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: The Journal of the Business Law Society

Sonic Boom or Bust: Franchise Relocation in the NBA

By Charles J. Ochab

I.  Introduction

The emergence of today?s state-of-the-art basketball arena has National Basketball Association (?NBA?) team owners holding cities hostage. Team owners seek public funding for these stadiums, and if the city refuses to provide the funding, there are always smaller markets without professional franchises willing to pony up. [1] The most recent example involves the Seattle Supersonics. The Sonics have called Seattle home for forty years. [2] Their future in the Emerald City appears bleak as the current owner, Oklahoma City businessman Clay Bennett, plans to relocate the team to Oklahoma City unless a deal to construct a new arena is agreed upon. [3] The City of Seattle, reluctant to provide funding for a new arena, has sought to keep Bennett from relocating. [4]

II. Legal Issue

The Sonics are currently under a commercial lease with Key Arena through the 2009-2010 season. [5] Rather than stay through the lease, Bennett is attempting to breach the lease and enter into arbitration to pay off the remainder of the term and move to Oklahoma City. [6] The city is seeking to force the Sonics to play out the remainder of the lease. [7] The City of Seattle brought suit against Bennett in an effort to keep the dispute out of arbitration. [8] The case was removed to federal court by Sonics ownership in an effort to keep a potentially partisan judge from ruling against the move. [9]

Perhaps the ownership?s decision to remove to federal court was based primarily on Metropolitan Sports Facilities Commission v. Minnesota Twins Partnership, 638 N.W. 2d 214 (Minn. App. 2002), where a seemingly biased judge ruled against Twins ownership which sought to relocate the team. [10] In Metropolitan Sports Facilities, the Twins were forced to honor the lease. [11] The court focused on ?positive externalities? and stated that if the Twins relocated before the lease commenced, the harm could not be repaired. [12] However, there was nothing to prevent the team from moving the following year. [13] By removing to federal court, Bennett will likely avoid a decision like the one handed down in Metropolitan Sports Facilities Commission by avoiding a partial judge.

Judge Ricardo Martinez ordered a stay of arbitration, finding that Article II of the lease is excluded from arbitration. [14] The city has won a minor victory, and is hoping that a judge will force the Sonics to complete their lease, similar to what occurred with the Twins franchise. Sonics ownership is willing to pay the lease in its entirety if they can leave town and begin play in Oklahoma City by the 2008-2009 season. [15]

III. League-Wide Implications

Should Bennett succeed in moving the team, this may set the wheels in motion for other franchises to relocate to cities willing to provide public funding. Team owners can attempt to hold cities hostage by threatening relocation. The threat may appear more credible should the Sonics be successful. [16] With relocations from Charlotte to New Orleans and potentially Seattle to Oklahoma City, the threat of relocation will have teeth. [17] The implications behind an owner?s threats may handcuff a city into providing more public funding or losing a city to a smaller market that is starved for a professional team. [18] There have been rumblings that ownership in Orlando and Sacramento are considering a move. If Bennett and the Sonics are successful in abandoning their lease of Key Arena, the cities of Sacramento and Orlando could follow this example to begin a domino effect which would significantly alter the landscape of the NBA.

IV. Conclusion

This entire issue could have been resolved without litigation if the Sonics were willing to provide more than 20% of the financing for a new arena. Bennett has offered to provide $100 million of the estimated $500 million required to build a state-of-the-art arena, requiring the public to come up with the remaining $400 million. [19] There is nothing stopping an owner from making a subpar offer, knowing that the city will not come up with the additional funding, and moving the team to a city that will provide a huge chunk of the financing for a stadium. The decision in the aforementioned litigation may go a long way to determine whether or not owners can pick up and move a franchise for seemingly greener pastures, leaving loyal fan bases in the dust.

Full post as published by The Journal of the Business Law Society on November 20, 2007 (boomark / email).