An Uncooperative Basketball Franchisee

If you were in the market for an eighteen-time NBA champion franchise, the cost will run you $6.1 billion. This was the price paid by the new ownership of the Boston Celtics in late March 2025. That astronomical price tag makes it the most expensive sale of a sports franchise in North American history, beating out the last previous sale by $500 million. But what does buying an NBA franchise actually grant the owner in terms of property rights? This paper will examine the process which NBA ownership is acquired and the rights and responsibilities conferred to the new owner. The NBA is more like a fancy New York City Co-op apartment building in more ways than one.

If you wanted to be able to move into swanky, four-bed co-op on the upper-west side of New York City, the requirements would be an application fee, interviews with the co-op board, proof of income to show that you would not go insolvent. Moving into the NBA is no different. Prospective owners must file an application with the Commissioner (which runs a cool $1 million), approval from the NBA Board of Governors by at least a three-fourths vote, and establishment of a security interest. If all of the above are met, you are permitted to move into the NBA building as a tenant.

What happens if you have a bad neighbor? One of the most notorious neighbors in the NBA has been the former owner of the Los Angeles Clippers, Donald Sterling. Sterling’s tenancy in the NBA building has been tumultuous from the outset. In 1982, Just two years after moving in, Sterling was fined $10,000, the highest levied by the NBA commissioner against an owner at the time, for endorsing the doctrine of tanking (purposely losing games to have a better chance at landing the number one pick in an upcoming draft). The same year, Sterling was almost forced to sell the team after discovery that showed he was delinquent on bills both to creditors and the teams’ own players. In 1984, Sterling brought a suit against the NBA as a way to force the team to move from San Diego to LA. The incident which finally led to Sterling’s ban and ouster from the NBA occurred in 2014. In a hot-mic recording, Sterling was caught making racist comments with his mistress. The backlash was immediate, Clippers players wore their jerseys inside out as a protest and Adam Silver, NBA commissioner, moved to ban sterling from all NBA arenas and facilities. In a press conference, Silver announced his intention to have the NBA Board of Governors force a sale of the franchise. (These events were recently brought to life in an FX miniseries.) This move would require a three-fourths vote by the Board. Before the vote could be called, Sterling agreed to let his wife and co-owner sell the team to Former Microsoft CEO Steve Ballmer for $2 billion. These proceedings are not completely unlike the drama which may occur in your typical residential co-op.

In 40 West 67th Street v. Pullman, 790 N.E.2d 1174 (N.Y. 2003) a disruptive shareholder-tenant’s actions became increasingly intolerable for the other residents of the building. The defendant had accused his elderly upstairs neighbors of watching TV too loud, and running an illegal book binding business in their apartment (the couple neither owned a TV or a bookbinding business). Additionally, the defendant made alterations to the apartment without board approval and began to file frivolous law suits against the board and as well as other tenants. As a response to the defendant’s actions, the cooperative called a special meeting. According to the lease agreement, the termination of the tenancy was allowed if the cooperative by a two-thirds vote determines objectionable conduct on the part of the Lessee. The co-op voted unanimously to evict the tenant which sparked the case in question. The court, in its analysis applied the business judgement rule, in which courts exercise restraint and defer to good faith decisions made by boards of directors in business settings. For a court to defer to a co-op board’s decision the board must show that it one, acted for the purposes of the cooperative, two, within the scope of its authority, and three, in good faith. The purpose of this rule is to curb any abusive, arbitrary or malicious decision-making but still allowing the governing body to serve its purpose; protecting the interests of the whole. Because the Co-op was authorized through its own board to have a lease which all parties voluntarily agreed to, and then followed the procedures flawlessly, there was no wrong doing on the part of the co-op board.

If a private sale did not occur and the NBA commissioner had to bring a vote to oust Sterling, the NBA would have had to act accordingly to the Levandusky business judgment rule to withstand scrutiny from a court. The NBA governing body’s purpose is to operate a league of the member teams, who are subject to the constitution and by-laws. Article 13 of the NBA constitution defines what acts may be grounds for termination and Article 14 lays out the procedure for carrying out the termination. A charge of which provision of Article 13 is filed by the NBA commissioner and filed on the member charged within three days. After receipt of the charge, the member has five days to answer or it is treated as an admission of guilt to the charge. If the owner responds, a hearing is held ten days following the answer. At the hearing, a three-fourths majority vote of all owners is required to terminate membership. In Sterling’s case, the NBA filed a charge on May 19th, to which Sterling responded and a hearing was set on June 3rd, 2014. If the sale of the Clippers was not agreed to just three days before the hearing, A bitter legal fight could have been set up to where the NBA would have had to review the proceedings through the lens of the business judgement rule.

While the procedure itself was reasonable, and not likely subject to dispute (Sterling explicitly did agree to the terms of termination when becoming an owner), the subject matter of the charging document and the whether the NBA acted in good-faith may have been center to a bitter court battle. Despite ceding control of the Clippers to his ex-wife, Sterling alleged that the NBA had no basis to take the team from him, that using an “illegally recorded” conversation would violate his constitutional rights. (The claim’s that Sterling’s constitutional rights were violated were dismissed with prejudice, as private actions with no government action nexus are immune from the restrictions of the 14th amendment) The most broad power the NBA has to terminate an owner comes from Article 13(a), which allows for termination if any provisions of the constitution and by-laws are breached. Article 35A(c) on member and owner misconduct, states the penalties for statements “having an effect prejudicial or detrimental to the best interests of basketball or of the [National Basketball] Association.” This provision gives the NBA the strongest argument in showing a prospective court that it’s actions in sanctioning Sterling were done for the purposes of furthering the cooperative and in good faith, the first and third elements of the Levandusky rule. The evidence which the NBA has provided backing up this reasoning to oust Sterling is vast, from the social pressure exerted by fans and players, to the economic pressure made by numerous advertisers threatening to drop their sponsorships.

So, what does this mean for the newest tenant-shareholder in the NBA apartment building, Bill Chisolm and the new Celtics ownership group. There are a number of existing rights and responsibilities that must be upkept. First is that the décor and furniture cannot change. You typically think when you move into a place that you will be allowed to paint and rearrange the furniture, but that’s not the case for the Celtics who are locked into a lease at TD garden through 2036. Another major responsibility is taking care of the organizational costs of the Celtics, including one of the most expensive rosters in the league at $230 million for this season with another added $270 million in salary cap tax penalties. This would be as if the new apartment also includes an expensive pure-bred dog which the lease agreement demands you have to take care of. (oh, and it only eats organic, raw food, no kibble) Yet, it’s not all costs, as the race to buy up teams at ever increasing prices shows there must be some benefits. One of the leagues largest sources of revenue come from media rights deals, and the largest ever is set to begin this year. NBA team owners will directly profit from the massive 11-year, $76 billion dollar deal set to begin this August. Another huge windfall for team owners is right around the corner, it is an open secret that the NBA is planning on expanding the league by two new teams, one in Las Vegas, and the highly anticipated return of the Seattle Super Sonics (the team left for Oklahoma city in 2008). To ensure that the NBA owners vote for expansion, (extra teams means smaller slices of the media rights deal pie), each team owner receives an equal share of the new franchise’s cost. With the new expansion franchises having valuations of anywhere from $4–7 billion, it is a good time to be moving into the NBA apartment building.

Reavis Lounsbury is a law student at the American University Washington College of Law.

Image: Keith Allison, Los Angeles Clippers 2013-14 season.