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NATIONAL BASKETBALL ASSOCIATION MEDIA CONFERENCE

October 2, 2008

Larry Pedowitz

LARRY PEDOWITZ: My name is Larry Pedowitz. I'm speaking to you from my offices at Wachtell, Lipton, Rosen & Katz in New York City. I'm sitting here with my partner, David Anders, and my associate Josh Naftalis. The three of us have worked on the report to the NBA Board of Governors that was posted this morning at 9, New York time. We scheduled this call so that you could have an opportunity at the earliest time to ask us questions. We thought a conference call made the most sense, since many of you are in different parts of the country and would have had a great deal of difficulty getting to New York.
I'd like to make a brief statement, then, along with David Anders, take your questions.
In August 2007, Tim Donaghy pleaded guilty to conspiring to bet on NBA games and to having leaked confidential information to his gambling conspirators. We were retained by the Commissioner of the NBA and the audit committee of the NBA to do a review that has had three areas of focus.
First, the NBA asked us to determine if referees, other than Tom Donaghy, had bet on NBA games or had leaked confidential information to gamblers. Second, the NBA also asked us to do a forward-looking compliance review, and look at the NBA's rules, policies and procedures, and compliance systems, to see if we could recommend steps that might prevent a reoccurrence of this type of incident. Third, we were also asked to do a review of the referee program to see if we could recommend improvements.
We were given a broad mandate. We were given free access to NBA employees, including referees and NBA management personnel and executives. We conducted approximately 200 interviews. This included interviewing each member of the referee staff at least twice, as well as league and team personnel, and representatives from the players union.
We had expected to issue our report this past spring, after Donaghy was due to be sentenced. We were hoping to interview him before he was sentenced and before we issued our report, believing that Donaghy might be helpful in getting us to better understand how we could prevent future violations. We did not want to issue the report before Donaghy was sentenced because we were concerned we might interfere with the government's work. Our report was delayed, as Donaghy's sentencing was adjourned a number of times. I think, as you know, he was ultimately sentenced in late July.
In June, Donaghy's lawyer had written a letter detailing allegations Donaghy had made suggesting game manipulation by a number of referees, and misconduct by the league. Donaghy then refused to meet with us.
We then began a detailed review of these Donaghy allegations. We interviewed all of the referees and a substantial number of other NBA personnel. In July, a media report appeared suggesting that, based on Tim Donaghy's phone records, referee Scott Foster might have been involved in Donaghy's scheme.
We conducted a review of that suggestion, as well. Our key factual findings are, first, we've discovered no information suggesting that any NBA referee other than Tim Donaghy has bet on NBA games or leaked confidential NBA information to gamblers.
Second, we believe that referee Scott Foster was not in any way involved in Donaghy's scheme. Third, although we found nothing to suggest that other referees bet on NBA games, or disclosed confidential NBA information, we did find that a significant number of referees had engaged in other forms of gambling, such as casino gambling, in violation of NBA rules. The anti-gambling rules had been too broadly drafted, and the league's failure to enforce the rules had contributed to a permissive atmosphere. Fourth, we found no support for Donaghy's allegations that referees had manipulated specific games.
We've also discovered no evidence that the league has ever put a thumb on the scales and asked referees to call games to favor particular teams or players. We have found, in fact, that the league sends an unequivocal message to referees that they should be accurate and consistent.
Over the past 14 months we have made numerous recommendations about how the NBA can improve its rules, policies and procedures, and training and monitoring systems. We've also made recommendations to deal with the perceptions of some teams that referees on occasion make calls based on their likes or dislikes of a team or player.
We believe it is important that the league focus on this issue, and we have made specific recommendations about how that can be done.
Our specific recommendations, which have overwhelmingly been accepted by the league, are laid out in our report.
With that, I'd like to take your questions.

Q. I wanted to ask you about the attitude towards the other forms of gambling. It seems to me the Commissioner sort of realized that it was a little bit unreasonable to expect grown men not to participate in any form of gambling whatsoever. Is it your recommendation that that be sort of relaxed or at least clarified in terms of what is permissible in terms of gambling behavior and what is not?
LARRY PEDOWITZ: Yes. Actually, the rules have been changed. You'll find in the back of the report, in the recommendation section, a discussion of how we changed the rules. So they are more relaxed now. There is not to be betting in casinos and so on during the season. But if after the season, if notice is given to the league office, that type of gambling is permitted. Again, the rule is very clear.

Q. If you had the chance to interview Tim Donaghy, what do you think you might have been able to uncover? What was most important from your perspective in being able to speak to him and how would this report have changed in any way?
LARRY PEDOWITZ: Well, I would have liked to have understood in detail how he did what he did in order to see whether or not there might be additional things that we could recommend to change for the future. I also would have wanted to talk with him about his position that he didn't manipulate games. I would have wanted to understand a little bit better exactly what he was doing and how he was doing it. Again, that would have permitted us to make a better judgment as to whether or not we believed him or not.
Those are two key areas, I think.

