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Bigger scoreboard, bigger Kawhi payment
The bid and the terms
Daktronics wanted the contract to build the scoreboard at the Intuit Dome, and it believed that failing to enter into a commercial relationship with Leonard could jeopardize its ability to win the bid. In May 2020, a senior Clippers executive told a senior Daktronics executive the precise terms the team expected in an endorsement agreement: $3 million per year for two years.
The extra $2 million
In February 2021, the Clippers told Daktronics that because the team had decided to increase its scoreboard spending, Daktronics should correspondingly increase what it would pay Leonard. After negotiation, and out of concern that refusing could jeopardize its business with the Clippers, Daktronics agreed to add $2 million to its second-year payment. The amended agreement called for Leonard to provide additional services, and it was executed on May 20, 2021.
What investigators found
Investigators found that the impetus for the extra $2 million originated entirely with the Clippers. The scoreboard, known as the Halo board, was a deal reported at $100 million for Daktronics. On the day the findings came out, Daktronics' chief financial officer disclosed on an earnings call that the NBA had requested information from the company, and that the Securities and Exchange Commission was seeking information concerning the company and Leonard.
Why are arena scoreboards such big contracts?
Modern center-hung scoreboards are built from thousands of LED modules, with steel rigging, cabling, and control systems, so they rank among the most expensive fixtures in an arena. They also carry advertising and replays that sponsors pay to appear on. Suppliers often compete for these contracts because they bring years of maintenance and upgrade work. A new arena usually awards the contract before the building is finished.
Why does the SEC ask a company for information?
The Securities and Exchange Commission enforces federal securities law, including the rules that require public companies to keep accurate books and disclose material information. It sends requests for information as part of its fact-gathering, and the SEC has said publicly that such a request does not mean anyone has broken the law. Public companies commonly report these requests on earnings calls or in filings because investors may consider them material.
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