The Raptors and Clippers announced in separate statements on Thursday that a proposed trade that would bring all-star forward Kawhi Leonard back to Toronto has been put on hold following the outcome of an investigation by the NBA into Leonard’s 2024 contract with L.A. Both statements said that the Raptors would assume the risk of any potential penalties that come out of the investigation.
Russell Sanders, a partner at Aird and Berlis, said he was taken aback by the deal being paused.
“I was frankly shocked. I would have thought that was an issue that would have been vetted internally on both sides before the transaction was announced,” said Sanders, who is a member of the firm’s sports and entertainment groups.
“I don’t want to speculate, obviously, on what the punishment would be or what it would look like, but I don’t see the Raptors going through with anything if it would be so harsh that it wouldn’t be palatable for the team to take on a player like that.”
The pending deal would send Brandon Ingram, Gradey Dick, two unprotected first-round picks, a 2027 pick swap and two second-round picks to the Clippers for Leonard.
An investigation into Leonard’s current contract was opened by the NBA in September following allegations that Leonard signed a US$28-million “no-show” endorsement deal with Aspiration, an environmental financial technology company, that required no work beyond remaining with the Clippers. Aspiration later entered bankruptcy after its co-founder, Joe Sanberg, was charged with fraud, though Leonard has not been charged with any wrongdoing.
“The Raptors have no nexus to (the deal) whatsoever, so it would be pretty shocking if the Raptors had to assume that kind of liability associated with something that happened under another owner’s roof,” said Sanders, while allowing that Leonard could be facing a lengthy suspension that would make the trade no longer worthwhile or have his contract voided.
Sanders noted that there have been two significant salary cap circumvention controversies in the NHL and the NBA before.
Power forward Joe Smith, Minnesota Timberwolves owner Glen Taylor and general manager Kevin McHale were embroiled in controversy after the 1999-2000 NBA season. Smith was allegedly promised a multimillion-dollar deal if he agreed to three consecutive one-year deals below his market value. That allowed the Timberwolves to retain his rights and exceed the cap to re-sign him. At the end of the last one-year contract, Smith could have signed a new long-term contract that would have paid as much as $86 million.
After that backroom deal was uncovered, then-NBA commissioner David Stern fined the team $3.5 million, voided all three short-term contracts, barred Taylor from participating in the Timberwolves operations for a year and forced McHale to take an unpaid leave of absence. Stern also stripped the team of five first-round draft picks: 2001, 2002, 2003, 2004 and 2005, although the ’03 and ’05 picks were eventually returned.
Similarly, hockey superstar Ilya Kovalchuk agreed to a 17-year, $102 million deal to stay with the New Jersey Devils in July 2010 after testing the free-agent market for 19 days. The contract was blocked by the NHL because it circumvented the league’s salary cap. An arbitrator heard the National Hockey League Players’ Association appeal and ultimately nullified the deal.
The Devils were fined $3 million, a third-round draft choice in the 2011 draft and one future first-round draft pick within the next four seasons. New Jersey used its first-round picks in 2011 and 2012 and therefore had to surrender its 2014 first-round selection. However, the NHL announced in March 2014 it would forgive part of the fine and grant the Devils the 30th pick in the first round of the 2014 draft.
Neither of those incidents involved a trade, changing the dynamic of any possible punishment doled out by the NBA or another professional sports league faced with a similar situation.
“I would probably use a useful business analogy here, where a buyer purchases a company that’s already under regulatory investigation, and the buyer may not have caused the underlying conduct, but it may inherit some of the consequences if the investigation later results in penalties,” said Sanders. “The NBA is trying to determine whether any potential fallout is tied solely to the Clippers’ conduct, or whether it is attached in some way to Kawhi’s contract and the playing status following the trade.”
The Raptors said they will wait until the investigation is complete before moving ahead with the trade.
