Can the NBA Really Prevent Sovereign Wealth Fund Controlling Ownership?

In recent years, sovereign wealth funds have become a hot-button issue in the world of professional sports. The origins of what is now considered a sovereign wealth fund are credited to the Kuwait Investment Authority, which established a method in 1953 that stabilized and grew national wealth for a government through the process of investing a country’s surplus revenue or other financial reserves.[1] While current-day sovereign wealth funds invest in a mixture of assets, the Saudi Arabian sovereign wealth fund’s injection of capital into professional sport franchises, in particular, has stirred up drama.[2] In 2021, the Saudi Arabian Public Investment Fund completed the purchase of the English soccer club, Newcastle United.[3] Supporters of the club, while excited about the influx of capital into the team, were very skeptical of the source of the funds.[4] When NBA commissioner Adam Silver received a question about his league accepting similar controlling ownership of a team in the NBA, he claimed the league would not permit sovereign wealth fund ownership.[5] But would the NBA really be able to deny a sale of a team solely because of the ownership structure?

Antitrust laws could force the NBA to accept sovereign wealth fund ownership in the league. When Courts have addressed antitrust challenges against the NBA, the NBA’s internal policies and measures have been disregarded in favor of contracts between individuals and teams.[6] In Haywood v. Nat’l Basketball Ass’n, a player challenged an NBA suspension he received for violating an NBA rule requiring players to have completed high school four years before entering the NBA, and the NBA’s refusal to honor the contract signed between the player and the Seattle Supersonics basketball team.[7] The player alleged that the NBA committed a per se violation of the Sherman Act by not honoring the contract.[8] The United States Supreme Court found a violation of the Sherman Act by the NBA, and the Court reinstated an injunction delaying the suspension.[9]

Accordingly, if the NBA were to restrict ownership of sovereign wealth funds and a team were to sell ownership to one without the league’s permission, the sovereign wealth fund may be able to cite Haywood to note that the Supreme Court has given contracts between teams and individuals priority over league rules. Simply put, the NBA lacks the authority to nullify contracts unilaterally based solely on league rules. Contrarily, as the Haywood decision shows, the Court views the NBA league rules as less authoritative than contract law principles; the decision could be used to restrict the sale of an NBA team to a sovereign wealth fund if another law were in place to restrict it. Ultimately, the Haywood decision shows the weakness of the NBA rules when placed against any other laws or rules of the United States.

The NBA ownership restriction of not allowing sovereign wealth fund ownership may arguably violate the Sherman Anti-Trust Act. Courts in the United States have addressed the issue of ownership restrictions in professional sport leagues, finding such restrictions to violate the Sherman Anti-Trust Act.[10] In N. Am. Soccer League v. Nat'l Football League, the professional soccer league sued the National Football League’s league rule of not allowing league majority owners to own other professional sports franchises.[11] The National Football League had created the rule to affirm that the owners of National Football League teams would dedicate all of their resources they could use on professional sports to benefit the National Football League only.[12] The court ruled that the National Football League rule prohibiting cross-league ownership was an uncompetitive trade practice disallowed under the Sherman Anti-Trust Act.[13] The circuit court did not accept the National Football League’s claim that the rule was created by a singular entity, the National Football League, rather than twenty-eight individual teams[14] conspiring to restrict trade, and the rule was considered an uncompetitive trade practice from the twenty-eight conspiring members.[15]

Just as the court viewed the National Football League in N. Am. Soccer League v. Nat'l Football League,[16] when facing a legal challenge, courts may choose to interpret NBA rules as having been created by thirty individual entities, rather than the single body of the NBA. Similarly, the courts could use this agreement among separate entities as an unfair restriction on trade by disallowing sales to sovereign wealth funds. Facing a legal challenge by a sovereign wealth fund alleging unfair trade practices under the Sherman Anti-Trust Act, a court may find the NBA at fault for its ownership prohibition.

The NBA may be able to justify a rule disallowing sovereign wealth fund ownership by citing financial benefit to the league that they would not achieve without the rule.[17] In Nat'l Basketball Ass'n v. SDC Basketball Club, Inc., the court considered whether the NBA could sanction a franchise for failing to seek league approval prior to relocating a franchise.[18] After the Clippers basketball team relocated from San Diego to Los Angeles, which was already home to the Lakers franchise, the NBA sought a declaratory judgment allowing the league to sanction the franchise for not receiving the mandatory three-fourths owner approval prior to the relocation without violating antitrust laws.[19] The trial court granted summary judgment for the Clippers before the appellate court reversed that decision.[20] The court explained that certain facts could potentially permit the league to limit relocation without violating the antitrust legislation.[21]

When evaluating whether the NBA would violate antitrust legislation Nat'l Basketball Ass'n v. SDC Basketball Club, Inc. could serve as a significant case in allowing the NBA to present facts to show the necessity of restricting sovereign wealth funds from purchasing ownership interest in a franchise.[22] This means that the NBA could present different studies or projections to show that the restrictions are necessary for the profitability of the league. The NBA could reference fan disinterest in supporting a team with sovereign wealth ownership that would outweigh the potential gain for a team by selling to the sovereign wealth fund.

