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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.

Raptors hold on in overtime, even series with Heat

TORONTO, ON - MAY 03:  Kyle Lowry #7 of the Toronto Raptors hits a half-court buzzer beater to tie Game One and send it into overtime during the Eastern Conference Semifinals against the Miami Heat during the 2016 NBA Playoffs at the Air Canada Centre on May 3, 2016 in Toronto, Ontario, 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.  (Photo by Vaughn Ridley/Getty Images)
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It wasn’t pretty, but the Toronto Raptors came away with a win and salvaged a tied series in their first two home games. For the second consecutive game, they went to overtime with the Miami Heat, only this time, it was the Heat that came up cold at the end, and Toronto prevailed, 96-92.

From an efficiency standpoint, Kyle Lowry wasn’t much better than he’s been thus far in the postseason, shooting just 7-for-22 from the field, but he hit two key jumpers in the final minutes of regulation that extended Toronto’s lead, forcing Miami to play from behind and tying the game on threes from Dwyane Wade and Goran Dragic.

But it was Jonas Valanciunas who proved most effective late for Toronto. He finished with 15 points and 12 rebounds, and for long stretches, the only reliable offense for the Raptors was dumping the ball in to him. Valanciunas bailed the Raptors out late with a rebound and tip-in to break an 80-80 tie after DeMar DeRozan (who shot a forgettable 9-for-24 on the night) missed two consecutive free throws.

The Heat failed to score in the first three minutes of overtime, and their continued penchant for turning the ball over did them in several times down the stretch as they failed to execute.

A bright spot for Miami was Dragic, who scored 20 points on 8-for-12 shooting despite receiving eight stitches to his lower lip after catching an elbow in the first half.

Splitting the first two home games isn’t ideal for the Raptors, but they had every opportunity to go down 2-0 after controlling most of the first three quarters and managed to prevail. Plus, Lowry’s late-fourth-quarter heroics could be enough to get him going again.

Damian Lillard gets tested by Warriors, looks for rebound

OAKLAND, CA - MAY 03:  Damian Lillard #0 of the Portland Trail Blazers stands on the court during their game against the Golden State Warriors in Game Two of the Western Conference Semifinals during the 2016 NBA Playoffs on May 3, 2016 at Oracle Arena in Oakland, California.  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 Ezra Shaw/Getty Images)
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PORTLAND, Ore. (AP) First it was a chest cold, then it was a fourth-quarter dry spell. The start of Damian Lillard‘s playoff series against the Golden State Warriors has been rough.

And as Lillard goes, often the rest of the Trail Blazers follow.

Portland is down 2-0 in its Western Conference semifinal series against the defending NBA champions. And it certainly won’t get much easier when the series shifts north Saturday – even though presumptive league MVP Stephen Curry is unlikely to return from a knee injury.

But Lillard and his team have a history of stepping up after getting knocked down. In fact, that’s been the theme of their whole season.

“I know the kind of guys I’m running with. Besides that, we’ve answered the call all season long. We’ve been in bad positions time and time again, and we’ve never shied away. We’ve never not answered the call. I don’t see why this time it would be any different,” he said.

Lillard, who averaged 25.1 points and 6.8 assists during the regular season, scored 25 points in the Blazers’ 110-99 loss in Game 2 on Tuesday night, including 17 points in the third quarter. But the Warriors held him scoreless (0-for-3 from the field) in the crucial final period when they came from behind to win, outscoring Portland 34-12. Portland only scored six points over the last 5:21.

With a day off on Wednesday, Lillard let the loss digest.

“After the game I was pretty frustrated by not being able to finish that game. Yesterday I didn’t even want to see a basketball,” he said. “I wasn’t even gonna watch the playoff game until I heard Cleveland was hitting a bunch of 3s. So I wanted to see for myself, but I didn’t even want to have nothing to do with basketball after that game.”

In the series opener, Lillard started cold but eventually scored 30 points in a 118-106 loss. The Oakland native admitted later to battling a cold afterward. On Thursday, he said he was healthy.

Lillard made a playoff splash in 2014 when his buzzer-beating 3-pointer against the Rockets sent the Blazers into the second round for the first time in 14 years.

But he was the lone starter left with the Blazers this season after the departures of LaMarcus Aldridge, Nicolas Batum, Robin Lopez and Wesley Matthews. Some expected the Blazers to only win about two dozen games.

