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Sanity in Seattle

By Rick Karcher, Michael McCann, Geoffrey Rapp, Greg Skidmore, and Howard Wasserman

About 45 minutes before the scheduled release of a verdict in the case pitting the City of Seattle and the owners of the SuperSonics, the parties announced a settlement, whereby the team would pay the city a sum of at least $45 million, with a possibility of another $30 million payment if the city does not secure a new NBA franchise within the next five years. The settlement paves the way for the team to move to Oklahoma City for the 2008-09 season, under a new name, thus ending a 44 year tenure in the Pacific Northwest.

The early reports characterize the $30 million payment as damages for breaching the team's lease which had two more years left (for a more complete background, see earlier blogs here and here). This was slightly more than the $26.5 million offered by new owner Clay Bennett last February. What the city did get was the possibility of another $45 million in payments if the city does obtain a new franchise by 2013 after committing to improvements in the KeyArena.

The issue of improvements to the aging arena has been debated in the Washington State Legislature, which has to approve the city's request authorizes at least $75 million in public funding to renovate KeyArena by the end of 2009. If that occurs and Seattle doesn't obtain an NBA franchise of its own within the next five years, it gets the $45 million -- a sort of "kill fee" for making the unsuccessful attempt to get a new team. Another aspect of the settlement has become a trademark (no pun intended) of teams that have relocated: they lose the name and intellectual property rights to the team.

However, a separate lawsuit by Starbucks chairman Howard Schultz, the former owner of the team against Bennett is not affected. Schultz seeks to void the sale, claiming Bennett failed to negotiate in good faith for a new arena in Seattle for one full year before relocating. If Schultz wins that suit, the settlement is voided.

I thought that specific performance was too great a leap for the court to impose (see my post here). Although the law professor side of me would have been fascinated to read the judge's opinion (and that would be worth one whole class discussion), the business school side of me (I do teach MBAs) said that business sense prevailed, because it would have been silly to keep the team for the two years as lame ducks, playing in a hostile environment. And after all, sports is a business, not a purely legal pursuit.

Full post as published by Sports Law Blog on July 02, 2008 (boomark / email).