I've some bone-headed quotes in my time, but Los Angeles Clippers owner Donald Sterling took the cake last week with a more than 9-minute taped tirade of hate.
Unless you've been hiding under a rock you're likely well aware of the antics surrounding the now banned-for-life Clippers owner. Having been caught on tape chastising in his girlfriend for bringing black people to his basketball games, the NBA was forced to divvy out the harshest punishment its charter would allow. Namely, a $2.5 million fine, banishment from the NBA for life, and likely the forced sale of the Clippers due to conduct considered detrimental to the NBA.
The judgment against Sterling was swift, primarily because of the monstrous financial impact his words could have on the Clippers franchise and the NBA as a whole.
As my Foolish colleague Travis Hoium noted last week shortly after the recording hit the newswires, the Clippers are expected to bring in about $57 million in sponsorship revenue and advertising endorsements this year. Keep in mind this is somewhat of a guess since NBA teams don't publicly disclose their revenue, but it appears that at least for the time being the Clippers can kiss most of this potential revenue goodbye. CarMax, Kia Motors, privately held Virgin America, AQUAHyrdrate, Red Bull, Yokohama tires, Mercedes-Benz, and Ford all bid adieu to the Clippers, not wanting to in any way be associated with or supportive of Donald Sterling's actions or commentary. State Farm is the lone holdout, choosing to continue its ongoing series of ads with Chris Paul and his "brother."
Financially these sponsorship losses could easily swing the Clippers into an annual operating loss despite having an excellent season that saw them – so far – move onto the Western Conference semifinals. In the interim, had the NBA not acted quickly and decisively, Sterling's commentary could have also have negatively impact the league's revenue-sharing split. Since higher income teams such as the Clippers help balance out weaker market teams the NBA needed to move quickly to stamp out this problem to minimize total revenue losses.
The faces of the Clippers franchise (from left to right): Chris Paul, DeAndre Jordan, Blake Griffin. Source: Los Angeles Clippers.
Quantifying the Clippers' fall from grace
But, there's more than just the immediate impact of sponsorship losses for the Clippers – there's the quantifiable loss of brand loyalty to the team. According to brand loyalty research firm Brand Keys (link opens PDF), which has a proprietary formula known as the Sports Fan Loyalty Index (SLI), the Clippers plunged from fourth in its standings of 30 NBA teams to 11th, directly because of Sterling's comments.
Brand Keys' SLI is comprised of four basic categories:
- Pure entertainment: This looks at how exciting a team is to watch, and few would argue that Lob City isn't among the most intriguing teams to watch.
- Fan bonding: This covers how personable, respectable, and admirable players and coaches on a team are. With both faces of the Clippers, Blake Griffin and Chris Paul, very active in their community and happy to open their own wallets to help a good cause this has never been an issue.
- History and tradition: This category has always been difficult with the Clippers playing second fiddle to the Los Angeles Lakers for decades, but the team has more than 35 years of Southern California roots and it had been quickly gaining quite the fan base.
- Authenticity: Lastly, authenticity looks at how well the team plays and bonds as a whole. As Brand Keys notes, this is what's most linked to driving ticket and merchandise sales. This is also the category that got slammed shortly after Sterling's comments.
Brand loyalty is especially important because no team can consistently rely on winning seasons and championships to drive an emotional connection with the fans. The Boston Celtics and L.A. Lakers both had miserable seasons this year, for instance, but both carry with them a rich heritage.
The Clippers, on the other hand, don't have that winning tradition. In fact, this is just the fourth time in 41 years they've won a playoff series. They've also played in the shadow of the Lakers for a long time, making it difficult to build a unique identity. Just when it appeared that this was finally happening and the people of L.A. had faces of the Clippers organization to put their faith behind, Donald Sterling ruined it.
History provides a ray of hope for the Clippers
There's a ray of hope at the end of the tunnel. While the Clippers immediate sponsorship prospects look bleak -- and they may remain so until Sterling has no part of the Clippers organization whatsoever -- the fact remains that consumers have a fairly short memory span when it comes to lapses of judgment from leadership positions.
Source: Los Angeles Clippers.
Perhaps the most shining example of this in the corporate world is teen retailer Abercrombie & Fitch's (ANF 2.04%) CEO Mike Jeffries who in 2006 in an interview with website Salon said:
In every school there are the cool and popular kids, and then there are the not-so-cool kids. Candidly, we go after the cool kids. We go after the attractive All-American kid with a great attitude and a lot of friends. A lot of people don't belong [in our clothes], and they can't belong. Are we exclusionary? Absolutely.
As you might imagine, this interview sparked an outcry directed at Jeffries and Abercrombie. Throughout the years there have been other gaffes as well, including A&F's padded bikini tops for children as young as seven-to-eight years old, and the fact that it carries plus sizes for men but not women.
Yet, surprisingly A&F's sales figures have generally resumed their uptrend just six to 12 months following what's become an almost ritualistic insertion of foot in mouth on the part of Mike Jeffries and his merchandising team.
There was even redemption for golfing legend Tiger Woods after admitting to being unfaithful to his wife. As expected, Tiger lost a handful of sponsorships in the wake of his infidelity announcement. Footwear and accessories giant Nike (NKE +3.01%), however, stuck with Tiger throughout and has seen numerous brand benefits of partnering with golf's most prolific and crowd-drawing competitor over the years. In other words, these issues don't simply disappear overnight, but consumers' negative views wane pretty quickly.
Coach Doc Rivers, Source: Los Angeles Clippers.
The same might be said for the Clippers. If the team can somehow win the NBA championship this year, I'm not sure advertisers will be able to resist the urge to latch on in even greater numbers than before.
However, a more realistic scenario is that the Clippers' downtime prior the start of the 2014-2015 season will be met with silence from the front office, primarily because time heals all wounds – even offensive commentary by people in charge. By the beginning of next season it should be a green light for advertisers to jump back on board and serve as yet another reminder to the NBA and consumers of how valuable brand loyalty can truly be to the success of a businesses.
