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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.

Joakim Noah: Jerry Reinsdorf’s ‘frontline’ comment a ‘low blow’

GAINESVILLE, FL - SEPTEMBER 10:  NBA player Joakim Noah looks on during a game between the Florida Gators and the Kentucky Wildcats at Ben Hill Griffin Stadium on September 10, 2016 in Gainesville, Florida. (Photo by Mike Ehrmann/Getty Images)
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After watching Joakim Noah leave for the Knicks, Bulls owner Jerry Reinsdorf said, “We felt Joakim wasn’t going to be a frontline guy anymore.”

Ouch.

Noah, via Marc Berman of the New York Post:

“He’s entitled to his opinion,’’ Noah said. “I feel I have no regrets about my time in Chicago. I gave it everything I had. To me that’s all that matters. I did everything I could for that organization. I thought it was a little bit of a low blow, but at the end of the day I have nothing but respect for that organization. I’m just excited for this new chapter of my career.”

Reinsdorf was right. Noah, 31, is on the downside of his career. I wouldn’t want him for $72 million over the next four years.

But Noah is also right. He gave the Bulls everything he had.

Noah didn’t deserve that parting shot, even if it was correct.

I also wonder how much this has to do with Chicago correctly assessing Noah’s value vs. the Bulls losing a player whom they wanted to keep and lashing out about it.

Spurs waive Ryan Richards, open roster spot

OKLAHOMA CITY, OK - MAY 12: Tim Duncan #21 of the San Antonio Spurs waits for the Oklahoma City Thunder to bring the ball down court during the second half of Game Six of the Western Conference Semifinals during the 2016 NBA Playoffs at the Chesapeake Energy Arena on May 12, 2016 in Oklahoma City, Oklahoma.   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 J Pat Carter/Getty Images)
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The Spurs drafted Ryan Richards No. 49 in 2010, and he could’ve signed with San Antonio any year since. To maintain a second-rounder’s rights, a team must extend a required tender – a one-year contract, surely unguaranteed at the minimum. If the player rejects the offer, those rights extend another year, and the team must then offer the tender again the following year.

Richards finally took the tender this year.

Just a couple days into training camp, the Spurs showed how much they value him.

Spurs release:

The San Antonio Spurs today announced that they have waived forward/center Ryan Richards.

San Antonio now has 19 players and one open roster spot. I know what you’re thinking.

Thunder PG Cameron Payne fractures foot. Again

PHOENIX, AZ - FEBRUARY 08:  Cameron Payne #22 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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Just as he was getting back into the flow after fracturing his foot this summer, Thunder point guard Cameron Payne hurt himself all over again.

Thunder release:

The Oklahoma City Thunder announced today that guard Cameron Payne suffered an acute fracture to his fifth metatarsal in Tuesday night’s Blue-White Scrimmage.

This is a troubling setback for the 22-year-old Payne, whom Oklahoma City drafted No. 14 last year. The Thunder didn’t play him enough last season to maximize his development, and now, they won’t the chance to make amends for a while.

Russell Westbrook will obviously still handle the large majority of point guard minutes, and this sets up Ronnie Price to open the season as the primary backup. The 33-year-old Price can play tough defense in limited playing time, but asking him to run the second unit offensively will likely turn out poorly.

Oklahoma City could stagger Westbrook’s and Victor Oladipo‘s minutes, using Oladipo as the lead guard when Westbrook sits. But Oladipo didn’t take to that role in Orlando.

This could also open the door slightly for Semaj Christon to make the regular-season roster as the third healthy point guard. But the Thunder already have 16 players, one more than the regular-season roster limit, with guaranteed salaries – and that doesn’t count Christon. Oklahoma City would have to drop Mitch McGary and one other player to keep Christon, which seems unlikely.

The Thunder will probably just have to grind it out with Price behind Westbrook.

Paul George on MVP: ‘This is my year to go get it’

TORONTO, ON - MAY 01:  Paul George #13 of the Indiana Pacers reacts after sinking a basket in the first half of Game Seven of the Eastern Conference Quarterfinals against the Toronto Raptors during the 2016 NBA Playoffs at the Air Canada Centre on May 01, 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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MVP feels wide open this year.

Stephen Curry, Kevin Durant and LeBron James have accounted for the last five. But Curry and Durant are now sharing touches with the Warriors, and LeBron is 31 and has coasted in the last couple regular seasons in the midst of so many Finals runs.

That opens the door for new contenders like Russell Westbrook, James Harden, Kawhi Leonard (my pick), Anthony Davis – and Paul George, the Pacers star who’s announcing his candidacy loud and clear.

George on SiriusXM NBA Radio:

I want to be MVP. I definitely want to be the MVP this year. It’s tough, as always. It would be a challenge, but with coach Nate and the guys that I got here, I’m in position to move into that spot as long as I remain being me, being a leader, being aggressive and wanting that. It’s not mine for the taking. I got to go get it. And this is my year to go get it.

The MVP usually goes to a player on a top-two seed, and that’ll be a tough nut for Indiana to crack with the Cavaliers, Celtics and Raptors standing in the way. But, again, this is an atypical year with most top teams so balanced.

If the Pacers hit the high end of their potential outcomes, George would be a strong candidate. He’s is the second-best player in the East, so most nights, he’ll be the best player on the court. That goes a long way for perception.

The best thing George can do for his case is help Indiana win big. If he does that, he’ll surely impress enough individually along the way to warrant major consideration.