Analyzing the Fallout Between the NBA and China After Daryl Morey’s Tweet

At all moments, the NBA, just like other pro sports league and like every other American business, ultimately acts with business interests in mind. That’s not cynical or critical. It’s reality.

Kyle Terada-USA TODAY Sports

The fallout from a tweet by Houston Rockets general manager Daryl Morey about protests in Hong Kong continues to raise questions about the uneasy mix between the NBA’s business pursuits in China and democratic values shared by the NBA’s global fan base.

Last Friday, Morey tweeted “Fight for freedom, stand with Hong Kong.” The tweet, which Morey later deleted, also included an image of a logo associated with protesters in Hong Kong. Within minutes, Rockets owner Tilman Fertitta tweeted a sharp rebuke. “Listen,” Fertitta stressed, “@dmorey does NOT speak for the @HoustonRockets . . . we are NOT a political organization.”

The Consulate General of the People's Republic of China in Houston also lambasted Morey. A spokesperson for the Consulate General, which represents the Chinese government, expressed that “we are deeply shocked by the erroneous comments on Hong Kong made by Mr. Daryl Morey . . . we have lodged representations and expressed strong dissatisfaction with the Houston Rockets, and urged the latter to correct the error and take immediate concrete measures to eliminate the adverse impact.”

On Sunday, Morey clarified his tweet. He conveyed that he did not intend to cause any offense or misunderstanding. Morey also stressed that he “was merely voicing one thought, based on one interpretation, of one complicated event.” Morey further emphasized that his tweets are his own and “in no way represent the Rockets or the NBA.”

It was intially reported that the NBA on Sunday issued two statements concerning Morey. One statement was in English and the other in Mandarin. The English statement is mildly worded, noting that the league’s regards the impact of Morey’s tweets as “regrettable.” The purported Mandarin statement strikes a far more critical tone, stressing “we are extremely disappointed by the inappropriate remarks made by Houston Rockets General Manager Daryl Morey, who has undoubtedly seriously hurt the feelings of our Chinese fans.” On Monday, the NBA informed media that the league only issued one statement—the one in English—and that the statement in Mandarin, and its subsequent translation back into English, were not made by the league and do not reflect the league’s views. To bolster that point, commissioner Adam Silver was quoted by Japan’s Kyodo News on Monday as saying that Morey “is supported in terms of his ability to exercise his freedom of expression.”

Rockets players, who are currently traveling in Tokyo, Japan as part of a preseason arrangement, have taken issue with Morey’s tweet. All-star guard James Harden told media, “We apologize. You know, we love China. We love playing there.”

The protests in Hong Kong

The protests began earlier this year as the government of Hong Kong debated the Fugitive Offenders amendment bill. The bill would authorize Hong Kong law enforcement to detain persons accused of crimes by governments with whom Hong Kong lacks extradition treaties. One of those governments is China, which is run by the communist party and which features fewer legal protections and civil liberties than are found in Hong Kong.

Hong Kong was a British territory until 1997, when a lease agreement involving Great Britain and China instructed that the territory be transferred to China. Over the last 22 years, Hong Kong has remained autonomous in many ways while still part of China. This arrangement is sometimes termed “two systems, one country.” Hong Kong protesters fear that the “two systems” will gradually blend into one.

The NBA’s ventures in China: the league is a business, not an advocacy platform

The NBA is hardly alone as an American company pursuing business in China.

China, in fact, is the largest trading partner of the United States. In that same vein, the idea that an American business would conduct transactions with Chinese businesses is not especially novel. The NBA is doing what numerous American companies—including Boeing, Microsoft, General Motors, Apple and Nike—have done for many years, in some cases for decades: conduct substantial business in a country with a political system at sharp odds with democratic values.

This gets at the fact that the NBA is like any other business, be it Google or McDonald’s. It acts in its own self interests. That may sound cynical or negative but is factual and neutral. The NBA is neither a not-for-profit organization nor a foundation for the promotion of democracies or other ideological perspectives. As Article 2 of the NBA’s constitution makes clear, the league’s goal is narrow, constrained and has nothing to do with instilling socio-political beliefs. “This Association,” the Constitution notes, “ is organized to operate a league consisting of professional basketball teams, each of which shall be operated by a Member of the Association.”

Along those lines, while the NBA is American business, it doesn’t represent the political interests of the United States or the objectives of the U.S. State Department. The NBA is an entertainment company that tries to maximize earnings—earnings that, per collective bargaining agreement provisions on basketball related income, are split more or less evenly with NBA players. The NBA, and by extension the persons who run it, are successful when the league generates more revenue and when the values of NBA franchises climb.

