Pablo Torre Explains the Steve Ballmer & Kawhi Leonard Scandal

0:00Let's bring in Pablo Torre from Pablo Torre finds out. He's a host, investigative journalist. What's going on? And he's on an absolute terror. What are you doing? Pablo, it's an honor to have you. I was telling John before the show started, we podcast for a living. I'm not a big, I don't follow very many sports very much, but every time there's a sports story, I go find your content. And when I watch your content, you make me feel like an amateur because you're just so good at what you do. so good at yapping but then you're also also an elite investigative journalist and we wanted to take uh victory lap with you yeah it feels like yeah my show is designed thank you a b my show is designed for people who don't care about sports at all to find it even mildly entertaining and interesting and this is a story that has immersed me in the world of securities law and the funneling of money and billionaires and especially one particular billionaire who used to run a certain company called microsoft and so all of this i think is actually in your guys's wheelhouse so happy to be on with you yeah and i remember i remember i watched some of your content around a year ago when you were originally breaking this story and i'm surprised that the story like at least went away out of the out of the public eye for some time i'm sure you were still following it but take us maybe from back a little bit to first kind of uncovering this and then we'll get all the way to the present.

1:25Yeah. So this was an investigation that started with a tip. And the tip was there's a weird company out in LA called Aspiration. It was a tree planting startup, AKA a carbon credits company. The ESG thing, as you guys may recall during the pandemic, was a real thing. We're going to be good guys, right? Everyone's going to be a good guy now. and uh so cynical hey hey hey i love trees i love planting trees too i love what they do to carbon and oxygen yeah reportedly um so aspiration has all these endorsers that are public there's robert downey jr there's leonardo dicaprio there's drink there's cindy crawford for people who grew up in the 90s Toronto figures into the story in lots of ways, it turns out.

2:13But the point is that there are all these A-list stars, Orlando Bloom, I didn't even mention, all these A-list stars that this good guy company is paying to tell everybody about what they are. And what I get a tip on is, hey, you should look into this company. It's kind of weird. They just signed a deal,$300 million, to be the jersey patch sponsor of Los Angeles Clippers. and uh you know they have another endorser that you'd be interested in yeah and when i look into this it's not immediately obvious like what they're talking about but when this company goes bankrupt because and this is going to be in your wheelhouse again they were going to go public via SPAC yeah what a time right what a time SPACs ESG we're all going to get rich being good guys and no one really needs to ask many questions just trust us it's going to be fine and what turns out is this company is co-founded by two people, two big damn donors, classic good guys, went to Harvard.

3:10I mean, I resemble the remark. I want to say that this has been also awkward for me. Steve Ballmer, Harvard, all these guys, all of this, right? Pedigree, all of it. The thing that's interesting is that when you dig in to how this company fell apart and they go into bankruptcy, you of course get to examine some public filings. And one of their big creditors was a company called KL2 Aspire LLC. And if you're a basketball fan who's aware of the Clippers, you may realize that KL sounds like Kawhi Leonard. Two sounds like his jersey number. KL2 Aspire sounds like a vehicle you've invented to accept money from Aspiration.

3:50Yeah. And he was owed$7 million outstanding. And the weird part was that this dude had no public record of being associated with aspiration personally at all. And so when you dig in and you begin to ask questions to people who used to work at a company that has now gone into bankruptcy, in which the co-founder, Joe Sandberg, is now, by the way, serving 14 years in federal prison for fraud, you get people who are interested in explaining how crazy their life has been. And what they say and what they provide in the tonnage of all the reporting I did for months, seven months before we came out with part one of the series one year ago today, was documentation that attested to the fact that Kawhi Leonard was paid, according to this agreement, a total of$48 million, 20 in stock, 28 in cash, to do nothing for a deal that never got announced.

4:40And the question was, why? And so you follow the threads and you get to, oh, wait, there's a massive salary caps or convention scheme in which the richest owner in American sports, Steve Ballmer, is trying to use all of his wealth in ways he's not allowed to, to get money to a guy that he needed to take away from the Lakers and the Toronto Raptors in order to make his dream of owning a professional basketball team exactly the dream that he imagined. So how strict are these rules? Because I can imagine... That's a funny way. Yeah, so we covered the whole AI talent wars last summer. Every single day was crazy.

