Entrepreneurial piracy through strategic deception: the 'make, buy, or ...

466

Int. J. Entrepreneurship and Small Business, Vol. 22, No. 4, 2014

Entrepreneurial piracy through strategic deception: the ‘make, buy, or steal’ decision Thomas G. Pittz* and Terry R. Adler Department of Management, New Mexico State University, MSC 3DJ, Las Cruces, NM 88003, USA E-mail: [email protected] E-mail: [email protected] *Corresponding author Abstract: In this paper, we explore the antecedents of entrepreneurial piracy through a case study approach involving the move of the National Basketball Association’s (NBA’s) Seattle Supersonics to Oklahoma City (OKC). The move of the Supersonics highlights an aspect of organisational strategy where existing theory is deficient in explaining the phenomena regarding firm boundaries and resource acquisition. Specifically, we argue in this paper for an expansion of the traditional ‘make or buy’ decision to include a ‘steal’ option. Several propositions are offered to suggest that the context in which this act of entrepreneurial piracy occurred could be generalised to other cases of artificial market constraints on valuable resources and includes the features of information compactedness, opportunism, bounded rationality, and strategic deception. Keywords: opportunism; bounded rationality; information compactedness; make; buy; steal; entrepreneurial piracy; boundaries of the firm; strategic deception; legal piracy; uncertainty; business ethics; ethical decision making; strategy; strategic planning. Reference to this paper should be made as follows: Pittz, T.G. and Adler, T.R. (2014) ‘Entrepreneurial piracy through strategic deception: the ‘make, buy, or steal’ decision’, Int. J. Entrepreneurship and Small Business, Vol. 22, No. 4, pp.466–481. Biographical notes: Thomas G. Pittz is a PhD candidate at New Mexico State University. His research interests are in strategy, entrepreneurship and non-profit management. He has over 15 years of executive leadership experience in the non-profit sector and success in entrepreneurial ventures. He has presented several academic papers at management conferences and previously published works on sustainability and ethical decision-making. Terry R. Adler is currently an Associate Professor of Management in the College of Business at New Mexico State University (NMSU). He received his PhD in Strategic Management from the University of Cincinnati in 1996. He has widely published in the top academic business journals on such topics as strategic deception, trust, distrust, hybrid interorganisational relationships and project management. He has served as Department Head in two different colleges at NMSU and was named the 2005 Donald C. Roush Professor of the Year at NMSU. He has consulted with over 60 organisations and made over 250 corporate presentations.

Copyright © 2014 Inderscience Enterprises Ltd.

Entrepreneurial piracy through strategic deception

1

467

Introduction

In the 2013 movie ‘Captain Phillips’ the theme of the movie was to depict a true event of the brave mariner Captain Richard Phillips and his crew of the Maeserk Alabama from stopping open-water piracy, or the intent to steal a ship and its cargo, by Somali pirates in the Indian Ocean. While open-water piracy, or ocean piracy, has historical roots and is common even today, there are also many other forms of piracy that involve the intentional stealing of valuable resources that are not so blatant (Donaldson and Dunfee, 1994; Wanasika and Adler, 2011). For instance, software and motion picture piracy involves the surreptitious and illegal capture of video and digital products intended for reproduction in ways obviously unapproved of by their creators (Marron and Steel, 2000; McGaughey, 2002). We define entrepreneurial piracy in general terms as the stealing, or capturing, of valuable resources to be used for gain not intended for by the creators or owners of said resources. We propose that entrepreneurial piracy is a common tactic in business and that the control of business resources and economic gains from said resources are removed from the original owners and creators in ways that are similar to all forms of piracy – they are stolen. The theft of resources is a punishable offence, just like with the Maersk Alabama, but entrepreneurial piracy can take on a more unobtrusive manner so that resources can be stolen by legal, or legitimate, methods (Webb et al., 2009). We propose that entrepreneurial piracy is a natural outgrowth of market conditions that have received little attention in existing theory. Specifically, when a firm seeking a resource is prohibited by market constraints from effectuating the traditional ‘make or buy’ decision to acquire the resource, that firm can instead opt for a ‘steal’ decision. The purpose of this paper is to apply a strategic deception lens to entrepreneurial piracy, discuss relevant case where piracy occurred, and provide a model to better understand the dynamics of the ‘steal’ decision. Eisenhardt (1989, p.548) suggests that case studies are “particularly well suited for research areas where existing theory seems inadequate”. Additionally, according to Yin (1994, p.6), the type of research question is most significant determinant of research methodology appropriateness since case studies support deeper and more detailed investigation of a phenomenon in its context order to address questions of how and why. By utilising the example of the Seattle Supersonics, we are able to investigate the phenomenon of entrepreneurial piracy in its real-life context to explore the market conditions in which it occurs (why it occurs) as well as its antecedents (how it occurs). The move of the National Basketball Association’s (NBA’s) Seattle Supersonics (Sonics) to Oklahoma City (OKC) is used as the basis for understanding entrepreneurial piracy in this paper. Contributing to this act of entrepreneurial piracy is information compactedness about the move, opportunism and strategic deception by the OKC buyer group, and bounded rationality by Seattle’s ownership. The NBA’s Oklahoma City Thunder (referred to just the ‘Thunder’) basketball team exists today because strategic deception was used to legally steal valuable resources.