Crucial to the NBA’s expansion of revenue is growth of league interests in China. China has 1.4 billion people compared to the 327 million people who reside in the United States. China also has the world’s second largest economy after the United States. Basketball has become increasingly popular in China, which features a pro league—the Chinese Basketball Association—that has employed such one-time NBA stars including Tracy McGrady and Stephon Marbury. The NBA is also aware that there are more people in China who watch NBA programming than there are people who reside in the United States. This has guided the NBA’s business operations. The league and Tencent, the NBA’s digital partner in China, recently agreed to a $1.5 billion contract. SI’s Chris Mannix has additional details on the extent to which the NBA eyes China as the next frontier for the league. Due to the sharing of basketball related income, these revenues could lead to substantially higher salaries for NBA players, too.

With those business interests in mind, the NBA does not want to offend Chinese fans or Chinese business partners, or have persons associated with NBA franchises offer political opinions that may be popular in the United States but unpopular in China. The league would prefer that team officials simply refrain from comment on political topics.

None of this is to say the NBA can conduct business in China without limit. The league, like any American business, must satisfy U.S. law and treaty obligations. The NBA is known for being meticulous in its operations, and its commissioner was an accomplished attorney before becoming a sports executive. There is no reason to believe that the NBA’s business in China hasn’t meet every legal obligation.

Is the NBA being hypocritical since it strives to be relatively “woke” at home? No, here’s why.

One might argue that the league is being duplicitous. While the NBA does business in a communist country where there are assorted human rights concerns, the league also actively champions progressive causes in the United States.

For instance, in 2016, the league pulled the scheduling of the 2017 All-Star game in Charlotte in response to North Carolina adopting the Public Facilities Privacy and Security Act, better known as House Bill 2 (HB2) or “the Bathroom Bill.” The law made it unlawful for a person to use a bathroom different from the gender listed on that person’s birth certificate.

In response, the NBA asserted that the Bathroom Bill was untenable with the league’s pledge to “create an inclusive environment for all who attend our games and events.” The NBA went so far as to identify “guiding principles” in noting that “this discriminatory law runs counter to our guiding principles of equality and mutual respect.”

The league’s response to the Bathroom Bill was not an isolated example of social advocacy. Since Silver became commissioner in 2014, the NBA has shown little tolerance for views that the league (and most others) deem to be prejudicial.

To that end, Silver oversaw the removal of Donald Sterling from the NBA in 2014 after the Los Angeles Clippers owner was caught on a recording making racist comments. More recently, Silver has partnered the NBA with LeanIn.org, an organization that promotes opportunities for women. Also, while the NFL has struggled to handle players’ who engage in protest during the playing of the National Anthem, Silver has encouraged NBA players to be vocal politically while not playing. Not one NBA player under Silver’s watch has kneeled or otherwise deviated from the custom (and contractual obligation) of NBA players standing during the National Anthem. The fact of the matter is players trust Silver to do right by them.

So how can one reconcile the NBA embracing business opportunities with its social advocacy at home? The answer is likely simple. The league, a for-profit venture, advocates for social interests in the United States because the league’s executives agree with those views and because it is good business.

Take Sterling. It’s true the league ousted him because they found his racist comments to be abhorrent. But it’s also true that the league ousted him because NBA stars, including LeBron James and Stephen Curry, threatened to boycott playoff games unless Sterling was removed. And it’s true that the league ousted Sterling because Carmax, Virgin America, and Mercedes- Benz and other major companies threatened to end their sponsorships with the Clippers unless Sterling’s relationship with the NBA was severed.

Remember, Sterling had been linked to many other social wrongs since his purchase of the Clippers in 1981. There is no record that the NBA punished him until 2014. This is true despite sexual harassment lawsuits and the U.S. Justice Department suing Sterling in 2006 for discriminating against non-white people when renting property. In 2009, former Clippers general manager Elgin Baylor unsuccessfully sued Sterling for race and age discrimination. Baylor asserted that Sterling would tell him he wanted a team “composed of ‘poor black boys’ from the South and a white head coach.” None of those controversies led to Sterling being punished.

Why would the NBA wait more than three decades to hold Sterling accountable? Because in 2014, Sterling’s misconduct became a clear business concern for the NBA whereas it hadn’t before. Superstars threatened to boycott games. Sponsors threatened to drop sponsorships. Broadcast partners expressed worries about how TV ratings would be impacted if Sterling remained in the league. The league’s fan base, which includes many young people who hold progressive views, was outraged. President Barack Obama took time out a press conference in Malaysia to associate Sterling’s racist remarks with “the legacy of race and slavery” in the United States. Put bluntly, the situation on the ground had changed. It made business sense to take action against Sterling in 2014.

At all moments, the NBA, just like other pro sports league and like every other American business, ultimately acts with business interests in mind. That’s not cynical or critical. It’s reality. It’s also why NBA players, who stand to gain about half of the revenue the NBA generates in China, have already issued comments favorable to China.

The NBA could sanction a general manager for comments or tweets

Sports Illustrated has learned that the NBA will not punish Morey for the tweet. However, if the controversy continues, or if another general manager weighs in on a sensitive topic for the league, there is the possibility of the league discipling a team executive.