The NBA has restricted ownership in the past without facing challenges in the legal system. For example, in 2014, the commissioner of the NBA, Adam Silver, forced the sale of the Los Angeles Clippers after the owner, Donald Sterling, was caught on tape using racially insensitive language and promoting discriminatory practices.[23] In addition, Adam Silver fined Donald Sterling and banned the owner from the league for life.[24] While Donald Sterling did file a lawsuit against the league after the sale, the allegations focused on the NBA’s acquisition of the tapes and the “excessive” level of punishment for the comments, rather than allegations questioning the league’s ability to force the sale.[25] The matter was later voluntarily dismissed by Sterling.[26] 

The NBA has rejected sales in the past as well. In 1994, the league denied the sale of the Minnesota Timberwolves for $152.5 million.[27] The league successfully justified the rejection, citing speculative and inadequate financing.[28] The NBA has so far remained successful in managing ownership of teams on a case-by-case basis and could continue to do so in an effort to restrict ownership by sovereign wealth funds unofficially.

Currently, no US laws require or disallow certain ownership groups from investing in NBA ownership. Additionally, there are no laws or trade restrictions in place regarding Saudi Arabian investment in the US.[29] Because there are no conflicting laws, the NBA rules can dictate ownership requirements so long as they do not unreasonably restrict trade under the Sherman Anti-Trust Act.[30] The drama unfolding in the LIV vs. PGA Tour, as well as the sale of Newcastle United to the Saudi Arabian sovereign wealth fund, presents clear fan unrest that could justify continuing such disallowance of ownership.[31] Courts have shown a willingness to consider facts like those when deciding if a league rule has violated the antitrust statutes.[32] Therefore, the NBA would not likely face an antitrust issue when denying sovereign wealth fund ownership in the league.

[2] Fahad Abuljadayel and Christine Burke, Saudi Arabia Is Splurging on Sports. Is It Working?, Bloomberg, https://www.bloomberg.com/news/articles/2024-03-10/saudi-arabia-is-splurging-on-sports-is-it-working.

[3] Joe Prince-Wright, Confirmed: $400 million Newcastle United takeover completed, NBC Sports, https://www.nbcsports.com/soccer/news/newcastle-united-takeover-completed.

[4] Hannah Ryan, Their club became the richest in the world. But these fans are worried at what it means for Newcastle’s soul, CNN, https://www.cnn.com/2021/11/09/football/newcastle-united-fans-against-saudi-ownership-spt-intl-cmd/index.html

[5] Tim Bontemps, Adam Silver: No plans to let sovereign wealth funds control NBA teams, ESPN, https://www.espn.com/nba/story/_/id/37992076/adam-silver-no-plans-let-sovereign-wealth-funds-control-nba-teams.

[6] Haywood v. Nat'l Basketball Ass'n, 401 U.S. 1204, 91 S. Ct. 672, 28 L. Ed. 2d 206 (1971).

[7] Id, at 1205.

[8] Id, at 1205.

[9] Id, at 1206.

[10] N. Am. Soccer League v. Nat'l Football League, 670 F.2d 1249, 1249 (2d Cir. 1982).

[11] Id. at 1250.

[12] Id. at 1254.

[13] Id. at 1258.

[14] Id. at 1251. At the time of the lawsuit, in 1982, the NFL had only 28 teams, not the 32 teams the league operates with as of 2025.

[15] Id. at 1257. 

[16] Id. at 1257.

[17] Nat'l Basketball Ass'n v. SDC Basketball Club, Inc., 815 F.2d 562, 562 (9th Cir. 1987).

[18] Id. at 562.

[19] Id. at 565.

[20] Id. at 565.

[21] Id. at 569.

[22] Id. at 569.

[23] Ken Berger, Sale of Clippers to Steve Ballmer closes; Donald Sterling out, CBS Sports, https://www.cbssports.com/nba/news/sale-of-clippers-to-steve-ballmer-closes-donald-sterling-out/.

[24] Id.

[25] Donald Sterling vs. National Basketball Association, Los Angeles Times, https://documents.latimes.com/donald-sterling-vs-national-basketball-association/.

[26] Nathan Fenno, Donald Sterling settles lawsuit with NBA over sale of Clippers, Los Angeles Times, https://www.latimes.com/sports/sportsnow/la-sp-sn-sterling-lawsuit-settled-20161118-story.html

[27] NBA denies sale of Timberwolves to Bob Arum's New Orleans group, UPI, https://www.upi.com/Archives/1994/06/21/NBA-denies-sale-of-Timberwolves-to-Bob-Arums-New-Orleans-group/5349772171200/.

[28] Id.

[29] Sanctions Programs and Country Information, Office of Foreign Assets Control, https://ofac.treasury.gov/sanctions-programs-and-country-information.

[30] N. Am. Soccer League v. Nat'l Football League, 670 F.2d 1249, 1249 (2d Cir. 1982).

[31] Sean Zak, LIV Golf Timeline: How we Arrived at Pro Golf’s Civil War, Golf.com, https://golf.com/news/timeline-liv-golf-how-we-arrived-pro-golf-civil-war/; Joe Prince-Wright, Confirmed: $400 million Newcastle United takeover completed, NBC Sports, https://www.nbcsports.com/soccer/news/newcastle-united-takeover-completed.

[32] Nat'l Basketball Ass'n v. SDC Basketball Club, Inc., 815 F.2d 562, 562 (9th Cir. 1987).