2

Underpinnings of the ‘steal’ option

Traditional theory explains that when a resource is valuable, rare, inimitable, and non-substitutable (VRIN) and cannot be developed internally that a firm will opt to

468

T.G. Pittz and T.R. Adler

employ an acquisition strategy (Barney, 1991). What is not discussed in existing theory are firm responses within market conditions where a resource cannot be purchased or developed due to artificial constraints such as monopolies, cartel behavior, or regulatory barriers to entry. In such cases, a firm may opt to engage in piracy (legal or illegal) to procure the resource as in the case of the Seattle Supersonics/Oklahoma City Thunder. For a firm or city hopeful for an NBA franchise, the ‘make’ decision is a virtual impossibility since developing an NBA team from homogenous resources is untenable as an entrepreneurial venture. The market power of the NBA is simply too strong to reasonably establish a competing product. This inability to duplicate the desired resource directs an ownership group within a non-NBA city to ‘buy’ it in a market exchange. However, purchasing an NBA team outright with conspicuous intent to relocate the franchise is equally problematic. The relocation of an existing franchise is rife with political implications and/or the expansion of the league into a new market requires a majority vote from all existing team owners who are generally reluctant to dilute the perceived value of their product. In cases where the traditional ‘make’ or ‘buy’ decision that has been discussed by many scholars (Akerlof, 1970; Williamson, 1975) is not available, we suggest that firms consider a third alternative: the ‘steal’ option. Additionally, the public money that at least partially funds the development of a suitable arena is typically accompanied by legal requirements that tie up a team with its host city for a lengthy period. Thus, the Seattle SuperSonics (and all NBA franchises) represent an asset that is highly specific (immobile) and unable to be reproduced locally. The extraordinarily high level of social complexity involved in owning and NBA team and the veritable impossibility of duplicating one make it a nearly perfectly rare, inimitable, and non-substitutable resource. As demonstrated in Figure 1, an NBA franchise is also an extremely valuable resource. Borrowed from Forbes.com, Figure 1 shows the growth in value of NBA franchises between 1997–2010 with most valuable team (the New York Knicks) and the least valuable team (the Milwaukee Bucks) shown along with the average NBA team value. Figure 1

Historical NBA franchise values (see online version for colours)

Source: http://www.forbes.com/nba-valuations


469

Only 30 NBA teams are in existence today and the league has only allowed 19 new expansion teams between 1961 and the present. The value of an NBA franchise goes beyond strict return on investment (ROI) calculations to include a large marketing platform for other ownership interests, the engendering of community good-will, and a ‘psychic benefit’ for those owners who passionately enjoy the sport (Gladwell, 2011). Scholars have struggled in how to value a firm’s value based on its external impact to its community and local proximity of stakeholders (Mitroff, 1983; Obert, 1984; Priem et al., 2013). Speaking even simply in terms dollars and cents, however, team ownership has proven to be an outstanding investment during that past two decades. The Forbes data show clear evidence of the economic value of owning an NBA franchise and all the information demonstrates that an NBA team represents a rare, valuable, inimitable, and non-substitutable resource that is capable of providing a sustainable competitive advantage to a firm or a city. Proposition 1

In conditions of market constraints where valuable resources cannot be made or bought, firms will consider legal or illegal means of theft to acquire them.

Entrepreneurial piracy is demonstrated by the theft of valuable resources for gain that is achieved in ways not intended by the original owners. The Seattle-based owners of the Supersonics, the Schultz ownership group, and the citizens of Seattle did not want the Sonics to leave the city. In fact, Howard Schultz’s ownership group would not consider a sale of the franchise without provisions in place to prevent the removal or relocation of the Sonics from Seattle. The value of the Oklahoma City Thunder is projected at over $64 million per annum according to Lackmeyer (2013) and that does not include revenues generated from indirect monies in sales in restaurants, clothing, home and rentals, retail, and transportation which would probably greatly increase the value of the Thunder in their region. The ownership group of the Oklahoma City Thunder led by Mr. Clay Bennett stole the Thunder from the city of Seattle using legitimate and legal strategic deception. We use numerous resources to support this claim but perhaps the most illuminating is the documentary titled Sonicsgate published by The Seattle SuperSonics Historical Preservation Society (2009). The Sonicsgate documentary details the screams of injustice by Seattle leaders, fans, and investors and warrants further research as to how such a visible and valuable resource such as the Sonics were moved from Seattle to Oklahoma City and rebranded as the Thunder. The theft of the Sonics by the OKC ownership group represents a clear case of entrepreneurial piracy. We suggest that the Thunder’s move was an act of piracy using strategic deception to ‘steal’ the franchise from one stakeholder group for the economic gain of another. What environmental conditions were present to warrant such a move? What strategies were utilised to cause it to occur? What characteristics of this case of piracy can help us understand how a similar move might occur again? Later in this paper, we propose a model of entrepreneurial piracy in an attempt to answer these questions. First, however, it is important to provide an in-depth description of the details of the Supersonics case.

