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EmailHere's an interesting mind game. What if the Oklahoma City owners of the Sonics have been behaving honorably all along? News today of an email that envisioned a "sweet flip" of the team, keeping it in Seattle, makes such a theory somewhat plausible. Suspend your media-whipped anger at the Oklahomans for a few minutes, and follow me on a shrewd tale of modern capitalism.
It's necessary, first, to keep a few factors in mind. Clay Bennett, chairman of the Oklahoma City group, is also chairman of the investment firm Dorchester Capital, wise in the ways of buying properties and flipping them to the next group at a handsome profit. That would have been the option had he been able to get a modern new arena for the team, something others have not been able to do. Second, Bennett is a good friend of NBA Commissioner David Stern, who might be expected to reward Bennett's Seattle cure by giving Oklahoma City a less-expensive team, likely the New Orleans Hornets.
Suddenly, under this conjectural theory, inconsistencies start to make sense. Why did Bennett & Co. spend so much money in the first year trying to get a new arena? Why did the Schultz group believe that they were saving a team for Seattle by selling to the out-of-towners? And why, when some local owners, led by Microsoft CEO Steve Ballmer, finally showed up, was Bennett not willing to sell?If Bennett thought he could get a new arena built here, he had some leverage to support his hopes. Schultz couldn't threaten to leave town, so he couldn't budge the politicians to pony up to fix KeyArena. Nor could the Starbucks Man change his tune and favor a new arena, not at Seattle Center. Bennett could threaten to leave and spurn KeyArena, so he had a chance to solve that nagging NBA problem of Seattle's bad facility and worse lease. But he couldn't find a good site on the Eastside (fearful of traffic), and he couldn't get anywhere in Olympia.
Then, two other unforeseen events took place. The New Orleans Hornets started having a great year, greatly slowing their availability for Oklahoma City. And the Sonics lucked out in the draft and got a potential superstar in Kevin Durant, giving the Okies another reason to prefer the Sonics to the Hornets.
Time for Plan B: Move the Sonics to OC. Sale to the Ballmer group would no longer be at a premium (no arena solution), and the switcheroo in Oklahoma City, Hello Hornets, was not very doable.
Under such a construction, Bennett actually did act in good faith to keep the Sonics in Seattle, because he had real incentives to do so (making money and getting a team, at a discount, in Oklahoma City). We'll see how well this kind of storyline holds up in court, if we actually go to trial as the City tries to get more money from breaking the lease and an NBA promise to move the next team to Sonics-less Seattle.
It would have been perversely satisfying, in a way, if Bennett had pulled off his shrewd maneuver. The Schultz group would have sold too low. The Ballmer group would have paid too high. And the rubes from Oklahoma City would have administered a lesson in finance to the slickers in Smartyville. That would have made for an amusing civic banquet in honor of Seattle Citizen of the Year, Clay Bennett. Art Thiel would be the right toastmaster.
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Comments:
Posted Thu, Apr 24, 12:47 a.m. Inappropriate
Pike Place Bruise: Bad Faith Worst Efforts (part 1 of 2): David, having followed this pretty closely for a while, it's pretty obvious that the strategy you outline is exactly what Bennent had in mind, i.e., flip or move. In the flip scenario, he "in good faith" procures an arena, and then sells the team to in-state owners at a premium, thus fulfilling this "good faith" commitment to Schultz. When the government-financed stadium options fell through, the sweet flip turned into a money-losing sour flip; so at that point, "good faith" went out the window and the bad faith demands for half-billion-dollar stadiums began. I believe this interpretation is consistent with the public record, and to my mind means that Schultz's suit is a winner.
At first glance, the Schultz suit looks hopeless because Bennent has it easy because of the "good faith" and "sole discretion" language in the contract:
"For a period of 12 months following the date hereof, the Team shall, and the Owners shall cause the Team to, use good faith best efforts to negotiate an arena lease, purchase, use or similar arrangement in the King, Pierce or Snohomish Countines of Washing as a venue for the Teams's games, to be be used as a successor venue to Key Arena; provided, however, the process described in this sentence and and entering into any such arena lease, purchase, use or similar arrangement shall be at the Team's sole discretion."
"Good faith" is a pretty vague term and hard to disprove, and "sole discretion" seems to give you an iron-clad out, no matter what the circumstances.
