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Kings ownership documents reveal major potential stumbling blocks for Seattle

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CORRECTION:  February 8, 2013

An earlier version of this post incorrectly referred to a May 2003 document as an addendum to the Kings’ 1992 ownership agreement.  The May 2003 document is self-described as a proposal, which, if approved, would constitute a basis for an amendment of the Kings’ partnership agreement.  The version of the May 2003 document viewed by PBT was unsigned.

This item was co-written by Aaron Bruski and James Ham

The fight over the Sacramento Kings is building to a fever pitch.

In one corner, Seattle-based investors led by hedge fund manager Chris Hansen and Microsoft CEO Steve Ballmer have entered into an agreement to purchase the Kings from the Maloof family with the intention of moving to Seattle.

In the other corner, former NBA All-Star and Sacramento Mayor Kevin Johnson is moving comfortably toward an announcement of his equity partners, which will come at some time this week. Sources close to the situation have said that these owners will more than meet NBA criteria and be able to compete with or beat Seattle’s offer. Additionally, these owners will come to the table willing to pay their portion in an arena deal that was previously approved by the NBA, and sources say will be approved by the Sacramento City Council, as well.

USA Today and the Sacramento Bee reported that big money guys Ron Burkle and Mark Mastrov were in serious talks with the city, and USA Today reported that Burkle met with David Stern in New York on Thursday, January 24th. PBT can confirm each of those reports.

Since the Sacramento Bee’s report on the issue January 24, there has been speculation whether Kings minority owners have the “Right of First Opportunity” to purchase the team from the Maloofs.

They well may.

NBC ProBasketballTalk has acquired a copy of the Kings’ 1992 ownership agreement and an unsigned May 2003 proposal to amend the ownership agreement.

Article VII of the 1992 ownership agreement, “Transfer of Partnership Interests” starts off in Section 7.1 “Restrictions on Transfer” with the basic tenet that, “…no sale, assignment, transfer, encumbrance or hypothecation (herein referred to as a “Transfer”) shall be made by a Partner of the whole or any part of its or his Partnership interest (including, but not limited to, its or his interest in the capital or profits of the Partnership).” Section 7.2 permits certain specified sales to “Affiliates,” which in theory covers sales to essentially the same ownership (more on “Affiliates” below).

A little further down in Article VII, Section 7.3 spells out the right of first refusal in plain legalese.

“Section 7.3. Right of First Opportunity.

Notwithstanding the provisions of Section 7.1 hereof, if a Partner desires to assign all or part of his or its interest in the Partnership and such assignment is not specifically permitted under Sections 7.2A or 7.2B above, then the assignment shall be subject to the right of first opportunity hereinafter described in this Section 7.3. Before a Partner (the “Selling Partner”) actually concludes a sale of its interest in the Partnership subject to this Section 7.3, the Selling Partner shall give notice to (a) the General Partner and each other Limited Partner if he Selling Partner is a Limited Partner, and (b) to each Limited Partner if the Selling Partner is the General Partner (such Partner or Partners other than the Selling Partner being individually and collectively herein called “Non-Selling Partner”) setting forth the purchase price for which it will offer such Partnership interest for sale (which purchase price must be payable entirely in cash or part in cash and the balance pursuant to one or more promissory notes).

Section 7.3 further adds that a “non-selling partner” must step forward with its right to match within 30-days notice of the team’s sale. When that authority is exercised, the minority owner would have a 45-day window to complete a purchase.

The language is clear, but perhaps the Maloof family is counting on an earlier clause:

“Section 5.3. Limitations on Authority of the General Partner.

Notwithstanding the provisions of Sections 5.1 and 5.2 hereof:

A. The following decisions shall require the approval of Partners then holding Partnership Percentages aggregating at least 65%:

(1) The moving of the Team from the Sacramento area to another City prior to February 1, 2002;

(2) The sale of all or substantially all of the Partnership Property

Section 5.1 details the “Authority of the General Partner.” It includes language giving the majority owner “exclusive authority to manage the operations and affairs and to make all decisions regarding the Partnership and its business…”

Section 5.2 addresses the “Sale or Financing of Partnership Property.” It includes clear language stating “the General Partner shall have the sole and unrestricted right to and discretion to determine all matters in connection with any sale of the partnership Property or any part thereof…”

In layman’s terms, sections 5.1 through 5.3 establish the potential for a super-majority in the franchise’s decision-making authority. By reaching a 65-percent threshold of controlling interest, the Maloof family and partner Bob Hernreich have accomplished that by purchasing minority shares during the last decade.

While this all seems alarming for the Kings’ minority owners, it is not the end of the story. Nowhere in Sections 7.1 through 7.3 is an exception carved out protecting Section 5.3 and the Maloofs super-majority clause from the right of first opportunity. This means that while the Maloofs’ have the right to sell and/or relocate without minority approval, it doesn’t appear they have the right to sell any portion of their interest in the club without first giving the limited partners a chance to match.

As attorneys do, how an attorney may interpret the document may depend on who is paying their bills. And a judge may get to make the final call.

