Kings ownership documents reveal major potential stumbling blocks for Seattle


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.

Kristaps Porzingis envelops Victor Oladipo’s dunk attempt (video)

Nikola Vucevic, Kristaps Porzingis
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Scott Skiles moved Victor Oladipo to the bench, because the Magic coach wanted to give Oladipo a chance to be more aggressive.

It worked.

Oladipo scored a season-high 24 points in the Magic’s 100-91 win over the Knicks.

But Oladipo’s aggressiveness also produced this fantastic Kristaps Porzingis block:

John Wall: Wizards shouldn’t have rested me and Bradley Beal together

Bradley Beal, John Wall
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The Wizards scored just six fourth-quarter points in their loss to the Hornets last night.

John Wall and Bradley Beal rested for the first 4:42 of that final period.

Wall, via Jorge Castillo of The Washington Post:

“I feel like we can’t have me and Brad sitting,” said Wall, who finished with 14 points on 6 for 18 shooting, with six assists, five rebounds and four turnovers. “That’s just my opinion. Coach makes the decision he feels is best for us. I just feel like one of us has to be in in that situation because when you’re on the road, this is the time when you can step on them.

“I just feel like one of us has to be in. I don’t know. It’s just my opinion because our second unit was just so stagnant. And I’m not saying they lost the game. [Shoot], we all lost the game. We didn’t make shots. We were 1 for 20, right? I think we were just so stagnant. We really didn’t have anybody penetrating and creating.”

First of all, this is how you disagree with a coach. Wall made clear that he respects Randy Wittman’s authority to set the rotation. Two adults should be allowed to acknowledge their differing opinions without it being labeled a feud.

But is Wall right?

Per nbawowy!, here are Washington’s offensive/defensive/net ratings with:

  • Wall and Beal: 103.0/105.0/-2.0 in 224 minutes
  • Wall without Beal: 110.0/111.2/-1.2 in 134 minutes
  • Beal without Wall: 80.2/116.8/-36.6 in 48 minutes
  • Neither Wall nor Beal: 105.2/101.6/+3.6 in 123 minutes

The Wizards have been much better with neither player on the court this season. They’ve also been a disaster when Beal plays without Wall.

But this is a relatively small sample. Let’s look back to last season.

  • Wall and Beal: 108.5/101.5/+7.0 in 1,715 minutes
  • Wall without Beal: 103.0/102.0/+1.0 in 1,123 minutes
  • Beal without Wall: 103.2/110.9/-7.7 in 384 minutes
  • Neither Wall nor Beal: 97.0/107.0/-10.0 in 768 minutes

Washington was – by far – at its best when Wall and Beal shared the court. They just complement each other so well. The Wizards were also fine with just Wall, bad with just Beal and even worse with neither.

If I were the Wizards, I’d generally chance resting Wall and Beal simultaneously so they can play more together. If I’m using just one, it’s Wall. Beal is not a creator I trust to run the offense, and Wall’s defense is important.

But there’s a limit on how much Wall (and Beal) can play. Wall got 36 minutes against Charlotte, and Beal played 38.

To the point, Wall and Beal played the final 7:18 – and the Wizards didn’t make a single basket in that span. They scored just two points on free throws. So, it’s hard to argue Wall and Beal were the answer.

Wittman blamed the players more than his substitutions.

Wittman, via J. Michael of CSN Mid-Atlantic:

“We don’t have guys that are making plays right now. Again, good looks but until we quit feeling sorry,” said Wittman, who could’ve gone this road after a 123-106 loss to the Indiana Pacers on Tuesday but didn’t. “When things go bad like that I had to twice in timeouts and tell them to lift their heads up. There’s plenty of time left. We’re up nine during this whole thing.  We start feeling sorry, start pouting putting our heads down and it becomes a snowball. We got to grow up in that aspect of it. If the shot doesn’t go in, it doesn’t go in.

“Makes, misses, that’s the game. You never give in. We haven’t gotten over that. That’s been that way for the last couple of years. Guys don’t play well, put their heads down and we pout, feel sorry for ourselves.”

When Wittman previously called out a player publicly, Marcin Gortat didn’t take it well. I’m not sure this will go any better.


When confronted with Wittman’s words, Bradley Beal only would shake his head before giving this retort: “I’m not going to comment on that.”

It’s uncharacteristic of the fourth-year shooting guard, who’ll usually give some sort of answer and shrug it off. By saying nothing, he’s staying plenty.

The Wizards, who entered the season a contender for the Eastern Conference finals, are 6-6. They’ve lost two straight, by 17 and 14 – and the end of their last defeat was historically dreadful.

Is this a team in turmoil?

Michael provides plenty of context to that question.

Chris Paul drops Rudy Gobert with stepback (and Gobert says why)

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When Chris Paul recognized he got matched up with Rudy Gobert in transition, he slowed it down and set it up for an isolation — then used his step back to drop him to the ground and drain the open midrange. It’s one of the better highlight plays from the Clippers this season (and they have more than a few in Lob City).

Did CP3 push off on Gobert? Of course. Welcome to the NBA, every player who drives pushes off (including Gordon Hayward). It looked like to be Gobert tried to sell the contact and didn’t get the call he wanted.

However, after the game Gobert tweeted it was something else entirely.

Either way the Jazz got the win Wednesday night, 102-91, snapping a 13-game losing streak to the Clippers. The Jazz are .500 on the season with the win (7-7), while the Clippers drop back to below .500 (7-8) with some issues to sort out still.