470


2.1 Historical roots of the NBA’s Seattle Supersonics The Seattle SuperSonics (also commonly referred to as the ‘Sonics’) were an American professional basketball team based in Seattle, Washington that played in the Pacific and Northwest Divisions of the NBA from 1967 until 2008. The Sonics won the NBA Championship in 1979 and is one of three teams out of the six men’s professional sports franchises that have existed in Seattle (Sonics, Mariners, Pilots, Seahawks, Sounders, and Metropolitans, winners of the 1917 Stanley Cup) to win a championship. Sam Schulman owned the team from its 1967 inception until 1983. The team was then purchased by Barry Ackerley who owned the club from 1983 until 2001 before selling to the Basketball Club of Seattle (headed by Starbucks chairman Howard Schultz) who owned the Sonics from 2001 until 2006. On October 31, 2006, Howard Schultz’s ownership group sold the Sonics to Oklahoma City businessman Clay Bennett (The Seattle SuperSonics Historical Preservation Society, 2009). NBA owners approved the sale to Mr. Clay Bennett’s Oklahoma City (OKC) group for $350 million on October 24, 2006. Among the important terms of the sale was a requirement of the new ownership group to ‘use good faith best efforts’ for the term of 12 months to secure a new arena lease or venue in the greater Seattle area in order to retain the team in Washington. Table 1 provides a succinct timeline of the pertinent events of the case to be discussed in this case. Table 1

Timeline of ‘Supersonics-to-Thunder’ acquisition

Event

Date/period

Supersonics Owner – Basketball Club of Seattle headed by Howard Schultz

2001–2006

New Orleans Hornets play all their home games for two seasons in Oklahoma City due to the effects of Hurricane Katrina in August 2005.

2005–2007

Peoples Basketball Club (PBC) Group from Oklahoma City acquires Supersonics headed by Clay Bennett.

24 October 2006

Clay Bennett’s Proposal for $500 million arena renovation in Renton, WA

12 February 2007

Clay Bennett applies for arbitration to break lease with city of Seattle.

21 September 2007

City of Seattle files lawsuit to enforce terms of lease.

23 September 2007

US District Court denies Bennett’s request for arbitration. Clay Bennett informs NBA that the PBC is moving Supersonics to Oklahoma City.

29 October 2007 October 2007

Bennett gives city of Seattle one-day proposal of $26.5 million for buy-out of lease agreement.

15 February 2008

Microsoft CEO Steve Ballmer promises one-half of $300 million needed to renovate KeyArena with city of Seattle paying rest.

6 March 2008

Deadline for new tax proposal to raise funds to renovate KeyArena passes without approval

10 April 2008

NBA Board of Governors approves Clay Bennett’s request to move team to Oklahoma City.

18 April 2008

Trial begins between city of Seattle and PBC Group over enforcement of terms of KeyArena lease agreement.

16 June 2008

Judge due to release findings but city of Seattle accepts settlement offer by PBC for $45 million payout and $30 million future payout if no NBA team Oklahoma City Thunder play first NBA home game.

2 July 2008 14 October 2008


471

2.2 The beginning of the end of the Sonics Howard Schultz sold the Sonics after failing to reach an agreement with the city of Seattle over a publicly funded $220 million expansion of KeyArena (where the Sonics played their games). KeyArena had last been remodelled in 1995 and was the NBA’s smallest venue with a seating capacity of 17,098. KeyArena was also the only NBA arena located in a residential neighbourhood and this neighbourhood was economically poor, hard to get to, and did not have restaurants, shopping, or many of the other amenities of the other modern NBA arenas in the league (The Seattle SuperSonics Historical Preservation Society, 2009). Both the Seattle and OKC ownership groups desired a new arena and fresh fan experience for the NBA team. On February 12, 2007, in an attempt to comply with the terms of the sale, Clay Bennett proposed using Seattle taxpayer’s money to pay for a new $500 million arena in Renton, Washington, a Seattle suburb at the crossroads of two major highways – a less than ideal prospective location for a busy arena. After failing to reach a deal on his proposal for the Renton location using 100% public monies by the end of the legislative session, Bennett gave up his attempt in April 2007. Six months later, and a mere two days after Bennett’s October 31, 2007 deadline passed for public financing of a new arena, Bennett informed NBA commissioner David Stern that the OKC ownership group intended to move the Sonics to Oklahoma City as soon as it was legally possible. The timing of the announcement, one day after the Sonics’ home opener, drew critical comments from Tom Carr, Seattle’s attorney, who said (Carr, 2007): “Mr. Bennett’s announcement today is a transparent attempt to alienate the Seattle fan base and follow through on his plan to move the team to Oklahoma City. Making this move now continues the current ownership’s insulting behavior toward the Sonics’ dedicated fans and the citizens of the city.”

2.3 The ‘lease’ problem On September 21, 2007, Bennett applied for arbitration on the issue of whether the team could break its lease (the lease for the Sonics to play in KeyArena) in 2008. Arguing that the lease did not allow for arbitration on the issue of occupancy, the city of Seattle filed for declaratory relief on September 24, 2007. The city’s motion asked the King County superior court to reject the arbitration request and enforce the specific requirement of the Sonics’ lease which required the team to play at KeyArena through 2010. United States District Court Judge Ricardo Martinez denied Bennett’s request for arbitration on October 29, 2007. Not to be deterred, on February 15, 2008, the OKC ownership group gave the City of Seattle a one-day deadline to accept a $26.5 million offer that would buy out the Sonics’ lease in KeyArena and pay off what the ownership group claimed was the value of debts on the arena. The city of Seattle rejected the offer. In an effort to retain the team in Seattle, the prospect of expanding KeyArena resurfaced on March 6, 2008, when Microsoft CEO Steve Ballmer promised that his investor group would pay half of the $300 million needed for an extensive renovation if the city and county provided the remainder. However, when the Washington state legislature did not give approval for the county to provide funds by an April 10, 2008 deadline, Seattle Mayor Greg Nickels said that the effort had failed and the city’s hopes rested in its lawsuit. Meanwhile, Bennett

472


reiterated that the team was not for sale and dismissed attempts by local groups to repurchase the team.