A May 2003 proposal to amend the ownership agreement proposed to strip the “Affiliate” language that sources tell PBT may have provided a small loophole for a transfer of the team’s majority share while circumventing the rights of the minority owners. The proposal included the following language:

“2. Partners Right of First Refusal

To clarify the issue of First Right of Refusal on purchase of partnership shares, the following is a proposed amendment to the Partnership Agreements:

A. Partner’s Proposal to Transfer. If a Partner proposes to sell, assign, or otherwise dispose of all or any part of the Partner’s Interest, however it is held, i.e. whether or not the interest is owned directly by it, or through another entity, individual, etc. (Hereafter “Such Interest”), then the Partner (“Selling Partner”) shall first make a written offer to sell such Interest to the remaining Partners, pro rata (as not all of the other Partners are required to participate in the purchase) based on their then ownership positions in the Partnership. The price, terms and conditions shall be as mutually agreed by the parties.

The following section goes on to propose that in the case of a third-party offer, the minority owners retain their right of first refusal for 60 days after receiving the selling Partner’s written notice and it finishes with this definitive statement:

“No Partner shall sell, transfer or otherwise dispose of their Interest, even if owned through a different entity and it is the purported different entity selling all or a portion of itself within the holder of the Interest, except in accordance with the provisions of this Article.”

There is one more note of interest in Section 3 of the proposal titled “Sale of an Interest in the General Partner”:

“Any offer received by the General Partners to purchase a portion, or all, of their interest, which was not purchased by the Limited Partners pursuant to their Right of First Refusal, would be considered an offer to purchase that percentage of the total entity.”

Meaning, that if the Maloofs sell their interest to the Hansen-Ballmer group for the reported $525 million and the minority owners do not take up the Right of First Refusal, Hansen and Ballmer would be required to purchase a proportional stake of the minority share as well.

We aren’t looking at $341 million (the Maloof and Hernreich 65-percent share), we would be looking at the entire $525 million. Although whether that sum would make the Seattle group even blink is up for debate.

The proposal language states that if the proposal is approved by the partners, it will constitute a basis for an amendment of the ownership agreement to be drafted and executed by all partners.  The version of the May 2003 proposal viewed by PBT was unsigned but according to a source with intimate knowledge of the situation, the proposal was signed in May of 2003.  PBT is not aware of an amendment to the ownership agreement that was later drafted and executed by all partners.

So the question now becomes, is there a Right of First Opportunity/Refusal and if so, is there a minority owner who is willing to step up and invoke that right? If so, can that owner come up with the financial backing to match the deal from the Hansen-Ballmer group?  What is the backstory of the May 2003 proposal and what became of it?  And lastly, will the NBA continue to back a Seattle deal that may have ignored the rights of minority owners?

It would be surprising if the NBA didn’t have some serious questions for the Maloofs and the Seattle group.

Karl-Anthony Towns beats out Isaiah Thomas to take Skills Challenge title

in the Taco Bell Skills Challenge during NBA All-Star Weekend 2016 at Air Canada Centre on February 13, 2016 in Toronto, Canada. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and/or using this Photograph, user is consenting to the terms and conditions of the Getty Images License Agreement.
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TORONTO — In a new twist to the Taco Bell Skills Challenge, the NBA made the decision this year to add big men to a competition that has traditionally focused on point guards. The new wrinkle created new layers of intrigue, an unusual amount of controversy and, ultimately, a new champion: Timberwolves rookie center Karl-Anthony Towns.

Towns didn’t know what to expect in the competition, given that it was his rookie season, and practice didn’t fully prepare him.

“Oh, I came in today at I think it was 11:00 in the morning and got a practice run,” Towns said after the competition. “But it doesn’t translate to what it is when you have millions of people watching, thousands of people in the stands and also your heart racing like mine was. So just to have that instance of just a feel of how it was.”

C.J. McCollum beat out Jordan Clarkson in the first round, and Isaiah Thomas took care of Emmanuel Mudiay. In something of an upset, Towns handled Draymond Green, who is the NBA’s leader in triple-doubles.

The other matchup in the first round came with some controversy: DeMarcus Cousins missed all three attempts at the chest pass into the ring but moved on in the obstacle course and ultimately defeated Anthony Davis. This led to widespread criticism on social media for Cousins being allowed to advance without completing all the drills.

But Towns beat out Cousins in the semifinals, thereby preventing a nightmare scenario where a winner might have to have an asterisk next to his title.

Thomas beat McCollum in the guards’ semifinals. McCollum lost his dribble early on in the round and never really recovered.

The final round between Towns and Thomas went down to the wire, but Towns’ three-pointer went down first, giving him the title.

Towns sees his title as validation for the NBA’s decision to add big men to the competition, as well as a victory for bigs who are skilled in more than the traditional ways.

“The bigs were amazing today,” Towns said. “We were able to just come out with a W, and I’m glad I was able to help the bigs come out with this trophy. This is bigger than me. This is for all the bigs out there, with the game changing the way it is, to show that bigs can stand up with guards, skillwise.”