Lillard tends to rise when he’s the underdog, however. Led by Lillard and backcourt teammate CJ McCollum, a first-year starter, the Blazers overcame a 2-10 stretch in November to wind up the fifth seed in the West.

A two-time All-Star, Lillard was snubbed this year. How did he respond? By dropping 51 points, including nine 3-pointers, in a 137-105 victory over – wait for it – the Golden State Warriors. Lillard shot over Curry at will in that Feb. 19 victory, one of just nine losses for the Warriors in a record-setting 73-win season.

Knowing the Blazers are capable will be key Saturday night.

“We’ll have bounce. We came back after 0-2 against the Clippers (in the opening round) and came with a lot of energy in Game 3. We know how important Game 3 is,” Blazers coach Terry Stotts said. “Having energy, having bounce, at the Moda Center, with our crowd? That’s the least of our concerns.”

Lillard also struggled in the opening two games against the Clippers in the first round. Portland came back to win the next four to win the series, but the Clippers were hurt when their top two scorers, Chris Paul and Blake Griffin, were knocked out with injuries.

The Warriors also get credit for Lillard’s struggles after making defensive adjustments on both Lillard and McCollum, particularly the play of Festus Ezeli.

“They are so explosive and they run really good stuff, I mean, it’s hard to guard. You have to cover a lot of floor against Portland, and I thought between Festus and Draymond (Green), those guys did a great job of protecting the feed and moving and handling the pick-and-roll on top,” said Warriors coach Steve Kerr.

Lillard said the Blazers would learn from it.

“It hurts to go back in the locker room after you play so well for so long and you come back in there with the L. But it is a part of growth,” he said. “The entire season has been growth for us.”

Erik Spoelstra calls Frank Vogel’s firing “disturbing”

INDIANAPOLIS, IN - MAY 28:  Head coach Erik Spoelstra of the Miami Heat reacts as he coaches in the first half against the Indiana Pacers during Game Four of the Eastern Conference Finals of the 2013 NBA Playoffs at Bankers Life Fieldhouse on May 28, 2013 in Indianapolis, Indiana.  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 Andy Lyons/Getty Images)
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One thing that’s a constant in the NBA: coaches always stick up for each other. That’s what happened on Thursday, when Pacers president Larry Bird announced that he was letting Frank Vogel go. Heat coach Erik Spoelstra, who coached against Vogel in three memorable playoff series during the big three era, was unhappy to hear the news of Vogel’s fate and lamented the state of coaching, which has very little job security.

Via Ira Winderman of the South Florida Sun-Sentinel:

“I think it’s really disturbing, actually. I’ve only been a head coach for eight years. So what am I, the second-longest-tenured?” Spoelstra asked, with Casey in his sixth season as Toronto coach and only Gregg Popovich, in his 20th season with the San Antonio Spurs, on the bench longer. “That’s a sad state of where the coaching profession is right now and stability of organizations.”

Spoelstra and Mavericks coach Rick Carlisle are the second longest-tenured coaches in the league, behind only Gregg Popovich. Already this offseason, there have been five coaching changes in addition to Vogel’s: Luke Walton replaced Byron Scott with the Lakers, Tom Thibodeau replaced Sam Mitchell with the Timberwolves, Scott Brooks replaced Randy Wittman in Washington, and the Rockets and Kings jobs are still unfilled. The Knicks job could potentially turn over as well, if Phil Jackson opts not to bring back Kurt Rambis.

This is on top of five coaches who were fired during the season: Kevin McHale in Houston, Derek Fisher in New York, Jeff Hornacek in Phoenix, Lionel Hollins in Brooklyn and David Blatt in Cleveland. That’s a third of the league since the 2015-16 season began. Spoelstra is right about the instability, but that’s part of the business.

Photos: Bucks unveil interior of new arena

BOSTON, MA - FEBRUARY 25:  Jabari Parker #12 of the Milwaukee Bucks runs down court during the third quarter against the Boston Celtics at TD Garden on February 25, 2016 in Boston, Massachusetts.  (Photo by Maddie Meyer/Getty Images)
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The Milwaukee Bucks are set to open their new arena in time for the start of the 2018-19 season, and now they’ve unveiled the first renderings of the inside of the building. They’re pretty nice.

Here’s the court:

There will also be several public bars out in the concourse:

It’s decidedly more modern than the aging BMO Harris Bradley Center, although that building is one of the most fun atmospheres in the league to watch a game in. Hopefully the new place can recapture that vibe.