Potential Arbitration Threatens To Delay Resolution On Clippers/Kawhi Probe

As Holmes explains, because salary cap circumvention is considered a violation of the Collective Bargaining Agreement, the NBA can’t unilaterally penalize the Clippers and/or Leonard without being subject to a potential arbitration process.

Sources close to the National Basketball Players Association tell Holmes that the players’ union “wouldn’t hesitate” to take the matter to arbitration if it felt there was insufficient evidence to warrant the sort of penalty the league sought. Additionally, the Clippers, who have maintained their innocence throughout the process, plan to “fight that to the end,” including through arbitration, a team source tells ESPN.

It has been nearly 11 months since the NBA hired the law firm Wachtell, Lipton, Rosen & Katz to investigate Aspiration’s ties to the Clippers, owner Steve Ballmer, and Leonard. The probe was opened after podcaster and investigative journalist Pablo Torre reported that Ballmer was among the company’s investors and that Leonard agreed to lucrative endorsement deal that didn’t require him to actually do any endorsement work for the company.

Torre spoke to Aspiration employees who described the arrangement as salary cap circumvention designed to pay Leonard beyond his NBA salary. The Clippers have steadfastly denied those allegations, contending that the team owner and its star forward separately reached agreements with the company – a team sponsor – and insisting that Ballmer was the victim of fraud, while the unusual requirements (or lack thereof) involved in Leonard’s endorsement deal were the result of Aspiration’s mismanagement.

Joe Sanberg, the co-founder of Aspiration, pleaded guilty to two counts of wire fraud after allegedly defrauding investors and lenders out of nearly $250MM. He was sentenced last month to 14 years in federal prison.

A report earlier this month from The Athletic indicated that, in the process of investigating the Leonard’s and Clippers’ ties to Aspiration, Wachtell also followed leads related to a second Leonard endorsement deal with a separate company, as well as whether the Clippers improperly covered expenses for Leonard without being reimbursed.

If the NBA’s investigation produces “indisputable” evidence of cap circumvention, arbitration could likely be avoided, Holmes writes, since all parties would be more inclined to agree on the findings and possible discipline. But if the evidence is largely circumstantial and the NBA, NBPA, and Clippers can’t come to an agreement, the issue could be redirected to a neutral arbitrator appointed by the league and the players’ union.

In that scenario, Holmes explains, the arbitrator could essentially conduct a mini-investigation of their own, compelling document production and witness testimony while ordering discovery. The arbitrator’s ruling would then be subject to an three-person appeals panel jointly appointed by the NBA and NBPA. That panel’s decision would be binding.

NBA commissioner Adam Silver has expressed confidence that the Wachtell investigation is in its final stages and that the league will be able to wrap things up this summer, or at least before the regular season begins. There has been a greater sense of urgency in the past month, with the Raptors and Clippers reaching an agreement on June 30 on a trade that would send Leonard to Toronto.

The completion of that trade remains on hold, since any discipline Leonard faces as a result of the probe would carry over with him to his new team. The Raptors don’t want to finalize the deal without a clearer picture of whether the player they’re giving up several draft picks for could be suspended or even have his contract voided.

According to Holmes, it’s unclear how potential arbitration would impact the timeline of the Leonard trade.

This is just my speculation, but presumably if the NBA is seeking to penalize the Clippers and not Leonard, or if the penalty for Kawhi would be minimal, the Raptors would be comfortable moving forward with the deal without knowing the outcome of the arbitration process. On the other hand, if more serious discipline for the two-time NBA Finals MVP is still in play when the case is referred to an arbitrator, it’s safe to assume Toronto would be less inclined to pull the trigger.