Los Angeles Clippers owner Donald Sterling was banned for life and fined $2.5 million on Tuesday for racial remarks, but the whole National Basketball Association could take an economic hit from pulled advertising because of the league's revenue-sharing system.
Each of the league's 30 teams contributes an equal percentage of its own franchise sponsorship revenue into the revenue-sharing system, which then evenly distributes the accumulated league-wide revenue pool back to the franchises.
So far, major consumer companies like Mercedes-Benz, CarMax, and Virgin America have terminated their Clippers sponsorships, and others including State Farm, Kia Motors, and Sprint have suspended advertising following remarks attributed to Sterling in recordings posted online.
The league banned Sterling from basketball for life and fined him $2.5 million, NBA Commissioner Adam Silver announced on Tuesday.
"These team-specific sponsorships that the Clippers lost would play into that revenue-sharing system," said Alicia Jessop, a sports law professor at the University of Miami. "Because they're gone, that means that less money goes into the revenue-sharing system, which means less money for the other 29 teams."
Jessop said that the Clippers have been able to charge a premium for their sponsorships thanks to the power of Los Angeles' large market size. And that means that lost Clippers sponsorships have a greater relative impact on the league's revenue pool than many other franchises would.
"The Clippers are in one of the biggest media markets in the country, and sponsors are going to pay a premium to get into that market," Jessop said. "It hurts the league more because of where this franchise is located."
David Carter, a professor of sports business at the University of Southern California, estimated the cumulative value of lost Clippers franchise sponsorships to be at least several million dollars. More important than that, however, is potential damage to the NBA and league-wide sponsorships, which are also distributed among franchises, he said.
"You've got sponsorship revenue that the teams themselves get to keep, and then you've got NBA sponsorship deals," Carter said. "If the NBA doesn't handle this properly, and Coca-Cola is an NBA league sponsor and they pull out, well that was money that was going to go out to each of the teams."
Anheuser-Busch, maker of official NBA beer Budweiser, released a statement on the scandal, saying that while it is not a sponsor of the Clippers, "we fully support the NBA's efforts to investigate quickly and trust that they will take appropriate action."
Carter said that NBA commissioner Silver's treatment of the issue will be key to ensuring the continued league sponsorship of companies like Anheuser-Busch.
"Commissioner Silver has to come out and be very decisive about what the course of action will be," said Carter. "I don't want anything to affect the NBA brand or the brand of basketball, and the Clippers story is clearly doing that right now."