Journalist Pablo Torre shocked the sports world when he released an episode of his podcast, Pablo Torre Reports, alleging that NBA star Kawhi Leonard took a deal with a third-party company for the purpose of circumventing the NBA salary cap. If this bewildering story is true, Los Angeles Clippers’ owner Steve Ballmer and the team committed a cardinal sin in the eyes of the league.
What do we know?
Kawhi Leonard joined the Clippers in 2019 and is currently on a three-year deal for $152.4 million that was signed in January 2024. The issue here is an outside deal that Leonard signed in 2022.
As Torre reported on his podcast, Leonard signed a contract for an endorsement deal with Aspiration, a sustainability company. The deal was for four years and promised to pay $28 million to Leonard’s corporation, KL Aspire, LLC. Leonard’s corporation also signed a second contract with Aspiration for an additional $20 million in Aspiration stock. The first contract specifically mentioned that Leonard could “decline to proceed with any action desired by the company,” effectively allowing him to not perform any work for the company. So how did Leonard end up getting this incredibly lucrative “no-show” arrangement? The connection started with the Clippers.
In 2021, Aspiration pledged over $300 million to the Clippers over 23 years to be the team’s jersey sponsor and a founding partner of the Intuit Dome, the Clippers’ home arena. Ballmer also invested $50 million into Aspiration, which earned him a less than three percent ownership stake. Following this partnership deal, Ballmer introduced Leonard to the company.
Behind the scenes, Aspiration was failing. According to a source who appeared on Torre’s show, the company was facing financial difficulties. The company missed the second payment to Leonard, which was due in September 2022, and by the time the third payment was due in December, the company was almost completely out of cash. On December 15, 2022, Aspiration laid off 20% of their workforce just a few weeks after some of their C-suite executives had been terminated. That same day, the company was somehow able to pay $1.75 million to KL Aspire, LLC.
Where did a failing company get the money to pay a professional basketball player who was doing no work for the company? On December 6th, Aspiration received a $1.99 million investment from DEA88 Investments LP, a corporation whose registered agent is Dennis Wong, Clippers vice-chairman and minority owner.
What is the explanation?
The innocent explanation for all of this, as issued in a statement from the team to Pablo Torre, is that Aspiration was “a house of cards that defrauded Steve and many others”. In 2024, Aspiration’s co-founder Joe Samberg and co-conspirator Ibrahim AlHusseini were under investigation by multiple federal agencies for allegedly defrauding investors out of at least $145 million. Samberg and AlHusseini eventually pled guilty to wire fraud. Aspiration soon after filed for bankruptcy, allowing their creditors to be revealed. One of which was KL Aspire LLC.
Ballmer claims that he had no idea about the deal between Leonard and Aspiration. It is possible that this was true, given the fact that the deal was not reported to the league per NBA general council and Chief Compliance Officer Rich Buchanan.
As for the investments, Ballmer’s is relatively easy to explain away. He made the investment early in the partnership, at a time when the company was pledging a lot of money to the team. Additionally, as pointed out by Dallas Mavericks minority owner Mark Cuban, if the Clippers were intentionally going to do something so clearly against the league rules, wouldn’t they have chosen to do so in a business that was above board?
Wong’s investment is harder to explain. It is peculiar that a savvy businessman of Wong’s stature would invest in a company that was actively laying off executives and a large chunk of their workforce. However, we do know from AlHusseini’s plea that the company was falsifying documents, which could support Wong’s argument that he had no knowledge of Aspiration’s financial standing. Wong’s explanation falls apart due to the fact that his daughter was an employee at Aspiration who, according to her LinkedIn, worked as a Project Manager, Operations and Strategy for Aspiration. It seems nearly impossible that she would not know anything about the company’s financial issues. It also seems odd that someone in Wong’s position would not talk to his daughter about the company he was investing in. Neither of these things are impossible. We don’t know much about Wong’s relationship with his daughter or what she knew about the company, but when looking at all the facts together it seems hard to believe that Wong was merely an innocent investor.
All signs point towards this being an elaborate scheme to circumvent the NBA salary cap. The alleged facts seem to show that Wong had invested in a company with the sole purpose of paying Leonard more money. An idea supported by Torre’s informant, who claimed that executives at the company knew that the deal with Leonard was a sham to avoid the salary cap.