Russell Westbrook on Lakers speculation: “Nah, I like where I am now”

PHOENIX, AZ - FEBRUARY 08:  Russell Westbrook #0 of the Oklahoma City Thunder during the NBA game against the Phoenix Suns at Talking Stick Resort Arena on February 8, 2016 in Phoenix, Arizona.  The Thunder defeated the Suns 122-106.  NOTE TO USER: User expressly acknowledges and agrees that, by downloading and or using this photograph, User is consenting to the terms and conditions of the Getty Images License Agreement.  (Photo by Christian Petersen/Getty Images)
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TORONTO — No matter what Russell Westbrook does, he cannot escape the rumors that have followed him for years. He grew up in Los Angeles and played college basketball at UCLA—so, it’s only logical that when he hits free agency in the summer of 2017, he’ll look to sign with the Lakers, right?

Westbrook did his best to shut that down on Saturday after practice with the Western Conference All-Stars.

“Nah,” Westbrook said. “I like where I am now. Oklahoma City is a great place for me.”

Westbrook admitted that he grew up a Lakers fan, but said he never thought of playing there as a kid.

“I never thought I’d play in the NBA,” he said. “I was just watching them.”

Westbrook has another full season to go before his contract with the Thunder is up, so it’s going to be a while before there’s any resolution here. A lot, of course, will depend on what Kevin Durant does this summer.

If Durant sticks around and the Thunder make another deep playoff run next season, it becomes more likely that Westbrook will stay. But if Durant goes somewhere else, there’s a good chance Westbrook follows suit. For now, all they can do is deflect the speculation that will be there no matter what they say.

Gregg Popovich says he thinks more about Warriors than any team he ever faced

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Gregg Popovich and his Spurs have gone up against some powerhouse teams in the past 17 years. There were the Shaq/Kobe Bryant Lakers, Steve Nash and the seven-seconds-or-less Suns, The Kobe/Pau Gasol Lakers, LeBron James‘ Miami Heat teams, and the list goes on.

But nobody has given him more to think about than Stephen Curry and the Warriors.

That’s what he said on ESPN Radio Friday, as reported by Marc Stein of ESPN.

“I’ve spent more time thinking about Golden State than I have any other team I’ve ever thought about in my whole career,” Popovich told ESPN Radio on Friday. “Because they are really fun. I’d go buy a ticket and go watch them play. And when I see them move the ball, I get very envious. When I see them shoot uncontested shots more than anybody else in the league, it’s inspiring. It’s just great basketball.

“So I’m actually enjoying them very much. You try to solve them, but they’re in a sense unsolvable because it’s a particular mix of talent that they have. It’s not just that Steph [Curry] can make shots or that Klay can make shots or that Draymond Green is versatile. Everybody on the court can pass, catch and shoot. And they all get it.”

When you think about those legendary teams Popovich faced, they may have been a little less mentally taxing to gameplan for. The Shaq/Kobe Lakers ran the triangle (an offense Popovich was familiar with), but most of what made them great was exceptional talent — two future Hall of Famers at their peaks. The Spurs tried to bully the Suns, and then they developed a motion offense that eventually shredded the Heat.

The Warriors are different, and Popovich gets to a fundamental problem in defeating them:

“They’re talented. But they’re also very, very smart.”

That’s what’s hard to plan for — smart players and smart teams adjust, and the Warriors by design loaded their roster with high IQ guys. If you adjust, they counter. And for the last season-and-a-half, that has worked brilliantly.

LeBron James on Kevin Love trade rumors: “They’re false”

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TORONTO — The rumors were out there: the Boston Celtics were interested in Kevin Love and were talking trade with Cleveland.

LeBron James would have none of that.

“It’s false,” LeBron said of the rumors when speaking to the media after the Eastern Conference’s All-Star Game practice Saturday. “It’s the only thing I can look at it and say it’s false. That’s the last thing guys are worried about right now are trade talks from our team.”

That echoed what Carmelo Anthony said. The buzz around Toronto (where the NBA has gathered for All-Star Weekend) that there wasn’t a lot of to the talks and if there was any momentum has stalled out.

Still, there will be talks, and there will be plenty of Cavaliers trade rumors in the run-up to the Feb. 18 trade deadline. Cleveland could use some shooting from the wing and quality depth to provide versatility going up against Golden State or San Antonio in the Finals.

LeBron just wants to make sure the talks don’t impact the locker room.

“One thing about this business is you can only control what you can control. Things that you can’t control, you can’t let it bother you, and I’ve learned that over the years,” LeBron said. “There is so much that goes on in professional sports that if you just focus on what you can control, everything else will take care of itself.”

The Love rumors likely will continue to flare up this week, but they are not going to move him unless another team makes a Godfather offer.

The Cavaliers have been 10.1 points per 100 possessions better this season when Love is on the court compared to off it (and their defense does get marginally better when he plays). When Love, LeBron, and Kyrie Irving are on the court together the Cavaliers outscore opponents by 11.7 points per 100 possessions. Those are massive numbers.

The Cavaliers are a win-now team, if you’re going to break up part of that trio it has to be for something that makes the team demonstrably better. And that kind of superstar trade is rare at the February deadline anymore.