5:18And we kept coming back to this idea. Part of why the talent wars worked in many ways is there's no salary cap, right? So Zuck could just spend exactly as much money as the players or the talent would accept. But in this case, rules are – there's actual laws. Yeah. I guess I just mean like if I'm a player and I know that the owner runs a hedge fund and I see the benefit of putting some of the money that I earn directly with their hedge fund, it gets me access. Or, oh, I know that the owner of the team is friends with the CEO of Nike and I might be able to get a shoe deal. Like there's some level of just like doing business above board.

5:55That's probably acceptable, but is this a blurry line? Like how, how defined is this? Like how clear is it to you? So two things to know. One is that this is a cardinal rule of sports in which you raise a very astute point. If you are LeBron James, it's kind of insane. No disrespect intended to the latest person who got bidded up between, you know, meta and open AI and an anthropic or whatever. No disrespect, LeBron James is probably thinking to himself, why can't I make$100 million a year? Yeah. This salary is capped. And if you have problems with that, I get it. Sports is a fun mix of socialism and capitalism that is convenient, typically, for the owners of these teams who are wealthier every time you check the news.

6:38Yeah. So point A, well taken. Point B, though, is that it's a cardinal rule of sports. meaning that sports is one of the few places where your spending power is not automatically supposed to let you just buy whatever you want right this is how big markets and small markets ostensibly get to some level of parity this is how and this is debatable of course we're getting to more philosophy than i expected but it's a fair point it gets into the question of like what's actually moral and not what steve balmer did given that blurriness around the ethics of it was violate and really, I would say, blow past any semblance of plausible deniability that, hold on, I thought this was something that we could do here.

7:22And I say that because, according to the NBA's investigation and my own, this was not merely a scheme that he ran to funnel money with one company, Aspiration. He did it with four. He did it with the scoreboard manufacturer, multi-million dollar deal for Kawhi Leonard to do nothing. He did it with the insurance company, Lockton Insurance, which was the insurance company on the build-out of the Intuit Dome. He apparently did nothing for that. And he did it with, and this is a fun one, Boingo Wireless. Oh, yeah. Which you may know as the wireless provider of Los Angeles Clippers. And the thing you say to yourself, do I really need to pay for Boingo Wireless?

8:00Yeah, I'm like, oh, they don't have Starlink. Which is my personal review of the product. so when your original story when your original story broke you got a bunch of pushback even from a bunch of people that that are pretty tapped in and knowledgeable and some of that pushback was just that there's no way that balmer would be this dumb right so this like like this story couldn't possibly be true because who would ever do who would ever like risk it all in this way is Is that somewhat accurate? I think that's even the most generous defense. I think there are a lot of people who are just being told by the Clippers and Balmer's crisis PR handlers, this weird podcaster is clout chasing.

8:43None of this makes sense. Steve would never do this. He's Steve Balmer. The less, I think, surprising version, though, which you just articulated, is a common one, which is he can't be this though. Yeah. And I dare say that one of the things you learn when you investigate financial impropriety in our great country is that that is something that you should never assume. Sure. There are many phenomenally successful people who, because they are desperate to get the thing they can't just buy, do things that they think will never get found out. And the problem in this case across these four companies and across these employees and across my reporting is that he trusted people that he should not have trusted.

9:31And also he maybe shouldn't have tried to do it in the first place. Isn't there one weird trick that would have made this all work, which is just Ballmer goes to Boingo Wireless and says, yeah, we got this deal. It's expensive, but you will get some Instagram posts. and then Leonard actually follows through on some of the promotions and it's fine? Yeah, would that have been enough if he was actually – Even if he was paying top of market for CPM, like it could work. Yeah, if he had actually carried out the endorsements, would that have been enough? Yeah. Or is that still crossing the line? So I've debated on my show, literally Mark Cuban, about this whole story before it became obvious what this was.

10:10And I appreciate the apology he gave me on Twitter yesterday, genuinely. Cool. But there's a Shark Tank episode we could do just like pitching ideas for how to circumvent the salary cap that would have worked. and and i think one of them by the way just to play that game briefly it's like telling kawaii leonard about crypto yeah right there are untraceable flows of money that i am told are reliable at this point in the calendar that you could use right that's just one example but what they did was actually almost too clever by half what they really did was they created fake jobs for kawaii leonard and fake consulting agreements consulting fees for the companies So they were trying to create separation, a familiar term in the investigation of financial propriety, but they're trying to separate where the money was going from A to B to C.

