How China Could Inflict 'Retribution' Against Adam Silver, NBA

NBA commissioner Adam Silver escalated tension with China for saying that the Chinese government asked him to fire Rockets GM Darryl Morey. Now the league faces "retribution."

China Central Television (CCTV), the state television broadcaster for mainland China, warns that NBA commissioner Adam Silver “will receive retribution sooner or later.” The threat, which came in a commentary published on Saturday, comes a day after Chinese foreign ministry spokesman Geng Shuang disputed Silver’s claim that the Chinese government asked him to fire Houston Rockets general manager Daryl Morey.

To better understand how China might inflict “retribution” on Silver, it’s worth recapping the NBA’s tumultuous month in China.

On Oct. 4, Morey tweeted “Fight for freedom, stand with Hong Kong,” with an accompanying image of a logo associated with protesters in Hong Kong. Within minutes, Rockets owner Tilman Fertitta effectively rebuked his 47-year-old general manager, who is widely considered one of the best executives in basketball. Fertitta tweeted that “@dmorey does NOT speak for the @HoustonRockets . . . we are NOT a political organization.”

Morey would delete his tweet, but the controversy had already begun and would quickly snowball.

Morey weighed in on a political matter that had been in the news for months. The Hong Kong protests began earlier this year and continue to this day. The protests generally reflect the unsettled status of Hong Kong, which was transferred from Great Britain to China in 1997 according to a 99-year lease agreement. Although Hong Kong and China are “one country” they largely operate through “two systems,” with Hong Kong resembling a western democracy whereas China is a communist country. The exact boundaries of these “two systems” remain a source of debate.

To that end, the protests began as Hong Kong debated the Fugitive Offenders amendment bill. If it became law, the bill would permit Hong Kong law enforcement to detain persons accused of crimes in China (and in other countries with whom Hong Kong lacks an extradition treaty). The protesters insist they are peacefully defending their freedom and democratic values. China, in contrast, derides the protesters as dangerous individuals and treasonous rebels.

A couple of days after Morey’s tweet, Silver unequivocally defended Morey’s right to express viewpoints on political topics—including on the Hong Kong protests. The combination of Morey’s tweet and Silver supporting Morey’s freedom of expression triggered a substantial backlash from the NBA’s business partners in China. For example, NBA preseason games played in China were not televised in China.

To complicate matters, NBA players, some of whom have endorsement deals with Chinese sneaker companies or other business interests in China, have voiced varying viewpoints that at times conflict with those articulated by Morey and Silver.

For instance, Morey’s best player, James Harden, told media, “We apologize. You know, we love China. We love playing there.” Meanwhile, LeBron James opined that Morey, a graduate of Northwestern University and MIT Sloan School of Management, “wasn’t educated” about the situation in Hong Kong before tweeting. James worried that Morey may have caused people to suffer “financially, physically, emotionally [and] spiritually.” James has been sharply criticized by media and fans for offering an opinion that arguably values financial objectives over democratic ideals.

It appears this political and business controversy could worsen before it improves.

The significance of CCTV criticizing Silver

The fact that CCTV offered a critical perspective of Silver should not be taken lightly.

An editorialized statement by CCTV is much more authoritative than an editorialized statement by an American media company. While U.S. viewers might regard American media companies as biased in one way or another, there is no equivalent of “state television” in the United States. The vast majority of American media companies are privately owned. One notable exception, PBS, is partly funded through the federal government but PBS is an independent non-profit that does not speak on the government’s behalf. CCTV, in contrast, is owned and operated by the Chinese government and the country’s communist party. A statement by CCTV about Silver should thus be treated as tantamount to a declaration by the Chinese government.

For that reason, CCTV harshly rebuking Silver is a serious development as the league strategizes its future operations in China. CCTV insists that Silver “has fabricated lies out of nothing and has sought to paint China as unforgiving.” It also maintains that the 57-year-old attorney has “defamed” China, including by trying to “paint China as unforgiving.” Further, CCTV contends that Silver has tried to appease U.S. politicians by “portraying himself as a fighter for free speech and using freedom of speech as an excuse to cover for Morey.”

An unnecessary provocation

In some ways, the debate over whether China asked Silver to fire Morey is nonsensical. Silver can’t fire Morey, who is employed by the Houston Rockets, not the NBA. As detailed in another Sports Illustrated legal story, Silver could have suspended or fined Morey. Had Silver done so, the justification would have been that Morey’s comments damaged the NBA’s business relations. The league constitution makes clear that damage to league business constitutes a valid ground to impose a punishment. Also, while Morey has a First Amendment right from government persecution, the First Amendment doesn’t protect employees from employer sanctions.

