vergara, Chivas USA, and the related entities named in the complaints, resolution of the lawsuits was imperative to allowing the parties a clean break from MLS," wrote O'Riordan. "The lawsuits are no longer an impediment to Vergara winding up the Chivas USA entities' operations, freeing up capital, and streamlining the business of the larger Chivas organization. For MLS, resolution of the lawsuits eliminates the concern that the league would be in the untenable position of managing, as a potential successor to the discrimination lawsuit liability, litigation over which it previously had no control. Further, a continuing discrimination lawsuit (a contingent liability) would reduce the value of the franchise, thereby lowering the MLS's potential return on the sale of the franchise to a new investor."
In both Chivas USA and Schott's situation, pushing negative ownerships out of their respective leagues has taken time, which is what makes National Basketball Association (NBA) commissioner's Adam Silver's banishment of Sterling and potential forced sale of the Los Angeles Clippers a very unique situation. In the case of Schott, she had ran afoul of the owners who grew tired of her negative press while in the Chivas USA case, MLS has single-entity status -- where each team is owned and controlled by the league's investors -- giving Garber more legal leverage to remove the owners from the league.
While basketball fans and players have applauded Silver's punishment, forcing an owner to sell his team will be a tricky endeavor for the rookie commissioner.
"While there is little question Silver could fine him and ban him under the 'best interest of the sport' standard found in the NBA Constitution, there is a question whether the commissioner could force him to sell -- which would take a vote of 3/4 of the owners," says attorney Mark Conrad to LatinPost.com, who is director of the sports business concentration for Fordham University's Gabelli School of Business and specializes in legal issues revolving around the business of sports. "The NBA constitution focuses on the issue of financial impropriety but there is some question whether that could apply to a situation of involving morals and character."
Conrad also believes that Sterling won't take it too kindly losing his team, noting that the polarizing Clippers owner is used to saber-rattling in courts.
"Sterling is litigious and may challenge any action the NBA takes regarding a sale," says Conrad. "He could sue on antitrust grounds and/or violation of the terms of the NBA's governing documents. He also could hold out for a high fee. If the NBA owners vote to force him to sell, the lawsuit could delay this for a long time. Or, he gets to sell the team on his terms to avoid litigation."