The theory that this “no-show” deal was used to circumvent the cap makes sense when looking at the financial situation behind Leonard joining the Clippers. In 2019, Leonard became a free agent after winning the NBA Finals with the Toronto Raptors. Per Pablo Torre, had he re-signed in Toronto, the Raptors could have offered him $190 million over five years. This meant that under the CBA, any other team that wanted to sign him was limited to an offer of $141 million over four years. To sign with the Clippers, Kawhi would have had to turn down an additional $49 million in total contract value; a number just $1 million short of the total value of his deal with Aspiration.
There is one other piece of evidence that adds to the case against the Clippers, which is that the Clippers have previously tried to circumvent the cap under Ballmer. In 2015, the Clippers approached DeAndre Jordan about signing with the team and offered him an endorsement deal with Lexus for $200,000 per year as an incentive for joining. Although the deal never materialized, the league fined the Clippers $250,000 for violating the cap circumvention rules when they found out. Torre reported on his podcast that the Clippers had also been investigated for an additional instance of cap circumvention prior to the Jordan investigation. While in a court of law, the previous, unrelated instances might not be able to be used against the Clippers, here it is NBA Commissioner Adam Silver who gets to exercise his judgment. And his judgment will surely weigh the Clippers’ troubled history with the cap.
What are the possible penalties?
If it is true that there was a scheme to blatantly break the rules of the NBA’s Collective Bargaining Agreement (the “CBA”), the penalties could be severe. Article XII, Section 3 of the NBA’s CBA lists the potential punishments for cap circumvention. Those can include a fine of up to $5.5 million, forfeiture of draft picks, voiding the player contract, and voiding the transaction or agreement with the company.
Ultimately, as Commissioner Silver has said, he has a lot of discretion as to what the punishment should be. After the story dropped, Silver announced that the league would be investigating the matter through a New York law firm. Under Article XII, Section 2 of the CBA, the investigation is looking into whether the alleged circumvention can be proven by “direct or circumstantial evidence, including, but not limited to, evidence that a Player Contract or any term or provision thereof cannot rationally be explained in the absence of [violative conduct].”
The commissioner does have one instance of precedent to aid him in making his ruling. In 1999, Joe Smith signed a deal with the Minnesota Timberwolves which included a secret agreement that Smith would receive $86 million over seven years after his initial deal expired. As a result, the league took away Minnesota’s next five first round picks (returning one on appeal), fined the team $3.5 million, and voided Smith’s contract, making him a free agent.
What sort of punishments could the Clippers expect?
The CBA does allow for harsher punishments to repeat offenders. While the Clippers have only been found to have violated the rules once, the fact that there was a second investigation before this could be used against them. Additionally, Leonard’s deal was a more significant violation than the other two instances because neither Jordan nor Smith got paid for their deals, but Leonard did. Furthermore, in contrast to Leonard’s deal to circumvent the salary cap, Smith’s deal provided an impermissible guarantee of future compensation, a lesser offense. The league is committed to a thorough investigation, so it will be some time before we have a final ruling, but these additional factors could lead to a more severe penalty than was previously imposed against the Timberwolves.
Broader Implications
The most interesting aspect of this story is that the NBA would seemingly have had no idea about Leonard’s deal had Aspiration not been investigated for fraud. The Joe Smith scandal was exposed under similar circumstances. The documents detailing the secret deal were found as a result of a lawsuit between two of Smith’s agents. This all begs the question: what kind of deals are going on in the NBA that have not yet been discovered?
When the story first broke, it seemed obvious that Leonard and the Clippers should have known how serious of a violation this deal was and therefore never should have agreed to it. But now, having seen the developed story, it is easy to understand why both parties could have believed they would get away with this. Every player in the NBA is signing endorsement deals, and undoubtedly some of those are also “no-show” deals. Many of these deals involve local companies that are partners with the team. Given the nature of these deals and the ability to keep much of this information private, the system seems ripe for this kind of exploitation.
So, what can the NBA do about it? They are going to start by investigating all of the Clippers’ deals. According to one NBA executive, “[the Clippers] have a lot of problems” that will surely be scrutinized by the league. As a result, we may find more side deals. However, implications of this may spread beyond the Clippers. Will this story be something that fundamentally changes how the league approaches the salary cap? Maybe not. Maybe it is just one deal. But maybe there is more here that could shake the league to its core.