Silver didn’t invoke that power. Just the opposite, Silver definitively asserted that he supports Morey’s decision to weigh in on a political controversy. In reaching that decision, Silver likely took stock of the optics of punishing Morey. Such a move would have been well-received in China but probably would have been a disaster in the United States, Canada and in other western countries. The league could have lost fans and corporate sponsors had Silver punished a general manager for expressing a viewpoint in support of democratic ideals.

How China can seek 'retribution' on Silver

The idea of a country publicly vowing to settle a score with a private businessperson who hasn’t broken any laws is unusual. Silver doesn’t represent the U.S. government. He’s the leader of a professional sports league that plays games in multiple countries and does business globally.

So, what can China really do? Here are some possibilities:

1. Sever contracts with the NBA and battle the league in court

China could decide that it no longer wants to do business with the NBA. It could reason that the NBA doesn’t speak with one voice—Silver and NBA players have offered dueling viewpoints on Morey and Silver’s most recent statements clearly surprised China—and thus isn’t a reliable partner. Perhaps China would rather do business with more conventional American companies where the CEO is the official voice of the company and where other employees are generally not in the news.

The NBA, like other sports leagues, operates in a very public-facing way. NBA players, general managers, coaches, owners, league executives and players’ association officials are all newsworthy figures whom the media covers. Each has their own perspective and often speaks to different constituencies. Sometimes this dynamic leads to disagreement, even drama. Such drama often benefits the NBA financially since it captures fans’ attention and draws in their interest. Yet in this instance, the “drama” probably hurts the NBA. The league is trying to diffuse a public dispute with a communist government—it doesn’t want the news cycle to dwell on it.

If China sought to sever ties with the NBA, Chinese companies that have signed deals with the NBA would try to void them. Those companies include tech giant Tencent, the CCTV Sports Channel and the smartphone company Vivo. These contracts are worth billions of dollars. They likely also contain clauses that permit one side to exit if certain circumstances arise. The contracts probably also instruct on the financial ramifications of such an exit.

Disagreement about whether, and how, China could cut ties with the NBA could lead to litigation. While “choice of law” clauses in contracts might specify where litigation would be tried, there could be debate over whether the litigation would be heard in a U.S. court or a Chinese court, and whether a judgment by either would be enforceable in the other country. It’s also possible that the NBA contracted to resolve any legal disputes before an arbitrator or a mediator.

For a league that has publicly voiced a desire to expand into China, the end of that endeavor through lawsuits and arbitrations would be a disappointment.

Of course, China has grounds to lose as well. If China effectively expels the NBA, it can expect other major sports leagues from North America would be skeptical of doing business with Chinese officials and businesses. China might also be concerned that the NBA could shift its international focus to the world’s second-most populous country, India, with whom China has a “complex relationship.”

2. Discourage other countries from doing business with the NBA

NBA franchises are only located in the U.S. and Canada, but the league sells broadcast and streaming rights to networks and platforms in many countries. The NBA also seeks other types of business partnerships in those countries, including for the sale of merchandise, apparel and intellectual property.

To advance those goals, the NBA has created seven regional networks, with offices located throughout the world:

NBA Asia (Hong Kong, Manila)

NBA Canada (Toronto)

NBA China (Beijing, Shanghai, Taipei)

NBA Europe (London, Madrid)

NBA India (Mumbai)

NBA Latin America (Mexico City, Rio de Janeiro)

NBA South Africa (Johannesburg)

Either publicly or privately, Chinese officials could belittle Silver and the NBA with their counterparts in other countries. Perhaps they leak information from negotiations with Silver and other NBA officials to try to imply that they can’t be trusted. Whether such commentary would have any impact is unclear. Many of those countries are democracies and value free speech. Most are also not dealing with the kind of political matter found in Hong Kong.

Still, China could try to hurt the NBA’s brand. More than any U.S. sports league, the NBA views itself as a global entity with a revenue model that anticipates the global population of basketball fans expanding. It does not want a negative experience in China to interfere with plans in other countries.

3. Drive a wedge between NBA players and NBA leadership

The divergence of opinions about Morey’s tweet suggests that at least some players place high value in financial ramifications. This certainly seems true of James, who likely voiced a position that other players privately share. Some players are now trying to avoid expressing a position for understandable fear of backlash. In a recent interview with The Boston Globe’s Gary Washburn, Boston Celtics forward Jaylen Brown bluntly, and astutely, observed, “I don’t want to comment on it because I don’t want to say the wrong thing.”