Q. You talk about interviewing all the different referees. What other evidence did you pursue or gather during the investigation in terms of absolving the league from any other malfeasance? Was it a matter of the referees testifying they weren't involved with this? How far did you pursue something like this when you're trying to -- not that you were trying to prove people, they weren't accused of anything, you're not trying to prove them guilty. It's kind of a funny position to be in.
LARRY PEDOWITZ: Well, you sort of start with the gambling inquiry. I mentioned one area we were looking at very closely was whether or not any referees had bet on NBA games. That was a key issue for us. We looked not only at what the referees had to say about themselves but also what other referees had to say about the referee. So we talked to all of them. We talked with close to 60 referees the first time, 60 the second time, and we got their perspectives on that.
In addition, we also knew on that issue that the U.S. Attorney's Office was not suggesting to us in any respect that anyone else had done that. That was very important to us because they had available to them Donaghy and others that they might talk to. So that was very important.
More recent allegations that came from Donaghy, these June allegations that surfaced in his lawyer's letter, we interviewed the referees that were specifically involved in those games, tried to analyze those games very closely. We looked at the video. We had deep analysis done of the games. We tried to give you a very detailed report concerning what it is that we learned. I think actually that will probably be fairly interesting to you.

Q. Were there meetings with bookies, things like that, anyone else either associated with Donaghy or has been known to circulate within these sorts of circles?
LARRY PEDOWITZ: We did talk to people in Las Vegas who set the lines out there who are very well-connected to bookies around the country. It's quite fascinating. They have information available to them with respect to people that engage in illegal betting. And they had no information of value to us. That is, they certainly had no information suggesting that any other referee had done anything improper. They also told us that they had not been able to detect that Donaghy was doing what he was doing.

Q. You've now shown in the report, and David Stern has said, that the rules involving gambling with referees needed to be clearer; it wasn't enforced well. You also mention later on you're recommending new rules governing gambling by the players. Is there a concern that you saw that the rules aren't strong enough with them either? Is there a risk area that you identified?
LARRY PEDOWITZ: Well, clearly if a player was betting on an NBA game that he was playing, we'd have the U.S. Attorney's Office surfacing again. While the NBA rules are very important, so are the federal criminal laws. So we would have a big issue there.
We think it's very important, and we've written in our report in the recommendation section, that the league focus also on players. We think gambling education is very important and we want this underscored for players.
We've learned in the college ranks that some of the biggest problems with respect to betting can arise with players. We've seen point-shaving scandals and so on. So we certainly want to try to avoid anything like that happening at the NBA.
But we have no information suggesting that it's ever happened.

Q. That recommendation about considering new rules governing gambling by players, you mentioned in there that you heard there was a culture of gambling among the players. Can you elaborate on some of the things along those lines that you heard in your interviews?
LARRY PEDOWITZ: Yes. We've spoken with all the team representatives who wanted to speak to us. We've spoken to 14 of them. We learned in those interviews that clearly there is a good deal of gambling -- cards, for example, and gambling going on in Las Vegas by players. It's of some concern to us that the culture be right. We've also learned that there are significant card games going on on flights among teams. We're just a bit concerned about the message that that sends.
The players obviously have a lot more money to lose than the referees. By the same token, we are also concerned that the culture be right in the NBA. And, therefore, it's something we think should be focused on.

Q. When you say "the culture be right," what do you mean by that?
LARRY PEDOWITZ: That the tone always be that, you know, the education process be that this can ruin your life. That is, if you get involved and over your head in gambling -- and that can happen with people who make millions of dollars a year, too, if they're placing large bets -- that the education be right and that this be a focus going forward so that we're absolutely certain that players are getting a very clear message that this can be very dangerous to your health.
So, again, the sickness of compulsive gambling can affect many people. We have a concern that the culture of the NBA ought to be a disciplined one. So we worry about players.

Q. Would you recommend, say, the banning of charter flight card games? Are you going to be that specific?
LARRY PEDOWITZ: If I was running my team, yes, I would.

Q. Really?
LARRY PEDOWITZ: I would.

Q. How much money are we talking about here? I don't know the number. Did you hear numbers involved?
LARRY PEDOWITZ: No, I did not hear specific numbers. But I gathered these were significant amounts of money.