10:58The problem was that everybody in the course of doing it, people they trusted, left a trail of paper as well as testimony, as well as a lack of rational explanation as to why this existed if you never were to announce the deals. And Kawhi, and this is the great comedy that is sports in which salaries are capped, but egos are not. Kawhi Leonard said to everybody, I'm not doing a single thing for these off-the-books payments. I am not doing work for them, but I want them. And Steve Ballmer said, got you, we'll make that work. And because these deals could not be explained as endorsements because he literally never endorsed them, it became this comedy of errors.

11:40That's very, very odd. All right, let's get to the punishment. What's been your reaction to Kawhi got a$700 ,000 fine, doesn't feel very significant, at least compared to the actual payments and what was received. And then you have a one-year ban for Balmer. But what was your reaction to the verdict from the NBA? Yeah, this was the biggest punishment for an owner in the history of, I think, American professional sports. And the NBA took five first round picks, which is the most you could imagine. They took$30 million, which is a rounding error, of course, for Ballmer. They made him pay the$50 million legal fee to walk to Lipton, the NBA's outside counsel, which is also a rounding error, but still pretty annoying, I would imagine.

12:35But the real thing that I thought was meaningful was that they banned Steve Ballmer from his own building for a year. He loves basketball. He sits courtside. He measured literally the toilets at the Intuit Dome when he was designing the whole building. He was a micromanager who knew everything about every piece of the building. And they banned him from being inside his own building, which he funded for$2 billion privately to his credit. and they also banned his president of business for a year and they banned his gm his president of basketball for six months and so kawaii got effectively a slap on the wrist and that is wild on the merits the reason they did it briefly is because when balmer now is rattling his saber because he is the former ceo of microsoft who went presented with antitrust findings by the federal federal government also bought right this is unsurprising if you know the trajectory of his life what he has threatened is litigation and what he has not been able to pursue is arbitration which is interesting the arbitration briefly in the world of sports court which is another tv show we should pilot together in sports court in sports court you have an arbitrator a system arbitrator but that is an arrangement between the player kawai leonard and his union as well as the league and when Kawhi Leonard got a slap on the wrist only seven hundred thousand dollars no suspension no voiding of the contract no nothing he agreed to a settlement that was quite favorable and the question was why well Kawhi Leonard's settlement meant that the arbitration option was legally removed so now they boxed in Ballmer which is again no small thing my reaction was it's no small thing to be at war with a guy with 145 billion dollars depending on Microsoft off stock and to say you got one move and it's to enter yet more discovery.

14:33Yeah. No, he doesn't want to be. It sounds like, yeah, it sounds like a nightmare situation for Balmer at this point to get more of the details out. Like he kind of, I, I, there's more, there's more. So, so your, your read on it is he just has to basically accept the consequences and, and, you know, get to watch as a fan for the next year. but how much does this set back the the Clippers like how impactful you know in many ways like he tried to cheat his way you know a couple steps forward but in the process of that set the team back like basically took the team out of probably contention for I want to say a decade like what what what player would want to go to this organization now knowing that they're not going to get any first round picks for the next five years like it just feels like a really tough situation the next clippers first rounder that they will be able to select hasn't even sniffed puberty yet like we're just in a timeline that is a nuclear winter kind of feeling if you're a clipper fan but i want to say that at a certain point perhaps things get so bad that sort of things almost need to reset.

15:53And so actually, the thing I'm wondering aloud with you guys is, as we contemplate what is Ballmer going to do next, he has now threatened personally with litigation Adam Silver by name in a letter through his lawyers. He is signaling it is wartime, and we just gave you some of the stakes around what that would entail practically. But historically, if you're going to go to war with your sport and with the commissioner and with other owners, by the way. That's the sort of backstage politics of this. Adam doesn't do this as a crusade. He does this because he's read the room of other billionaires who own these 29 other teams.

16:30If you're going to go to war with the other 29 ownership groups and the commissioner and the league and journalism and everything, typically it stops being as fun for you. Typically. And so does Steve Ballmer even want to consider perhaps selling and taking a punishment that is a humiliation on one level, but also, you know what the Lakers just went for, $12.5 billion. What could you make on the back end if money was a thing you cared about? So that's another calculation. What does this do to the value? There's no way you could value the Clippers at least within 10 % of the Lakers, right? No, doing back of the envelope math, they're not getting double digit.