2.4 Ownership rights of the Sonics versus the City of Seattle The city of Seattle also filed a lawsuit on September 23, 2007 in an attempt to keep the Sonics from leaving before the expiration of their lease with KeyArena in 2010. The NBA and OKC ownership group’s claim was that the team needed to abdicate the lease since the terms were financially untenable. A trial was set for June 16, 2008 and on April 10, 2008, Seattle asked the Federal District Court to order the NBA to release documents related to the financial situation of the team. On April 28, 2008, the trial’s presiding judge, Loretta Preska, ruled that the NBA must supply the internal documents about the possible relocation of the Sonics that the City of Seattle had requested. In addition, the judge said that Commissioner David Stern could be deposed at a later day should the need arise. The city hoped that the documents would aid in building its legal case, and cited an e-mail conversation among members of the OKC ownership group that suggested they were privately discussing intent to move the team while publicly insisting that they would not attempt to do so. Clay Bennett’s OKC ownership group then filed a motion to rescind the order stipulating that the lawsuit and the release of the e-mails by the city were meant to drive up the cost of leaving Seattle and force the ownership group to sell the team. The OKC motion requested that all e-mails and other city records be released to the team. Slade Gorton, lead attorney for the city of Seattle, responded by reiterating that it was the OKC group that started the fight that led to the lawsuit when they filed for arbitration to break the lease. The OKC motion was denied by the presiding judge, who said the team had failed to make a ‘good-faith effort’ to resolve the dispute and that it failed to show that trial preparations were hindered by the city’s records not being made public. However, the ruling also said that the team could bring up the issue again if it could prove the relevance or the confidentiality of the records.

2.5 Negotiation of the settlement On April 21, 2008, Gorton said he would be open to a settlement if the league promised a replacement team for Seattle. He said it was ‘highly unlikely’ that the Sonics would remain in Seattle and indicated the city should instead focus on gaining a replacement team, but he noted that local governments would need to be willing to fund an expansion of KeyArena first. Following the failure of their original motion, the OKC ownership group requested that the pending trial be expanded to rule on the team’s financial obligations to KeyArena should its lease be broken. As a result of this new request, Seattle’s lawyers requested a six-month delay in the trial date in order to prepare for the additional issues, arguing that the ownership group’s request would ‘dramatically change the scope’ of the case and would require considerable preparation time to determine damages. The trial’s presiding judge denied the motion by Bennett’s group on March 6, 2008 and stipulated that a second trial would need to be held to determine the team’s financial obligations. Attorneys made their closing arguments in the city’s case on June 2, 2008 and the judge announced that she would issue her ruling on the following Wednesday. On July 2, 2008, just hours before the judge was to release her ruling, however, it was


473

announced that the team and city had reached a settlement where the OKC ownership group would pay the city $45 million immediately in exchange for breaking the lease and an additional $30 million if Seattle was not given a replacement team in five years. According to the conditions of the settlement, the Sonics’ name and colours could not be used by the team in Oklahoma City, but could be taken by a future team in Seattle. The OKC team would retain the franchise history of the Sonics, which could be ‘shared’ with any future NBA team in Seattle. The team moved to Oklahoma City immediately and announced it would begin play in the 2008–2009 basketball season. The NBA made no promises for a replacement team in Seattle.

3

The entrepreneurial piracy model

We suggest that the settlement of this negotiation between the city of Seattle and the OKC Ownership is an excellent example of entrepreneurial piracy. Piracy includes three essential components: 1

valuable resources

2

resources are stolen or acquired

3

resources are used for gainful purposes not intended for by the original owners.

All three of these components were present in the Sonics moving to OKC and becoming the Thunder. In the next section, we will explain how entrepreneurial piracy was committed by the OKC group using legal, or legitimate, means by providing a model of entrepreneurial piracy. This model is documented in Figure 2. The elements of this model of entrepreneurial piracy include: information compactedness about the move, bounded rationality by Schultz’s ownership, and opportunism and strategic deception by the OKC buyer group, all of which set the groundwork for entrepreneurial piracy. Figure 2

Entrepreneurial piracy framework

Information compactedness

Opportunism VRIN resource in a constrained marketplace

Bounded rationality

Strategic deception

‘Steal’ via entrepreneurial piracy

474


3.1 Information compactedness Information compactedness is primarily aimed at achieving competitive advantage (Williamson, 1975). Such advantage can be achieved through increasing rivals’ cost functions, tying up competitor resources in less productive areas, wearing down competitors by launching multiple feints before executing the actual strategy, exploiting asymmetric information to make early market or product entry or simply muddying the competitive environment to increase the level of noise (e.g., useless information and subsequent uncertainty). These strategies lead to increased waste for a firm, thereby, weakening their competitive position. Information compactedness muddies the waters of entrepreneurial activity because it allows major players in a transaction latitude and time to do things they deem necessary without scrutiny or accountability. Information compactedness occurs when one firm has more knowledge of an exchange than the rest (Williamson, 1975). Hendricks and McAfee (2006) find that firms often use information manipulation to disguise their true intent while introducing new products or entering new markets. Information compactedness can be an effective tactic if potential payoff can be derived from fooling the competition. Did the OKC ownership group fool the city of Seattle, Howard Schultz, and financial supporters when they bought and subsequently moved the team to Oklahoma City? That answer can be found in several e-mails transmitted between Mr. Clay Bennett and his other members of the OKC ownership group. Mr. Bennett appeared to set the table early in the Sonics transaction with his desire to move the Thunder to Oklahoma City. Publicly, however, he was steadfastly denying such a move. The e-mail exchange detailed below to Clay Bennett, the head of the OKC ownership group, from Tom Ward, a key member of the OKC ownership group, indicates that there was a plan to move the Sonics to Oklahoma City from the beginning of the negotiations to purchase the Sonics (Sonicsgate, 2012): Tom Ward’s e-mail to Clay Bennett (copied to Aubrey McClendon): “Is there any way to move here for next season or are we doomed to have another lame duck season in Seattle?” April 17, 2007 at 5:42 am Clay Bennett’s response: “I am a man possessed! Will do everything we can. Thanks for hanging with me boys, the game is getting started!” April 17, 2007 at 7:48 am Tom Ward’s response to Clay Bennett’s response: “That’s the spirit!! I am willing to help any way I can to watch ball here next year.” April 17, 2007 at 7:56 am

