Even though I chose the headline I did, there are a lot of conclusions you can draw from what I write below, each rather troubling. The statement issued by the Wizards today after Stern announced Gilbert's suspension initially struck me as odd, but it took a while for me to realize how odd and problematic it was. There has been lots of criticism of Gilbert's actions and comments since the gun incident, but the Wizards organization's statement today is just as unwise, coming from people who should know better. The Wizards' statement is so bad that it might become evidence in the criminal trial for Gilbert, used by Gilbert's attorney to discredit any negative testimony offered by Ernie Grunfeld or anyone from the Wizards organization (as I explain below). Yeah, that's pretty bad.
In its statement, the Wizards organization stated that it, "fully endorse[s] the decision of the NBA to indefinitely suspend Gilbert Arenas." That statement was illogical and problematic for many reasons, including the following:
- Arenas is the team's franchise player. He is a central figure in the team's marketing, and the team's customers buy tickets in large part to see Arenas. You "fully endorse" the league's decision to deprive your customers of your main attraction? Even if the team isn't going to support its player, shouldn't it support its customers? Is a season ticket holder revolt coming?
- The Wizards organization has a financial interest in Gilbert being suspended. It does not have to pay him during the suspension, and (if I have this wrong, please correct me) since his salary during the suspension will only be counted 50% toward the salary cap and luxury tax, the Wizards save 150% of Gilbert's salary during the suspension. That's $296,000 per game, or roughly $600,000 per home game. I don't know if Gilbert's suspension can be sufficiently long to help bring the Wizards under the luxury tax threshold, but if so, the Wizards can avoid the tax, AND share in the distribution of the collected luxury taxes.
- The Wizards have a great financial interest in Gilbert's contract being voided, and this is where it gets really interesting. As many have discussed, if the Wizards can void Gilbert's contract, they not only can save money, but can start rebuilding more quickly. But more importantly, they can sell the team for more money. We've seen it before -- when an owner is looking to sell his team, he seeks to cut payroll before the sale. In any business, the lower the future liabilities of the business, the more the business is worth, and the more it fetches in a sale. Someone out there will know much more about this than me, and if so, please post your thoughts below, but when a business is being sold, to price that business you usually take key business data, such as sales, earnings, etc., and multiply by a multiple. The multiple varies by industry and other factors, but I think is usually is between 2 and 6 or so. So, if the Wizards can get rid of the remaining $80 million of Arenas's salary, by saving that money (and let's ignore other factors here for simplicity), when they sell the team, they can raise the asking price by $80 million times that multiple. So we are talking about the Pollins gaining hundreds of millions of dollars in the sale by voiding Gil's contract.
Now, the Wizards organization can probably only void Gilbert's contract if he is convicted of a felony. And wouldn't you know it, members of the Wizards organization are fact witnesses in the criminal case! I don't mean to call anyone a liar here, but I can tell you as a lawyer that Gilbert's attorney may very well seek to discredit and treat as a hostile witness any member of the Wizards organization who offers testimony in any way harmful to Gilbert's defense on the basis I have spelled out here. Talk about ugly. And that's why the Wizards' press release today was so problematic -- they were applauding the suspension of their own franchise player. Add to that the fact that when Grunfeld first heard about the incident, it's been reported very soon thereafter he started thinking about voiding Gilbert's contract.
- Consider this from the perspective of a Wizards player. Your teammate is on trial, your organization is trying or may try to void his contract, and your teammate's attorney is claiming in court that the organization's employees are fudging the truth to the detriment of your teammate, putting him at risk of going to jail, in order to save money. How do you feel about that? How do other players in the league feel about that? You think the Wizards are going to score big in free agency when players are at least considering the above possibilities? That's why I chose the headline for this post that I did -- seeking to void Gil's contract can become very messy.
- Now, consider this from the perspective of Ted Leonsis. If the Wizards void Gilbert's contract, your purchase price goes up (but you are saving Gilbert's salary and have a cleaner slate to rebuild), and because of the above, the Wizards' reputation among its players and league-wide may be harmed, making it harder to attract free agents. If I am Leonsis's attorney, I am spelling all of this out for him, and we are thinking hard about whether to run to court to get an injunction preventing the Wizards from voiding Arenas's contract before the sale of the team. The best of all possible worlds for Leonsis: the current Wizards' organization does not void Gil's contract, the criminal case is resolved without all the terrible things I've mentioned above occurring, and then after Ted has the team, he can make the choice as to whether to void the contract or not. For the that reason, it could be wise for Leonsis to seek an injunction, or better yet, to get the Wizards to agree to not void the contract without going to court and creating anomosity with the Pollins.
Now, of course I am not saying all of the above will happen. I am just saying that there are all sorts of weird and perverse motivations, incentives and possibilities at play here, so much so that this situation could become very interesting and potentially destructive to the organization we follow so closely.