Advertisers back away from NBA's LA Clippers

AP with
Sprint, Mercedes-Benz suspend LA Clippers relationships
Sprint, Mercedes-Benz suspend LA Clippers relationships

Fans, players, owners, advertisers—all eyes will be watching on Tuesday when Commissioner Adam Silver announces possible action by the NBA against Los Angeles Clippers' owner Donald Sterling over racist comments he allegedly made in a secretly recorded conversation.

A suspension of indefinite length and a hefty fine—Silver can issue one of up to $1 million without approval from owners—are possible options. However, it remains unclear how far Silver's powers extend at this point, even though the NBA constitution gives the commissioner's office the clout to protect the game's best interest.

Sterling has come under fire for comments he is alleged to have made in a recorded conversation with a woman. Portions of that conversation were released over the weekend by TMZ and Deadspin, leading to a national outcry.

Dallas Mavericks owner Mark Cuban called Sterling's purported comments about minorities "abhorrent" but said he didn't think the NBA could force him out as owner.

"What Donald said was wrong," Cuban said. "There's no place for racism in the NBA, any business I'm associated with. But at the same time, that's a decision I make. I think you've got to be very, very careful when you start making blanket statements about what people say and think, as opposed to what they do. It's a very, very slippery slope."

Adam Silver, NBA Commissioner.
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Advertisers, meanwhile, are bailing on the Los Angeles Clippers.

Used car dealership chain CarMax, airline Virgin America, Mercedes-Benz and the Chumash Casino Resort said Monday that they are ending their sponsorships of the Clippers.

Another handful are also suspending their sponsorships with the team, including State Farm, Kia Motors America, Red Bull, Yokohama Tire, Sprint, Corona, Lumber Liquidators, AquaHydrate and Adidas.

The incident highlights the risks that companies face when they make sponsorship deals. The deals can bring goodwill when things are going well, but brands face a tough spot when they link themselves with teams or athletes that become mired in controversy. Advertising experts say that once the bad news it out there, a negative association could have already been made in the eyes of consumers.

NBA won't force Sterling to resign: Attorney
NBA won't force Sterling to resign: Attorney

Allen Adamson, managing director of research firm Landor Associates, said there's little benefit for brands to stick with their sponsorship deals in this instance.

"There's some benefit in moving quickly," he said. "You can always renew your sponsorship later, but the longer you're linking your brand to a brand in trouble, the higher the risk."

Paul Swangard, managing director at Warsaw Sports Marketing Center at the University of Oregon, said sponsorships like Carmax and Virgin America can be worth hundreds of thousands of dollars to millions, depending on terms of the agreement. He said many brands might be waiting to see what happens at the NBA's press conference on Tuesday.

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"The early indication is that this could be incredibly damaging to the franchise if things aren't dealt with quickly," he said

This isn't the first time companies have had to consider whether to keep a sponsorship deal after a controversy erupts. Nike and other sponsors dropped disgraced cyclist Lance Armstrong after his doping scandal. But many sponsors stood by golfer Tiger Woods after he acknowledged infidelities and went to rehab for sex addiction.

LA Mayor behind Clippers' players
LA Mayor behind Clippers' players

"CarMax finds the statements attributed to the Clippers' owner completely unacceptable," Richmond, Va.-based CarMax Inc. said Monday in an emailed statement. "While we have been a proud Clippers sponsor for 9 years and support the team, fans and community, these statements necessitate that CarMax end its sponsorship."

Bloomington, Ill.-based State Farm also described the remarks as offensive and said it will monitor the situation as the facts are sorted out. It will continue to run its Born to Assist ad campaign, which began in December 2012 and features Clippers point guard Chris Paul as himself and a fictional, mustachioed insurance-selling twin, Cliff Paul. State Farm said that campaign is part of its overall sponsorship of the NBA.

Kia's suspension of sponsorship and ads with the Clippers does not affect its deal with Clippers star Blake Griffin, who appears in commercials for the car company.

On Tuesday, Adidas said it has suspended its marketing partnership with the Clippers, but would "continue to monitor and evaluate our partnership with the team. ... Our status as the official on-court provider of the NBA remains unchanged," a representative for the firm said.

Noted real estate investor Rick Caruso, who reportedly made a bid to purchase the Los Angeles Dodgers in 2012, said he is willing to buy the team if Sterling is fired, sources close to the matter told CNBC on Monday.

Earlier, Yahoo Sports reported Magic Johnson and his billionaire backers, the Guggenheim Partners, are reportedly "absolutely interested" in purchasing the embattled team.

For Silver, the handover to Johnson and his partners is the best possible solution right now, the report said citing sources with knowledge of the matter.

The purchase would make Johnson, who with his partners already owns the Los Angeles Dodgers, the face of two championship contenders.

Los Angeles Mayor Eric Garcetti told CNBC on Monday that he fully supports the players on the team, but said there is no place in his town for racist companies.

"Those comments were absolutely despicable and I hope that the very strongest sanctions are levied by the league against the owner if its proven that indeed is Donald Sterling," Garcetti said.

—AP with CNBC