These e-mail exchanges show a discussion to move the club from Seattle to Oklahoma City, a discussion that was concealed from the public. When these e-mails become public information on Seattle’s local news stations, Clay Bennett vehemently disputed that his use of the word ‘possessed’ implied that he was maneuvering to get the club to Oklahoma City. The uncertainty prevalent about Mr. Bennett’s intentions was greatly magnified when these e-mails were made available. The apparent lack of agreement between the OKC ownership group’s ‘official’ and ‘true’ agendas fuelled great consternation and confusion about the strategic intent of the OKC group and Mr. Bennett had answers to all of the questions posed by the stakeholders of Seattle in order to buy time to maneuver the Sonics out of Seattle to Oklahoma City.


475

Information compactedness removes some or all of the uncertainty surrounding a transaction. Uncertainty is the degree to which an absence of a pattern, unpredictability, and unexpected change characterises a firm’s competitive context (Cannella et al., 2008; Dess and Beard, 1984; Keats and Hitt, 1988). Removal of uncertainty provides an advantage to those who own or know the information as it provides a basis for strategic deception and, ultimately, entrepreneurial piracy. The city of Seattle did not have the information that the OKC ownership group possessed nor did the Seattle ownership group have a close relationship with the NBA. The lack of information was a purposeful veil over the intentions of Mr. Bennett and the NBA that placed Seattle at a distinct disadvantage both strategically and politically. Information compactedness essentially created a reactive mindset that allowed the city of Seattle and its ownership group to be strategically deceived. Proposition 2

Information compactedness is a tactic used to create opportunities for entrepreneurial piracy.

3.2 Opportunism of Clay Bennett’s OKC Ownership Group Williamson (1985) defines opportunism as self-interest seeking with guile. The OKC ownership group’s opportunism came from its relationship with the NBA leadership and the state of Washington’s anti-tax culture that existed at the time in the opposition of using public funds for private ventures. First, the relationship between the NBA and the OKC group was carefully cultivated over time and significantly enhanced when Oklahoma City volunteered to provide a temporary home to the New Orleans Hornets during the fallout of Hurricane Katrina. The relationship was so well developed that e-mails surfacing during the lawsuits between NBA commissioner David Stern and Clay Bennett demonstrated a friendship between the two that went well beyond business exigencies. For instance, this e-mail was sent from Clay Bennett to David Stern, then NBA Commissioner showing that Mr. Stern’s relationship with Mr. Bennett was probably closer than with other NBA ownerships (Sonicsgate, 2012): “David you know how I feel about our relationship both personally and professionally. You are among a very few, notwithstanding our relative brief actual physical time together that have significantly affected my life. I view you as a role model as an extraordinarily gifted executive, a deep and compassionate thinker.”

Secondly, the OKC group benefited from a groundswell of popular opinion in the state of Washington opposing the use of public funds to finance private ventures. The state had recently invested heavily in stadiums for the Seattle Mariners (a major league baseball franchise) and the Seattle Seahawks (a national football league team) and the region was experiencing ‘stadium fatigue’ following those expenditures. Legislators at the state level believed their constituents did not support stadium funding and vocal minority activist groups at the local level insisted that public money could be better spent elsewhere in the community. Back at home, it is safe to say that Oklahoma City craved NBA basketball. The desire was so great that, in the wake of Hurricane Katrina, the city built a costly stadium to be used as a temporary relocation spot for the New Orleans Hornets. The decision to build a stadium to provide shelter to the Hornets achieved three goals: First, it proved the viability of NBA basketball in OKC. Second, it ingratiated the city and the future

476


ownership group with the Commissioner of the NBA, David Stern, and prospective fellow owners. Third, it created momentum both within the OKC fan base and potential investor groups. Ab initio, the intent of Clay Bennett’s OKC ownership group was to move the Seattle SuperSonics to Oklahoma City. A relatively compelling case could be made that Commissioner David Stern and the NBA shared that intent. Through a carefully planned and ruthlessly executed strategy of opportunism, Clay Bennett was able to manipulate the Seattle stakeholders: from the fans, to the mayor, to the state legislature, to achieve his goal of bringing NBA basketball to Oklahoma City. Proposition 3

Opportunism is a component of successful entrepreneurial piracy.