What seems clear is that, initially, Bennent was negotiating in good faith and using his best efforts to negotiate an arena deal. This was back when he hoped to procure government funding of $200M or more for an Arena. In that case he was looking at enhancing the value of the team significantly with a corporate welfare arena deal that would allow him and his partners to make the "sweet flip" that was part of their strategy.
When the people of the City and the State objected to the strong-arming, extortion, blackmail, and the ransoming of the Sonics, Bennent decided not to release his prisoner, but to cross state lines in his Ronald Reagan corporate-welfare cheat Cadillac, with the Sonics bound and gagged in the back seat. It is at this point that good faith, best efforts turned into bad faith going-through-the-motions. When Bennent realized that he was stuck with the Sonics and no government hand-out, continuing negotiations turned into just idling away the hours waiting for the 12-month period to expire, so that he could say "Time's up, we're going to Oklahoma City."
The trouble here for Bennent is that the above cited "good faith best efforts" clause was put in the contract for a reason. Schultz wanted to sell, but he also wanted to avoid having the Sonics leave Seattle, thus making him the bad guy. Well, stuff happens. And in a recent poll, more people believe Schultz is at fault for the fiasco than believe Bennent is at fault. Schultz himself, now says that he feels responsible for what has happened. His local reputation has clearly been tainted -- I'm sure he gets a lot of mean looks and regular jeers from fans in the street. Being wealthy and the living embodiment of Starbucks doesn't seem so great when your friends and neighbors don't like you for what you did to the Sonics. Thus the law suit and the long road back to rehabilitating his reputation. Howard needed to get that bitter coffee taste out of his mouth, and start fighting.
(part 1 of 2) (continued in next post)
Posted Thu, Apr 24, 12:52 a.m. Inappropriate
Pike Place Bruise: Bad Faith Worst Efforts (part 2 of 2): Now Clay Bennent may not be George Washington's gift to truth-tellers, but the legal merits of the case will rest on the "good faith best efforts" language. In lot of ways, Bennent can claim "best efforts." Unfortunately for Bennent, I think Schultz can just as easily claim that Bennent's best efforts were his best efforts at a charade, as evidenced by some of the more egregious email that has been made public. And ultimately, even though Bennent may have made good faith best efforts initially, in the end the good faith best efforts turned into bad faith, with efforts that were worse than no effort.
Ultimately, the key point here is that Clay Bennent was unwilling to enter into any arrangement or negotiation that DID NOT REQUIRE CORPORATE WELFARE. Realize that Bennent purchased the Sonics after knowing that Schultz had failed in his efforts to get an arena subsidy from the City. So clearly, Bennent knew going in, that "good faith best efforts to negotiate" did not presume a government subsidy for an arena. While Bennent's ransom and blackmail requirements don't necessarily show bad faith (and arguably represent shrewd deal-making), the fact that he never made offers to lease or renovate stadiums ENTIRELY WITH THE TEAM'S OWN MONEY, shows that he never actually entered into any good faith negotiations. Confining one's negotiations only to deals that presume corporate welfare is hugely bad faith, and why no deal was ever struck. The facts are that 1) the NBA wants an upgraded arena, 2) that blackmail of NBA cities is part of the NBA business model, and that 3) the City Council, Christine Gregoire, and Frank Chopp wouldn't play along with the blackmail attempt. However, these facts simply do not matter when it comes to the "good faith best efforts" clause. Howard Schultz does not owe Clay Bennent an arena, nor does anyone else in the City or State. Requiring subsidy of a stadium in your "good faith best efforts" negotiations shows that these efforts were in bad faith and weren't your best efforts. Bennent might as well have said "I'll give you my best efforts, but only if you give me $200M first." Schultz will be able to argue that Bennent's best efforts can be valued at about -$200M, which is one of the worst efforts of all time.
So I think Howard's going to put a Pike Place Bruise on Clay's Bad Faith Worst Efforts.
When the Sonics are returned to Howard, then the fun begins!
Posted Thu, Apr 24, 9:35 a.m. Inappropriate
Another possibility: I wonder if Clay will claim he personally was misleading his partners? He could claim he did have a good faith intent to keep the Sonics in Seattle, but his partners all along wanted to move and so he was misleading them by saying his intent was to move the Sonics?
I think this would be a stretch, but he might be desperate enough now to make that claim.