17:19They're not getting eight figures. You know, one of the, sorry, excuse me, they're not getting 10 figures. What I think is interesting though, is they're going to make more than people, I think, are prepared to intuit it based on the fact that intuit is a pun not even intended based on how horrific this franchise has been we're just at a place in sports where the scarcity is so clear that these are detached valuations from revenue you know again there are a couple places in this world where that is true you guys cover a lot of them uh sports though is on its own crazy ride that is getting divorced from the reality of things.

18:05I don't know. I think sports and the private markets are pretty naked and tied at this point. But I take your point. No, and by the way, that's the story of the Lakers and Mark Walter, which we were also investigating. My point being that they're not going to get 12 and a half. They're not going to get 10. But for Ballmer, it's a trade-off between what do you really want? You have all of the money. What do you want? Do you want to fight? Do you want to surrender? do you want to walk away with something like your you know ego or dignity whatever i don't want to be too over the top here but like he has a calculation that is not a normal calculation to make is right now it's signaling that he's going to fight yeah yeah fighting fighting seems like uh a rough going to war with the with with you seems seems pretty rough um what uh do you feel like do you feel like this has probably been happening do you think it's possible that that Balmer felt confident in doing something like this because it was happening at a larger scale.

19:06And if you actually look at a bunch of other teams, it's really much more widespread. And if you start looking at a bunch of these endorsement deals, there's definitely a better way to go about. You said you could have a whole show about getting around the salary cap. And I just have to imagine there's so much money involved. There's so much ego. If you own a team, you want to compete, you want to win. And I would guess that there's a bunch of other owners and GMs and things like that that are kind of a little bit nervous now because they may have done something similar or even at a smaller scale.

19:45I think two things are true. One is, by degree, lots of other examples of salary cap circumvention, funneling money to players, have happened, will happen, are happening. But the other thing that's true is that in terms of the scale and ambition and the paper trail and the sort of almost just like subplots, nothing is quite like a story in which a guy who doesn't want to do anything, who has zero discernible endorsement value, even when he does something, has leverage over the richest owner in sports, who is willing to spare no expense, almost literally, to funnel money through four different companies, one of whom, by the way, is a public company, Daktronics, that is now acknowledged in yesterday's earnings call that their CFO, according to him, is now dealing with an SEC investigation.

20:32So there's also a civil suit happening in LA court against Steve Ballmer personally by 11 aspiration investors about fraud. My point is there are lots of other examples about how to circumvent the cap that are, I'm sure, getting no attention and maybe we'll get to some of them. But in terms of what this one is, the reason it's the biggest punishment is because they found stuff that is singular in terms of all of the webs that it entails. And that is why it's still ongoing. But now the person that is most incentivized to uncover all these other salary caps or convention, you know, potential deals that have been happening is actually Steve Ballmer.

21:16Because you imagine in his war, the only thing that he's got his back against, wall he's sitting there thinking the only thing that i could possibly do to kind of clear my reputation is make it come out that you think you think he's gonna start speeding pablo tips yeah i i i would gladly welcome back checkable information from any source i also welcome the idea that maybe the biggest consequence of my reporting is that steve ballmer becomes himself a podcaster and that would be something that i welcome as well that'd be fantastic final job Once you have everything, it's only you and the mic. I will say, based on what I've learned from your show, that trajectory is also an increasingly common thing for a billionaire to do.

22:03So perhaps we're not so different, you and I. Well, thank you so much for coming on the show. This was fantastic. Yeah, honor to have you. And congratulations. I mean, what a random chat's got crazy. It's a strange thing to say congratulations for a story that is ultimately quite sad and unfortunate. it but um yeah credit but the craft journalist is on display here yeah it looks as always um comedy is when bad things happen to other people um so there are laker fans who think this is the funniest story in the world i do shed a tear for the clippers fans who are like yeah really uh again again this again another owner another owner that we might not anyway yeah uh last question is Is it possible that he sells the Clippers and overpays for another team just to get right back in the game?

22:55Look, what he wanted from the beginning, what he was interested in, of course, because of Microsoft and geography, was a Seattle team back again. Now, I will advise this just as a podcaster to a potential future podcaster. I am told that one way to be approved to buy a new team is to not go to war with the 29 other ownership groups that will need to approve that. So just the consideration as he continues to examine contingencies. That makes sense. Well, thank you so much for coming on the show. Yeah. Thank you so much. This was a week. We really appreciate it. Congratulations on your overall run.

23:30Everything. We'll talk to you soon. Anytime. Thank you. Have a good one. Goodbye.