3.3 Bounded rationality of Howard Schultz’s Seattle ownership group In months prior to the settlement regarding the KeyArena lease (the stadium that housed the Seattle Supersonics), the city of Seattle publicly released additional e-mail conversations that took place within Bennett’s ownership group. The city alleged that these e-mails indicated that some members of the OKC ownership group had a desire to move the team to Oklahoma City prior to the purchase of the SuperSonics in 2006. The city used these conversations to argue that the OKC ownership had failed to negotiate in good faith. Additionally, on August 13, 2007, Aubrey McClendon, a minor partner of Bennett’s ownership group, said in an interview that the team was not purchased to keep it in Seattle but to relocate it to Oklahoma City. Bennett later denied such intentions, saying McClendon ‘was not speaking on behalf of the ownership group’. Due to his comments, McClendon was fined $250,000 by the NBA. This new information prompted the previous owner of the team, Howard Schultz, to file a lawsuit seeking to rescind the sale of the team and transfer the ownership to a court-appointed receiver. The lawsuit alleged that Bennett’s group used fraud and misrepresentation to purchase the Sonics without making a ‘good faith best effort’ to keep them in Seattle as mandated by the original sales contract. Clay Bennett said the e-mails were misinterpreted and that he had spent millions of dollars in attempting to keep the team in Seattle. The lawsuit was filed on April 22, 2008 at the U.S. District Court for the Western District of Washington. It sought, among other things, an injunction preventing the Sonics being relocated from Seattle to Oklahoma City. The lawsuit further requested that the franchise be placed in a trust and no longer in the ownership of Clay Bennett’s OKC group. On May 20, 2008, Howard Schultz’s attorney added an alleged a breach of contract as a third cause of action against Clay Bennett. Chicago-based attorney and ESPN senior writer Lester Munson said that while the remedies Schultz sought were ‘without precedent in the sports industry’, he did believe that both the Schultz case and Seattle’s lease case presented ‘serious problems’ for Bennett. On May 9, 2008, Oklahoma City officials declared their intent to sue for damages and a forced relocation of the Sonics if Schultz’s lawsuit succeeded. In a legal letter to Schultz, Oklahoma City’s attorney said that the Sonics were legally bound to relocate to Oklahoma City at the end of the KeyArena lease regardless of who owned the team. The letter stated that the city had ‘valid and enforceable agreements with the team requiring it relocate to Oklahoma City at the end of the current lease with the City of Seattle.’ Schultz’s attorney replied to the letter saying the lease agreement was with Clay


477

Bennett’s group, not with the city itself, and that Oklahoma City began improvements on Ford Center (the basketball arena in OKC) at their own risk prior to conclusion of the pending litigation. The NBA next entered the fray by filing a motion to intervene with Seattle’s federal court on July 9, 2008, claiming that Schultz’s lawsuit would interfere with the stable operation of the franchise. The NBA claimed that the transfer of ownership would violate NBA regulations unless the team was put under control of NBA Commissioner David Stern. The league also claimed that Schultz signed a release forbidding him to sue Bennett’s ownership group as a condition of the NBA’s approval of the original sale. Weeks later, Schultz requested that two separate trials be used to determine whether Bennett’s group committed fraud and subsequently determine a remedy. The court denied his request. At the heart of this issue was Schultz’s lack of ability to fully understand the gravity of the sale of his ownership of the Sonics and myopia regarding the NBA’s relationship with the OKC ownership group. In this case, Schultz’s cognitive limits account for his inability to understand his rivals underlying strategic logic (Hambrick and Mason, 1984). Consequently, on August 29, 2008, shortly after the court ruled that the NBA could intervene in the case, Schultz said his legal team no longer believed the original case could be won. He announced he would drop the lawsuit, saying in a prepared statement (Johns, 2008): “The prevailing wisdom of many in the Seattle community and the advice of key members of the BCOS is that Seattle’s best chance for a professional basketball franchise is to end this litigation and allow the City, State Legislature and other parties to begin the necessary fence mending with the NBA.”

Schultz then apologised to Seattle fans for selling the team. Proposition 4

Bounded rationality is a component of successful entrepreneurial piracy.

3.4 Strategic deception Strategic deception refers to strategic actions aimed at misleading rivals from the true strategic intent of the firm or the environment (Wanasika and Adler, 2011). There were many accounts of strategic deception used by Clay Bennett’s investment group prior to moving the team to Oklahoma City. The principle deception tactics used by the OKC group are summarised below: •

Terms of the sale of the Sonics required Clay Bennett’s ownership group to ‘use good faith best efforts’ for the term of 12 months in securing a new arena lease or venue in the Greater Seattle Area. Clay Bennett proposed using public tax money – with no private investment – to pay for a new $500 million arena in Renton, Washington, a Seattle suburb. Situated as it is at the crossroads of two major highways, Renton is a less than ideal prospective location for a busy arena.

•

E-mails between the leaders of the OKC ownership group released during court proceedings show that Aubrey McClendon, a minor partner of Bennett’s ownership group, said in an interview that the team was not purchased to keep it in Seattle but

478

T.G. Pittz and T.R. Adler to relocate it to Oklahoma City. Due to his comments, McClendon was fined $250,000 by the NBA.

•

The general manager of the Sonics publicly questioned the personnel moves of the new ownership group with regard to ‘putting a winning team on the floor.’ The team traded popular players (highlighted by Gary Payton) in a supposed effort to drive fans away from the team.