To that point, the contractual relationship between a general manager and the NBA is far less direct that than between an owner and the league or a player and the league. An owner has equity in an asset, an NBA franchise, that is part of an association of franchises. A person who seeks to obtain equity in an NBA franchise must comply with league due diligence requirements and must be approved by at least 23 of the 30 governors (majority owners of the franchises). A player, meanwhile, is a member of labor organization, the National Basketball Players’ Association. This labor organization negotiates a CBA and other workplace policies with the league.

A general manager? He or she has no direct tie to the league. This person is an employee of a single franchise, much like a franchise’s marketing director and custodial staff work not for the NBA but for that single franchise employer. The NBA doesn’t approve these employment decisions.

Still, the league constitution is constructed in a way that essentially requires teams to carry out punishments of team executives. Along those lines, Article 24 of the league constitution permits Silver to take any and all actions in furtherance of “the best interests of the Association.” The commissioner could rely on this expansively worded authority to fine or suspend team executives.

Alternatively, Silver could cite Article 35A, which applies to all employees other than players. Under Article 35A, if a team executive “gives, makes, issues, authorizes or endorses any statement having, or designed to have, an effect prejudicial or detrimental” to the NBA, Silver can fine him or her up to $1 million and suspend them for an indefinite period.

Under his Silver’s authority, the NBA has fined NBA general managers for their statements against the league’s interests. In 2015, Toronto Raptors president of basketball operations Masai Ujiri was fined $35,000 for using an expletive while referring to Paul Pierce. The NBA has also fined team executives for tampering. In 2010, the league fined then-Phoenix Suns president of basketball operations Steve Kerr $10,000 for comments about LeBron James that the league construed to be tampering. Silver has also punished individuals for controversial tweets, including one authored by Brooklyn Nets governor Joe Tsai.

There are still other ways for the NBA to punish a general manger. If a governor refused to sanction a general manager at the NBA’s behest, the governor himself or herself would violate certain provisions of the constitution. Article 13(a), for instance, bars owners from willfully violating the league constitution, bylaws or any other NBA agreements. Article 13(d), meanwhile, forbids owners from breaching contractual obligations in ways that detrimentally impact the NBA. The league could reason that Fertitta’s refusal to advance the NBA’s contractual obligations in China damage the league’s brand and financial stakes.

The Rockets could fire Morey, which could spark a legal controversy

According to John Gonzalez of The Ringer, the Rockets have internally discussed the possibility of firing Morey over the tweet.

In terms of job performance, Morey is regarded as one of the best general managers of his generation. The 47-year-old MIT grad and former Boston Celtics executive has rebuilt the Rockets since becoming their general manager in 2007. The team has consistently been a contender since his arrival. There is no rationale basketball reason why the Rockets would want to replace Morey.

Morey’s employment contract is not public. It is known, however, that Fertitta signed Morey to a five-year contract extension this past May. At the time, Fertitta said Morey is “one of the highest paid general managers” in the league.

Still, if the Rockers decided to fire Morey over the tweet, there are two ways the firing would be classified: without cause or with cause. Usually when a team fires an executive, the firing is “without cause.” This refers to a team deciding that it simply wants someone else to run the organization. Perhaps the team underperformed in terms of expectations or perhaps a new owner wants his or her own person in charge. The reason can be any reason—hence the phrase “without” cause—so long as it isn’t a reason prohibited by civil rights laws (such as firing someone because of their race or gender).

In a without cause firing, the employment contract usually stipulates that the team owes the fired general manager all or a large portion of the remaining salary. Sometimes that salary is offset should the general manager later become employed by another franchise. Either way, the general manager walks away with a considerable amount of money.

The much more controversial scenario is when a firing is “with cause.” This is a firing where the team insists that the general manager’s actions or omissions betrayed their contractual responsibilities. A with cause firing (alternatively called “for cause” firing) tends to be used when the employee is accused of illegal or immoral conduct. In that same vein, a team executive’s contract often contains a “morals clause” which prohibits the executive from engaging in behavior the team deems offense. Triggering the moral clause can be used to justify a “with cause” firing.

As mentioned above, it would be stunning to see the Rockets fire one of the NBA’s most talented general managers over a single controversial tweet. It would be just as stunning to see the team attempt to classify a firing as one “with cause.”

Morey and his attorneys would be well positioned to argue that a “with cause” firing is unwarranted and constitutes a breach of contract. Frankly, it would be incongruous for a tweet that promotes democracy to be considered immoral. Further, Morey could potentially rely on defamation and false light laws to contend that any statements accompanying a firing might be untrue and damaging to his reputation. As a public figure, Morey would have the added litigation hurdle of establishing that the Rockets or NBA knowingly published false and defaming information or had reckless disregard for the information’s truth or falsity.

Michael McCann is SI’s Legal Analyst. He is also an attorney and Director of the Sports and Entertainment Law Institute at the University of New Hampshire Franklin Pierce School of Law.