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Two $10 million consulting checks
Three companies, one introduction
In early June 2020, Boingo, Daktronics, and Lockton had no commercial agreements with the Clippers, though all three were in active talks to provide business services to the team or its arena. Gillian Zucker introduced each of them to Leonard. Within weeks, each company entered into a multi-million dollar consulting agreement with the Clippers, either before or on the same day it signed an endorsement agreement with Leonard.
The payment timing
Two of the companies received almost all of their consulting fees up front, in payments of $10 million each, before they signed with Leonard. The third company received its first annual consulting fee of $2 million one day after making its first payment to Leonard under its endorsement agreement.
The witness account
A witness with direct knowledge told investigators that one company's consulting agreement was a ruse, designed as a vehicle for the team to give that company funds to be paid to Leonard. The company went along because it expected to win a much larger services contract with the Clippers. An executive at one of the companies told investigators it had never had a consultancy arrangement like it. Investigators received that information late in the investigation and were still working to corroborate it.
Why do leagues scrutinize consulting agreements?
A consulting agreement pays for advice, and advice leaves little physical evidence behind, so the payment can be hard to tie to anything delivered. Auditors and investigators look for deliverables such as reports, meeting records, and work product that match the fee. They also compare the fee with what similar consultants charge for similar work. Agreements where the pay comes up front and the work comes later draw the closest look.
How is a fair market price for services judged?
The usual test asks what an independent buyer and seller, each acting in their own interest, would agree to for the same service. Analysts compare the price with other contracts for similar work, with the provider's usual rates, and with the time and expertise the work took. Tax authorities and accountants use the same standard when they review payments between related parties. A price far above the comparisons calls for an explanation tied to the work performed.
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