Adroit use of social networks was another implement of strategic deception used by Clay Bennett’s investment group to deceive the city of Seattle and move the Sonics to Oklahoma City. Since organisations do not function in a vacuum devoid of ties to others, but rather are linked through a myriad of social relationships that are not easily reproducible (friendships between employees and suppliers, club memberships with other executives, membership in trade associations, ties between local elites, etc.), the can provide advantages to the firm that possess them (Granovetter, 1985). These networks provide an opportunity to achieve goals and constrain actions. In the case of the Sonics, and in cases of entrepreneurial piracy more generally, social networks provide the fertile soil for strategic deception to take root. Clay Bennett’s well-developed social network, exemplified by his relationship with Donald Stern, provided a strong competitive advantage to the OKC group over Seattle and played a large role in the success of his stratagem. As evidence of this relationship, the NBA did nothing to counteract OKC’s attempt relocate the Sonics and, in fact, was quick to intervene on behalf of the OKC in a lawsuit filed by the previous Sonics ownership group headed by Howard Schultz intended as a last-ditch effort to block the move. The league quickly filed a countersuit against Schultz, claiming that he had signed a release forbidding him to sue Bennett’s ownership group as a condition of the NBA’s approval of the original sale. Proposition 5

4

Strategic deception is a component of successful entrepreneurial piracy.

Discussions

In this paper, we argue that the case of the Sonics basketball team highlights the conditions under which entrepreneurial piracy is likely to occur. As entrepreneurs explore prospective business opportunities and thus define the boundaries of their firm, they engage in an implicit ‘make or buy’ decision. We argue that under market conditions of artificial constraints on valuable resources that the ‘make or buy’ decision should be expanded to include a ‘steal’ option. The decision to ‘steal’ a resource legally and legitimately becomes a viable entrepreneurial opportunity when that resource is valuable, rare, nearly perfectly inimitable, and non-substitutable and exists in an artificially constrained marketplace. As such, our model represents a contribution to the strategy literature by expanding the traditional economic model of the determination of firm boundaries. As values, norms, and cultures change (Roth, 2014a), so do our definitions of what is legal and legitimate with regards to stealing or acquiring (Donaldson and Dunfee, 1994; Roth, 2014b). When a firm’s boundaries are constrained by the inability to purchase an asset or develop a similar asset internally, the temptation to engage in entrepreneurial piracy is high. The case of the Seattle SuperSonics shows that this type of entrepreneurial


479

piracy is commonly effectuated through a process of strategic deception that involves information compactedness, bounded rationality, opportunism, and strategic deception. Tactics involving the use of the media and press corps, high-priced legal arrangements, and clandestine meetings such as those witnessed in this case are typical characteristics in this strategy. These elements led to the instance of entrepreneurial piracy that we suggest was conducted by the OKC ownership group for the purpose of stealing the Sonics from the city of Seattle to become the Thunder in Oklahoma City. Our model builds a theoretical underpinning for understanding entrepreneurial piracy and suggests areas for further empirical study to refine its antecedents and consider additional organisational domains. We achieve this model using a single case study approach following the procedures established by Yin (1994) and Eisenhardt (1989) to establish context, generalisations, and derive several theoretical propositions. Our first contribution is to the strategy literature regarding firm boundaries where we suggest that the ‘steal’ option is a legitimate action for firms to consider given the growing plethora of rules, laws, and policies that were once forbidden but now are acceptable in many business and entrepreneurial decisions. In fact, we could make the case that without considering the issues and elements presented in this paper that any study of an organisation embedded within an artificially constrained marketplace would be doomed from the start. Our second contribution is the explication of a model that demonstrates the theoretical antecedents of the ‘steal’ decision.

5

Implications for future research

The concept of entrepreneurial piracy has implications beyond this study. We would argue that other cases of sustained competitive advantage gained by the acquisition of a resource through opaque means exist to be studied using this model. Elements of this case are equally apparent in cases of hostile take-overs, natural resource prospecting, and human resource recruitment violations. Any firm operating within an industry that contains artificially imposed limits on the marketplace would also be a candidate to fit this model and future research could involve additional case studies to triangulate the constrained market context of the entrepreneurial piracy outlined in this case. Additional research could also employ latent semantic analysis to test public information on similar cases of entrepreneurial piracy to verify the antecedents of information compactedness, opportunism, strategic deception, and bounded rationality that we propose in this model. Among the many environmental contexts that could ripe for this research are businesses operating in countries with tight economic controls, businesses operating against monopoly conditions, business operating in a cartel system, or businesses attempting to compete in an industry with high regulatory limitations and barriers to entry. Strategic deception as a field is also a candidate for further research. Due to its clandestine nature, information validating the construct can be difficult to obtain but we believe that it is a highly underreported aspect of corporate strategic planning and entrepreneurial growth. Since strategic deception refers to strategic actions aimed at misleading rivals from the true strategic intent of the firm or the environment, further review of how strategic deception develops under different political, legal, and cultural environments would be enlightening (Gentile and Samuelson, 2005; Pitesa and Thau, 2013; Webb et al., 2009). The extent and nature of deception may vary from simple concealment of trivial information to outright lying and disinformation. Providing

480


conditions, or boundaries, would assist researchers in more fully understanding how strategic deception works and under what conditions. This would in turn assist practitioners in also developing better safeguards, or safe harbours (Donaldson and Dunfee, 1994) in protecting valuable resources. Applying research on strategic deception to the burgeoning field of social networks is another important task in developing a more complete understanding of organisational networks. We have a long way to go in comprehending entrepreneurial piracy because what is legal and legitimate in society is not in another (Donaldson and Dunfee, 1994). Little is known also about the relationship between strategic deception, entrepreneurship, innovation, and entrepreneurial piracy other than what is exposed through legal briefs or highlighted on the news. As more countries engage in business practices as multicorporate, multi-country agreements, as more corporations outsource, and as more businesses, small-, mid- and large-, then the potential for entrepreneurial piracy becomes more likely and more pronounced.

