LeBron's China Comments and the Financial Fallout for the NBA, U.S.

Now the NBA must deal with its most marketable player, LeBron James becoming its most controversial. How will it impact future business between the league and China?

Brian Spurlock-USA TODAY Sports

As divisive remarks by LeBron James inflame the NBA’s already strained relations with its business partners in China, the league is likely concerned that its most marketable player has—for now—become its most controversial. The league knows that the manner in which the China situation ultimately plays out will impact the NBA’s global brand, not only in China but also in the United States and with the international companies with whom the league does business.

In his first public remarks about Houston Rockets general manager Daryl Morey’s Oct. 4 tweet in support of protesters in Hong Kong, James on Monday sharply rebuked Morey. James insisted that the 47-year-old graduate of Northwestern University and MIT Sloan School of Management “wasn’t educated on the situation at hand" before offering an opinion. James claimed that “so many people could have been harmed ... financially, physically, emotionally [and] spiritually.” The 34-year-old Los Angeles Lakers star acknowledged that Morey enjoys a First Amendment right to express opinions without fear of government prosecution. Also, in a subsequent tweet, James clarified that he takes no public opinion on the substance of Morey’s tweet. Still, James appears disgusted that Morey’s tweet may have damaged relations between the league and China.

Over the last 24 hours, James has been widely panned for seemingly prioritizing financial goals—be they his own or those of the league and players—over democratic ideals. Twitter users have created memes that mock James as a tool of the Chinese government. Protesters in Hong Kong have gone so far as to burn replicas of his Lakers jersey.

The contrast between James’s statement about Morey and his usual approach to public remarks is unmistakable. James, who created and funds The Promise School in Akron, Ohio, has often shaped his public comments around themes of equality and justice. Most recently, he earnestly championed the passage of the Fair Pay to Play Act in California. Once it goes into effect in 2023, the Act will empower college athletes in California to license their names, images and likeness in contravention of longstanding NCAA amateurism rules. Yet James’s remarks about Morey appear motivated more by financial objectives. Meaningful or not, he even mentioned the possibility of “financial” harm caused by Morey’s tweet before listing the possibility of “physical, emotional and spiritual” harms.

LeBron spoke on the NBA's China controversy

(via @BenGolliver) pic.twitter.com/awITJSmBgk

— Sports Illustrated (@SInow) October 15, 2019

To be clear, both James and Morey enjoy a First Amendment right to opine on political topics and on each other’s views about those topics. At the same time, the NBA could, though it hasn’t, punish a player or team executive for igniting or worsening a social controversy that damages the league’s relationship with consumers and business partners. In 2014, the league used this principle to punish a franchise owner, former Los Angeles Clippers owner Donald Sterling, for the commercial damage Sterling inflicted through his racist remarks. The league justified Sterling’s punishment on account of both star players (including James) threatening to boycott games and sponsors such as Carmax, Virgin America, and Mercedes-Benz threatening to cut ties.

Therein lies the difference between a right bestowed by the government and an obligation owed to an employer. We are free as Americans to express views without fear of being arrested, but our employer (especially if it is a business) generally has the right to fire or otherwise punish us for inciting controversy, particularly one that poses adverse financial consequences for our employer.

The James-Morey clash is not occurring in a vacuum. While Chinese companies may have welcomed James’s viewpoint, they might nonetheless worry about doing business with a company that clearly doesn’t speak with one voice. Morey, league commissioner Adam Silver and players have all expressed different views about the appropriateness of persons associated with the NBA commenting on protests in Hong Kong.

In the abstract, a diversity of opinion is natural and expected. There are many people who work for the NBA and its franchises. Some hold contrasting perspectives, including on the appropriateness of engaging in political commentary. The same phenomenon is true with employees at most businesses.

Yet in this context, a diversity of opinion has exacerbated and prolonged an ongoing controversy. The longer the controversy lasts, the less confident Chinese companies might become in the predictability of doing business with the NBA. This is particularly true if conflicting statements expressed by team executives and players are perceived as reflecting an inability on the part of the league to speak with one voice. Meanwhile, the NBA might become more frustrated with the reputational costs of pursuing increasingly unpopular initiatives in China.

Tensions on both sides could worsen. Those tensions could lead to contractual disputes for the NBA and its players.

The league has a $1.5 billion contract with Chinese tech giant Tencent as well as relationships with China’s CCTV Sports Channel, the smartphone company Vivo and other Chinese companies. These deals could eventually provide the NBA with billions of dollars in revenue—dollars that, under the collective bargaining agreement, would be shared with NBA players through higher salary caps and higher player salaries.

Some of those players, including Golden State Warriors forward Klay Thompson and Boston Celtics forward Gordon Hayward, are already profiting from the NBA exporting its brand into China. They have signed lucrative endorsement deals with such Chinese sneaker companies as Li-Ning and Anta. Those companies are paying American players in part to expand brand awareness among American consumers and in part because they expect Chinese consumers to embrace the NBA and its players. If the NBA becomes unpopular in China, Chinese companies could look to exit their contracts with the league, players and individual franchises. The same would be true if those brands become unpopular with American basketball fans.

NBA, franchise and player endorsement contracts with Chinese companies are all subject to circumstances that could trigger one side attempting to breach. The contractual language specifies under which conditions either side can exit a deal and any resulting financial ramifications for an exit. A dispute over a breach could lead to civil litigation, possibly in China or in the United States depending on whether the contract contains a “choice of law” clause. Such a clause would express, in so many words, that if the parties are in dispute, any litigation must be heard in one particular jurisdiction. Alternatively, the contract might instruct that any disputes are only resolvable through mediation or arbitration. In short, the situation in China could become a legal mess not only for the league but for players, too.

The potential fallout for the NBA is not only with Chinese companies. American companies that have partnered with the league and its franchises might become concerned that the NBA’s brand with American consumers has suffered in the wake of the controversy. Even though Silver unambiguously defended Morey’s right to offer a political opinion on Hong Kong and even though a wide range of American companies have done significant business in China for decades—without noticeable criticism from U.S. politicians or U.S. media companies—the league has been accused of prioritizing money over democracy and human rights.

This is why James’s remarks could become so problematic for the NBA. Perhaps with the exception of Charlotte Hornets owner and “G.O.A.T” Michael Jordan, James is the most recognizable person associated with the NBA. His statements don’t reflect the viewpoints of the league, but consumers and businesses might nonetheless attach them to the league. The NBA wants its most influential player to be liked and respected. The league’s sponsors feel the same way.

There is some good news for the NBA. The ‘19-20 regular season will tip off in seven days. That’s merely one week from now. The NBA news cycle will soon shift to coverage of games and stories about basketball.

Then again, think of all that has happened since the NBA’s controversy in China began 11 days ago. For the NBA, seven days might seem like an eternity.

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.