NBA Kawhi Leonard, Clippers Investigation Hinges on Key CBA Terms

The NBA’s investigation into possible salary cap circumvention by the Los Angeles Clippers could invite interpretative questions about collectively bargained language and when teams ought to be punished for the actions of a sponsor.

The controversy, which concerns an endorsement deal Kawhi Leonard signed with Clippers’ sponsor Aspiration, has been discussed extensively. In 2022, Aspiration signed the superstar forward (through Leonard’s KL2 Aspire LLC), to a four-year, $28 million endorsement deal. On the Pablo Torre Finds Out podcast, journalist Pablo Torre reported that Leonard wasn’t obligated to perform services to Aspiration, that the deal would end if the Clippers traded Leonard and that the payments were understood as circumventing the cap.

Aspiration has significant ties to the Clippers. The company signed a sponsorship with the team, while owner Steve Ballmer reportedly invested $50 million into the firm. Aspiration filed for bankruptcy earlier this year and court records indicate the company owes the Clippers and KL2 Aspire $30.1 million and $7 million, respectively. The company’s co-founder Joseph Sandberg also agreed to plead guilty to wire fraud last month. Federal prosecutors accused him of deceiving investors and lenders.

The key question for the NBA is whether Aspiration’s deal with Leonard was made to enable the Clippers to circumvent the salary cap.

Leonard signed a max contract with the Clippers in 2021 around the time it partnered with Aspiration. Some basketball insiders were surprised Leonard signed a four-year deal with the Clippers instead of positioning himself for what could have been a longer, more lucrative deal the following year. Regardless, the team could have arranged for Leonard to earn more by arranging for a sponsor to sign him.

The NBA has retained the law firm Wachtell, Lipton, Rosen & Katz, which the league used in its investigation into then-Phoenix Suns and Phoenix Mercury owner Robert Sarver, to investigate the Clippers. Under Article XIII of the CBA, the Clippers could be found at fault with circumstantial evidence, meaning indirect proof that is reliable enough to draw inferences. The Clippers deny the allegations and maintain they’re innocent.

If the Clippers schemed with Aspiration to pay Leonard, then the NBA would issue severe punishments. The league could void the Clippers-Leonard contract and order the forfeiture of first-round picks, a penalty experienced by the Minnesota Timberwolves when they were found to have circumvented the cap to sign Joe Smith. Other punishments could include lengthy suspensions and fines imposed on Ballmer, the Clippers and team officials.

The Clippers would have the chance to appeal to an NBA appeals panel. They could also, at least theoretically, challenge the NBA in court, but any litigation would face severe headwinds. Owners and teams contractually assent to the league and commissioner having final, binding and conclusive authority, meaning courts would give the league sizable deference.

A murkier scenario is if the NBA doesn’t find sufficient evidence the Clippers directed Aspiration to pay Leonard but concludes Aspiration signed Leonard to a no-show contract as part of an illicit arrangement with Leonard’s representatives. The Toronto Star on Tuesday reported that representatives for Leonard demanded no-show sponsorship income when Leonard, who won a championship with the Toronto Raptors, sought a new contract in 2019.

Would the Clippers be at fault if a sponsor decides to pay a player, but there isn’t sufficient evidence the team directed that payment?

This is where interpretation of the CBA would become crucial.

The CBA doesn’t contain a rule that specifically contemplates punishment of a team for the actions of a sponsor. That makes sense since a sponsor is a separate entity. Article XIII references a team running afoul of its language by entering into an agreement or understanding with a sponsor or business, but a sponsor acting on its own doesn’t fit squarely within that definition. Likewise, while Article XIII expansively prohibits “any agreements” of “any kind” that are “express or implied, oral or written” or “understandings of any kind,” that language still implies the team’s involvement.

The CBA also makes clear that teams have discretion in sponsorships. Article XXVIII states that “nothing” in the CBA “shall limit the rights” of “NBA teams to provide, and authorize others to provide, advertising and promotional opportunities within NBA games or NBA or Team events and NBA-related or Team- related content.”

At the same time, the league could rightfully ask why Aspiration, a sustainability services company, would agree to pay Leonard millions of dollars but not (allegedly) expect anything in return. The NBA could surmise that Aspiration either had a handshake arrangement with the Clippers or, if not, sought to curry favor with the Clippers in hopes of gaining an edge in future business dealings with the team.

The definition of the word “understanding” is imprecise, and that could become significant in determining what counts as team wrongdoing in the context of a sponsor. Merriam-Webster defines understanding as a “a mutual agreement not formally entered into but in some degree binding on each side” or a “friendly or harmonious relationship.” In court filings, judges and prosecutors have defined understanding as “the comprehension or awareness of the parties” and “at least a universal perception or belief.” The NBA could place a low bar for “understanding” to find the Clippers at fault.

To that point, the NBA might not find the Clippers schemed with Aspiration but nonetheless determine that they deserve punishment for failing to adequately scrutinize Aspiration’s relationship with Leonard. Imagine the Clippers argue they did not direct Aspiration and didn’t know what Aspiration was doing. The league might be skeptical that the Clippers were merely ignorant of the Aspiration-Leonard relationship and question why the team didn’t undertake more diligence. In that same vein, the NBA could view any defense along the lines of “hear no evil, see no evil,” sometimes called purposeful ignorance, as suspicious.

Article 35A of the league constitution, which is a contract between the league, teams and owners, accords commissioner Adam Silver with wide latitude in suspending and fining team officials when they’re “guilty conduct prejudicial or detrimental to the Association.” Such a misdeed might not warrant the forfeiture of multiple first round picks but could carry a meaningful penalty.

There are other ramifications in a scenario where the Clippers are punished not for plotting to circumvent the salary cap but for what amounts to negligence: unreasonably failing to find out more information about a sponsor when that sponsor is compensating a player in an endorsement deal. Other teams would need to monitor their sponsors more aggressively and thoroughly. Given that private equity groups can now buy stakes in NBA teams, the number of persons connected to a team’s ownership could lead to a long list of conflict checks for teams. It stands to reason that players and the NBPA might argue new guidelines for sponsor-player endorsement deals need to be bargained.

While the attention on the allegations against the Clippers is understandably focused on Leonard’s dealings, the impact of the league’s investigation could pose consequences for all teams and sponsors in how they negotiate with players.