Q. You mentioned in there about increased monitoring of games. Can you talk to what level you feel that should be done compared to what level has been done in the past? Also the second part of that would be, you also mentioned how some clubs feel that they are targeted by certain referees in certain situations. Just how do you go about addressing what is also an emotional concern?
LARRY PEDOWITZ: Well, let me start with the latter, because it's something of significant concern to us. We did hear from some of the team representatives that on occasion they feel that referees' egos are getting in the way of their play calling. Again, there is a perception among some of the teams that that occasionally interferes with fair calling of plays. That's a perception that we'd like to try to eliminate going forward and we've recommended in our report that General Ronald Johnson, who has been hired by the NBA to focus on the referee program and to try to manage it as effectively as he possibly can, be the person to whom the teams communicate concerns about this issue, so that he can address it, deal with it, and also try to ensure that the referees are getting a constant and clear message that they have to be disciplined about the rules. We spent some time with him. He's a very impressive individual. And we're hoping that we can eliminate this perception going forward.

Q. And as far as monitoring the games, can you talk about the level that was done in the past and what should be done going forward?
LARRY PEDOWITZ: As we spell out in the report, there have been observers watching games for quite a number of years, and we've described the statistical information that's gathered. Now the league, in addition, is talking to a number of people who are connected with Las Vegas, looking more closely at the way the lines move, addressing themselves to whether or not there's concerned about leakages of confidential information. This has been going on during the past season. There have been instances in which a close look has been taken and the NBA has been able to determine there's no problem by exploring that. But that's what's going on.

Q. Donaghy's scheme involved that he was giving information to gamblers, and that included the composition of refereeing crews, and the NBA tried to rectify that by posting that every morning. It implies that there's some value to that in the first place. Did you find anything during your investigation that indicated that, yes, the composition of refereeing crews, by definition, or that the presence of specific referees could affect the outcome of games, and that was, in fact, valuable information he was providing them? What did you find along those lines?
LARRY PEDOWITZ: The indications that we've gotten, based on what's happening in Las Vegas now as a result of this information being made available in the morning, is that the lines are not moving when this information is made available.
I'm not sure. I mean, clearly there is information posted on Web sites, the talk about the characteristics of various referees. There's information out there. It may be out there because people do think it has some value, maybe betting the over/under. I don't know whether a particular referee calls a lot, makes a lot of calls or doesn't make a lot of calls in terms of statistical review.
So I'm dubious that it makes very much difference. But, again, there are people who can look at this and probably give you their perspective, as well. But I'm doubtful, in light of what's going on in Las Vegas.

Q. Is there any value then to the NBA posting it? Makes it sounds as if it was almost a red herring that these aren't valuable. Clearly at times the gamblers thought they were valuable because it's information they were soliciting from Donaghy.
LARRY PEDOWITZ: Again, I've never had an opportunity to speak to Mr. (James) Battista or Mr. (Thomas) Martino, his two co-conspirators. I don't know what they found valuable. I know that Donaghy's plea suggested that was information he was providing and he was using it in some respect and thought it was valuable. I just don't know.

Q. Piggybacking on that last question, you talked about looking at the tendencies of certain referees. If you did not find anything else in their tendencies that was criminal, did you find anything that was, whatever, lopsided or was maybe particular to calling a team, calling fouls against a team or a player, a coach, what have you, that would raise eyebrows and bring if not criminal suspicion at least the kind of attention that the League would not want? I mean, was that part of the suggestion in that you have to look and be more cautious with the image of refs having favoritism towards or against certain teams?
LARRY PEDOWITZ: We didn't find it. On the other hand, this is clearly something the league is focusing on now. They've hired Steven Angel from Segal. Steven is working on statistical prototypes and also doing statistical work to try to determine whether or not there are any unusual statistical things going on with respect to the referees and teams.
So this is clearly something that is going to be looked at going forward and studied carefully. The League sends a very consistent message. They want these referees to be accurate and consistent. Again, they are doing everything in their power to try to ensure that these referees are going to be disciplined going forward.

Q. You mentioned if you owned a team or ran a team, you would do away with any sort of monetary gambling, I take it, on flights.
LARRY PEDOWITZ: Maybe I'm being naive. Obviously players have a union. Players also, you know, have the freedom right now to do as they wish with respect to how they conduct themselves. Many of them are very wealthy. I'm sure many of them gamble in a very controlled sort of fashion.
I don't want to sound like a preacher. On the other hand, again, if I had a team, and there's no chance of that, I would want to be sending as consistent a message as I can that gambling is something that is potentially dangerous, it is something that needs to be looked for, and it needs to be something that the teams understand can get some people in trouble.
Again, if I can modify my point somewhat, it may very well be that this is an issue that you end up bargaining over. But, again, in my perfect world, my team wouldn't be gambling on planes. That's my point of view. I'm speaking only for myself.

