(South Dakota News Watch) – The U.S. Securities and Exchange Commission and the National Basketball Association have requested information from Brookings-based electronic sign manufacturer Daktronics as part of their ongoing investigations into wrongdoing by player Kawhi Leonard and the Los Angeles Clippers team.
The NBA named Daktronics as one of three companies that provided compensation to Leonard that circumvented the Clipper’s league-issued salary cap by creating “impermissible endorsement arrangements” which paid Leonard money beyond his contractual salary.
In a 35-page report written by an independent investigator on behalf of the NBA, the league said it found that the Clippers had “initiated, facilitate and induced” Daktronics and two other companies to pay multi-million endorsement deals to Leonard in order to secure business opportunities with the Clippers.
The report notes that Daktronics paid Leonard $8 million and ultimately did win the contract to supply the electronic signage, including a reportedly $100 million “halo board” at the Intuit Dome in LA, where the Clippers play home games.
So far, Daktronics has not formally been accused of wrongdoing or lawbreaking, though the company played a major role in the scandal involving Leonard and the Clippers, according to the NBA.
The violations of NBA rules – which place limits on how much a team can spend on player payroll – led the league on Sept. 2 to hand down some of the harshest penalties ever issued against a player or team.
They included a $30 million fine for the Clippers, a $700,000 fine for Leonard, forfeiture of five future first-round draft picks for the team and suspension of several team officials, including billionaire owner Steve Ballmer.
Daktronics, founded in Brookings in 1968, is a “world leader in designing, engineering and manufacturing digital LED display technology and audio systems,” according to the company website. The publicly-traded company has 2,700 employees worldwide.
Key company officials include president and CEO Ramesh Jayaraman and acting chief financial officer Howard Atkins.
Atkins confirmed the company has been asked to provide information about the Clippers/Leonard investigation during a Sept. 2 quarterly earnings call with the SEC, an archived webcast of which is available at the Daktronics website.
“Let me now briefly address a matter that has been in the media concerning the NBA’s investigation of Kawhi Leonard and the Clippers, in connection with the league’s collective bargaining agreement,” Atkins said on the call.
“As you might expect, we have received requests for information from the NBA. Additionally, the Securities and Exchange Commission (is) seeking information from us concerning the company and Mr. Leonard. We take these requests seriously and are cooperating.”
Daktronics did not respond to multiple requests for comment over the past week.
During the SEC earnings call, Atkins said, “At this point, out of respect for the respective processes, we will not be providing further comment.”
It is not yet clear if any SEC laws were violated by Leonard, the Clippers or Daktronics.
More specifically, the NBA said the rule violations included:
Affirmatively initiating off-court income opportunities between Leonard and four companies doing business with the team: Daktronics, Aspiration Partners, Boingo Wireless and Lockton InsuranceFacilitating endorsement agreements between these companies and LeonardInducing the companies to enter into these agreements by offering them business from the teamPaying personal expenses on behalf of Leonard and his representativesFailing to report improper solicitations for off-court income opportunities made on Leonard’s behalf through his former business manager, Dennis Robertson
The NBA investigative report further finds that Daktronics and two other companies by August 2021 had paid Leonard $18 million in a “highly unusual” arrangement.
The report refers to the financial agreement as a “spend back” arrangement, “whereby Daktronics would provide some amount of business back to the Clippers, which Daktronics told investigators is not uncommon in its industry.”
“In May 2020, in a call with a senior executive of Daktronics, a senior Clippers’ executive specified the precise financial terms that the Clippers expected Daktronics to provide to Mr. Leonard in the endorsement agreement: $3 million per year for two years,” the report said.
The report noted that after prodding from the Clippers, Daktronics later increased the final payment to Leonard by an additional $2 million.
“In February of 2021, before the end of the first year of the Daktronics-Leonard endorsement agreement, the same senior Clippers’ executive approached Daktronics again. This time, the Clippers’ executive told Daktronics that, because the team had decided to increase the amount it would spend on the scoreboard, Daktronics should correspondingly increase the amount it would pay to Mr. Leonard. After some negotiation — and again based on its concern that failing to comply could jeopardize its business with the Clippers — Daktronics ultimately agreed to increase its second-year payment to Mr. Leonard by $2 million,” the report stated.
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