References Akerlof, G. (1970) ‘The market for lemons: quality uncertainty and the market mechanism’, Quarterly Journal of Economics, Vol. 84, No. 3, pp.488–500. Barney, J. (1991) ‘Firm resources and sustained competitive advantage’, Journal of Management, Vol. 17, No. 1, pp.99–120. Cannella, A., Park, J. and Lee, H. (2008) ‘Top management team functional background diversity and firm performance: examining the role of team member colocation and environmental uncertainty’, Academy of Management Journal, Vol. 51, No. 4, pp.768–784. Carr, T.A. (2007) Seattle City Attorney Tom Carr’s Response to Mr. Bennett’s Recent Statement to the Press, Seattle City Attorney Office, 2 November 2007. Dess, G. and Beard, D. (1984) ‘Dimensions of organizational task environments’, Administrative Science Quarterly, Vol. 29, No. 1, pp.52–73. Donaldson, T. and Dunfee, T. (1994) ‘Toward a unified conception of business ethics: integrative social contracts theory’, Academy of Management Review, Vol. 19, No. 2, pp.252–284. Eisenhardt, K.M. (1989) ‘Building theories from case study research’, Academy of Management Review, Vol. 14, No. 4, pp.532–550. Gentile, M. and Samuelson, J.F. (2005) ‘Keynote address to the AACSB International Deans Conference, February 10, 2003: the state of affairs for management education and social responsibility’, Academy of Management Learning and Education, Vol. 4, No. 4, pp.496–505. Gladwell, M. (2011) Psychic Benefits and the NBA Lockout, Grantland [online] http://www. grantland.com/story/_/id/6874079/psychic-benefits-nba-lockout (accessed 18 August 2011). Granovetter, M. (1985) ‘Economic action and social structure: the problem of embeddedness’, American Journal of Sociology, Vol. 91, No. 3, pp.481–510. Hambrick, D. and Mason, P. (1984) ‘Upper echelons: the organization as a reflection of its top managers’, Academy of Management Review, Vol. 9, No. 2, pp.193–206. Hendricks, K. and McAfee, R. (2006) ‘Feints’, Journal of Economics and Management Strategy, Vol. 15, No. 2, pp.431–456. Johns, G. (2008) Schultz Withdraws Lawsuit Seeking Sonics’ Return [online] http://www.seattlepi.com/news/article/Schultz-withdraws-lawsuit-seeking-Sonics-return1283698.php (accessed 29 August 2008). Keats, B. and Hitt, M. (1988) ‘A causal model of linkages among environmental dimensions, macro organizational characteristics, and performance’, Academy of Management Journal, Vol. 31, No. 3, pp.570–598.


481

Lackmeyer, S. (2013) ‘The Oklahoman’, News OK.mht, 15 May 2013 [online] http://newsok.com/thunder-economic-impact-estimate-tops-64-million-for-the-currentseason./article/3811956 (accessed 16 February 2014). Marron, D.B. and Steel, D.G. (2000) ‘Which countries protect intellectual property? The case of software piracy’, EconomicInquiry, Vol. 38, No. 2, pp.159–174. McGaughey, S.L. (2002) ‘Strategic interventions in intellectual asset flows’, Academy of Management Review, Vol. 27, No. 2, pp.248–274. Mitroff, I. (1983) ‘Archetypal social systems analysis: on the deeper structure of human systems’, Academy of Management Review, Vol. 8, No. 3, pp.387–397. Obert, S.L. (1984) ‘Archetypal social systems analysis: a reply to Mitroff’, Academy of Management Review, Vol. 9, No. 4, pp.757–762. Pitesa, M. and Thau, S. (2013) ‘Compliant sinners, obstinate saints: how power and self-focus determine the effectiveness of social influences in ethical decision making’, Academy of Management Journal, Vol. 56, No. 3, pp.635–658. Priem, R.L., Butler, J.E. and Li, S. (2013) ‘Toward reimagining strategy research: retrospection and prospection on the 2011 AMR Decade Award Article’, Academy of Management Review, Vol. 38, No. 4, pp.471–489. Roth, S. (2014a) ‘Booties, bounties, business models: a map to the next red oceans’, International Journal of Entrepreneurship and Small Business, (in the present issue). Roth, S. (2014b) ‘The eye-patch of the beholder: introduction to entrepreneurship and piracy’, International Journal of Entrepreneurship and Small Business, (in the present issue). Sonicsgate (2012) Sonicsgate: Requiem for a Team, Green & Gold Media, Seattle, Washington. The Seattle SuperSonics Historical Preservation Society (2009) Sonicsgate [online] http://sonicsgate.org/movie/ (accessed 11 October 2013). Wanasika, I. and Adler, T. (2011) ‘Deception as strategy: context and dynamics’, Journal of Managerial Issues, Vol. 23, No. 3, pp.364–378. Webb, J.W., Tihanyi, L., Ireland, R.D. and Sirmon, D.G. (2009) ‘You say illegal, I say legitimate: entrepreneurship in the informal economy’, Academy of Management Review, Vol. 34, No. 3, pp.492–510. Williamson, O. (1975) Markets and Hierarchies: Analysis and Antitrust Implications, Free Press, New York, NY. Williamson, O. (1985) The Economic Institutions of Capitalism, Free Press, New York, NY. Yin, R.K. (1994) Case Study Research: Design and Methods, 2nd ed., Sage, Thousand Oaks, CA.