Q. There obviously is a great deal of interest in Sacramento regarding the Kings-Lakers series in 2002. You found nothing to support the Donaghy claims. Can you take us through the process on how you reached that conclusion in hopes maybe that some people will buy into the fact that you did take a hard look at this?
LARRY PEDOWITZ: Let me begin with what we've written. I'm going to describe to you how we got there. But you now have an opportunity to read what it is that we found and what we discovered.
What we did was we talked to all of the referees that were involved, the three referees that were involved. You'll see that the discussion of (Ted) Bernhardt is particularly interesting in terms of his dialogue with Donaghy. I think it's also quite relevant that we spoke to Ed Rush, who was the supervising referee at that particular game. And then we take a very good close look at the game, the way it was refereed.
While, as we've mentioned in there, again, we took a hard look at this, it was clearly not a well-refereed game. There were a lot of errors. But if you look at the types of errors that were going on, (Dick) Bavetta's errors were quite well-balanced, that is there was no occasion he was strongly favoring one team over the other. With regard to (Ed) Delaney's errors, he only had a few. We tried to describe to you in there what the basketball operations people who looked at the refereeing saw. We tried to explain to you how a referee can always miss a call.
One thing I know you understand, if you go to a game and you try to make calls yourself from the stands, even if you're close in, it depends on what your perspective is, where you are. These are three guys trying to referee a game where these guys are huge, incredibly fast and athletic, and it's very difficult sometimes to get the proper perspective on the call to be at the right angle. Delaney and Bernhardt, who missed this last call involving Kobe and Mike Bibby, they were poorly positioned in terms of the angles to see that call.
I mean, I've seen the TV view of that. It's perfect. I mean, you can see everything. But that's where the TV angle was; it's not where the referees were.
So, again, we took a real close look at this. We talked to the other referees about this particular game, what they'd heard. Again, we lay it all out for you for your evaluation.
When we look at it, we come away believing there's nothing there and that Donaghy has not laid out a valid case on this particular issue. All the referees deny they had the conversation he claimed one of them had. So we don't see it.

Q. One of the things that the initial release mentioned was the need to increase the league's effort, eliminate the perception of the referee bias. Is this possible in a tangible way, other than saying that you're going to be more transparent? How much of a problem does the League have in this regard? Are there specific recommendations in the report how to do that?
LARRY PEDOWITZ: There are specific recommendations in the report about it. It's clearly an issue if the teams have the perception. The referees all deny that they're engaged in biased refereeing, that they play favorites. But there's always the risk that the referee's ego is going to get in the way of correct calling. And that is the perception of the some of the teams, that some of the referees do that on occasion.
The Commissioner has hired a former major general of the United States Army. I think that man is capable of managing the referees and doing an extremely good job. And, by the way, I'm not suggesting that the perception is necessarily valid or in all cases valid. But by the same token, if it's there, it should be dealt with.
So we're suggesting that if a team has a concern about this issue, that they make as specific a complaint as they can to the general so that the general can look into it. We've also suggested that the General and Joel Litvin, who is the president of the league, report periodically to the audit committee, which is made up of team owners, about the nature of the complaints that are being received and how they're being investigating and what they are concluding with regard to that.
I think that may improve things. I'm certainly very hopeful. Having met General Johnson, I think he's just the man for the job.

Q. A lot of this is talking about perception. Is part of David Stern's biggest issue the public feels like they favor certain teams, there's a lot of gambling going on? Was a lot of this report to clear up perceptions as much as anything?
LARRY PEDOWITZ: The purpose of the report was to take a careful look at what was going on, to understand the refereeing program, to see if we could make improvements. But, yes, the key point when we got hired was, Come on in, we're used to doing this with major corporations after they have a problem, we're used to coming in and trying to make recommendations about how you can improve things and avoid problems in the future. So that was our primary purpose when we first arrived. I mean, we later got this Donaghy letter, later in June, then had to go dig deeply into that.
But our primary purpose is to improve things and to, yes, alter perceptions if we can. These team owners are entitled to have the League focus on this. I know the message from the league has been, as I say, unequivocal: Get the calls right, be consistent and do as good a job as you possibly can. Notwithstanding that, and a really rigorous referee program which is out there and described in our report, there is still this perception lingering.
And our recommendations are as clear as we can about how to deal with that or how to attempt to deal with that. I hope the league will have some success. We will look on it. I was requested by the Commissioner three days ago to come back and take a look at this next year and see whether or not things are improving, and we're going to do that.

Q. You talked about players gambling on team planes. Do you have any feelings at all about summer leagues being in Las Vegas? Obviously, Las Vegas, some people want a team there. What are your feelings involving Las Vegas in terms of some of the summer league and the possibility of a team being there?
LARRY PEDOWITZ: I think that's a question for Commissioner Stern. It's not one that I think I can effectively answer. Obviously you can rule, notwithstanding the fact you're in Las Vegas, that tell folks they don't belong in casinos. Again, if you're actually there and you've got some people who can check on whether or not people are going, it's fairly easy to monitor.
Again, for that I think the Commissioner is going to have a much better perspective than I do.
Again, thank you, everybody, for listening. I hope you will take a very careful look at our report. I very much appreciate you're having joined this conversation.

End of FastScripts

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