As dictated in the collective bargaining agreement, the NBA and its players more or less evenly split basketball related income (BRI). BRI includes revenue generated through the sale and licensing of broadcast rights and intellectual property. A higher BRI translates into a higher salary cap and, in the aggregate, higher player salaries. Players therefore have an important stake in the NBA expanding its business model in China and elsewhere: they’ll make more money.

Also, some NBA players are directly doing their own business in China. For instance, Golden State Warriors forward Klay Thompson and Celtics forward Gordon Hayward have signed lucrative endorsement deals with Chinese sneaker companies. Whether those endorsement deals could be suspended or voided on account of the NBA’s controversy in China is unknown, but that is a possibility. Terminated endorsement deals could lead to their own litigation, too.

Chinese officials might detect that one way of undermining Silver would be to praise individual NBA players while rebuking the league. China could extol star players and highlight that they have much to lose financially unless the NBA’s leadership changes course on China.

4. Drive a wedge between NBA owners and NBA leadership

Chinese officials no doubt noticed that instead of supporting his general manager in a time of crisis, Fertitta, the Rockets owner, tried to distance the franchise from its GM. Obviously, Fertitta was trying to do damage control, but his position highlighted the financial stake owners (governors) have in the NBA succeeding in China. The league stands to generate billions of dollars that would be shared with both owners and the players.

The values of NBA franchises are also likely to rise should the NBA grow its product abroad. In many ways, the real financial value of owning an NBA franchise becomes apparent at the time of sale. In recent years, NBA franchises have sold for massive dollar amounts, resulting in huge gains for the sellers. Earlier this year, the sale of the Brooklyn Nets from Mikhail Prokhorov to Joseph Tsai was valued at $2.35 billion. Five years ago, the sale of the Los Angeles Clippers from the Sterling Family Estate to Steve Ballmer was valued at $2.1 billion. These amounts dwarf previous sales, including those from not long ago: in 2010, Prokhorov paid $200 million to buy 80% of the Nets (and assume $180 million in liability); in 2002, the Boston Celtics, who according to Forbes are now worth $2.8 billion, were sold for $360 million to a group led by Wyc Grousbeck.

The high dollar amounts of franchise sales reflect an expectation that the league will continue to generate new types of revenue. Chinese officials could argue that franchise owners ought to be mindful that if the league’s initiatives in China fail, the value of franchises might recede.

5. Link the controversy with the NBA to trade negotiations with the U.S. government

The U.S. and Chinese governments are currently mired in a trade dispute. The dispute has numerous components, but the gist of it reflects debate over a trade deficit whereby many more Chinese goods are imported into the U.S. than are U.S. goods exported to China. There are also various concerns about intellectual property protection and privacy.

President Donald Trump has imposed tariffs on Chinese imports in an attempt to narrow the trade imbalance. China has retaliated with its own tariffs on U.S. imports. There is optimism at this time that the two countries will reach a comprehensive trade deal in the near future, but until that happens the “trade war” continues.

If China is willing to ask or demand that Silver “fire” a general manager, it’s possible that China could also ask Trump to denounce Silver. Trump has already criticized one coach, Golden State Warriors coach Steve Kerr (a frequent critic of Trump) over Kerr’s response to the NBA’s situation in China. Trump has also taken shots at NBA players and has not hosted winners of the NBA finals (or the WNBA finals) to the White House.

Trump has also not been averse to criticizing league commissioners. In 2018, he said of NFL commissioner Roger Goodell, “this Commissioner, where this guy comes from, I have no [idea]. They're paying him $40 million a year, and their ratings are down 20 percent.”

Silver, for his, has not directly criticized Trump in public. But last year the commissioner regarded Trump’s alleged remarks about Haiti and some African nations to be “discouraging.”

None of those possibilities will likely worry Silver

While China could meaningfully damage the business of the NBA and, by extension, Silver’s reputation, it seems clear that Silver will not betray his core principles. Potential career and professional fallout are likely secondary to him.

Silver and his counterparts in China are also aware that this controversy has a lifespan of its own. Chances are, the controversy will dissipate in the weeks and months ahead. With the start of the 2019-20 NBA regular season on Tuesday, the NBA’s attention will soon turn to other matters. China, it appears, is nearing a trade deal with the United States that is substantially more important than its dealings with the NBA.

Also, both the NBA and China have now expressed strident views that likely appeal to their constituencies. Silver has stood up for free speech and Morey. China has stood up for its political position and tried to diminish Silver. Going forward, neither side may be inclined to offer much in the way of public commentary. Their dealings will probably be behind the scenes, where they’ll see if they can salvage a relationship that not long ago both sides embraced.

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.