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.

Bucks’ Khris Middleton, dealing with illness, misses practice

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ST. FRANCIS, Wis. (AP) — Bucks wing Khris Middleton missed practice with an illness that has been bothering the Bucks’ second-leading scorer (14.7 points) all week.

Middleton was 3 of 8 for eight points in 35 minutes in the 118-93 Game 5 loss in Toronto that gave the Raptors a 3-2 series lead. Milwaukee coach Jason Kidd said he didn’t think the illness was a factor, and that Middleton had good looks and played well defensively. He expected Middleton to start on Thursday and said he wasn’t pondering any lineup changes for Game 6.

The Bucks got a day off from practice then returned to practice Wednesday after a brief break from what has been an increasingly rugged series.

After getting blown out in Game 3 by the Bucks, the Raptors won the next two games in part by being more physical and slowing down Milwaukee.

Sometimes, a young team needs to learn from failure to get better.

Kidd hopes his players build on the lessons learned from a stinker of a Game 5 in their opening-round playoff series against the Toronto Raptors. They need to regroup quickly to avoid elimination when the Raptors and Bucks meet Thursday night at the Bradley Center.

“Yeah, I hope so,” Kidd said when asked about whether his players learned from the blowout loss. “Today, I thought guys were focused, understanding what we have to do. It’s not hard, but for us the process of being able to be consistent is the one thing that we struggle with.”

Workaholic forward Giannis Antetokounmpo might have been the only player who didn’t want a breather.

“I don’t know, for me, I didn’t need an off-day. But for sure some guys played a lot of minutes, their bodies are sore,” Antetokounmpo said. “I think for some guys it’s good to get some rest so we can bring more energy tomorrow.”

For all of his athleticism, the 22-year-old Antetokounmpo lacks playoff experience when compared to the postseason-tested Raptors.

Antetokounmpo and Middleton are playing in their second career playoff series after the Bucks lost in six games to top-seeded Chicago in 2015. Antetokounmpo’s role has changed now that he’s the focal point of the offense, so he faces more defensive scrutiny.

The team surrounding Antetokounmpo and Middleton has been almost completely made over since then, with injured forward Jabari Parker and center John Henson the only other holdovers. Henson has only played three minutes against Toronto.

Two other starters, guard Malcolm Brogdon and center Thon Maker, are rookies. Even center Greg Monroe, a seven-year veteran who provides scoring punch off the bench, is making his playoff debut. Fourth-year players Tony Snell (Bulls) and Matthew Dellavedova (Cavaliers) joined the Bucks this season, brought to Milwaukee in part because of their postseason experience.

In contrast, the Raptors have been through about every conceivable playoff situation after losing to Cleveland in the Eastern Conference finals last season. Led by one of the best backcourts in the game in DeMar DeRozan and Kyle Lowry, Toronto is no stranger to adversity.

“You definitely see that experience come into play and we just understand the moment probably a little bit more than them. That’s not to take away (anything) from them,” DeRozan said. “They are a great team, a young team and this is definitely going to be an experience they will learn from and carry over but for now it’s something we have to keep in mind and understand the moment of going into every single game … to try and close this thing out.”

Milwaukee’s transition game is off track with 31 turnovers over the last two contests.

“That’s the physicality part, because it’s the playoffs, because it’s more intense. You get away with slaps, holds, grabs and that’s a trick of the trade,” said Jason Terry, a 17-year veteran who is averaging about 10 minutes a game off the bench for the Bucks this series.

“If you haven’t (been) through that, you don’t know it until you face it,” Terry said. “I think for us being a young team, now that we’ve seen it four or five games consecutively, hopefully now we can adjust.”

NOTES:

 

Jimmy Butler hits contested deep buzzer-beating 3-pointer (video)

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Shooting buzzer-beaters is especially difficult because the defender knows your deadline to release the shot. The threat of a pump fake, drive to another location or pass disappears as the seconds tick down.

On the other hand, Jimmy Butler is very good.

Wizards’ interior defense, transition buckets earns them 103-98 win, 3-2 series lead over Hawks

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It’s one of the core tenets of the NBA analytics movement that aligns well with old-school thinking — get your buckets from the places it’s easiest to score. The ones where teams shoot the highest percentage, where they are most efficient. Basically, shoot close to the basket or corner threes.

Feeling comfortable back home, Washington took those shots away from Atlanta Wednesday night — the Hawks shot 43.6 percent inside eight feet of the rim, were just 18-of-41 in the paint (43.9 percent) and were 0-of-6 on corner threes.

Combine that with 27 points from Bradley Beal, 20 points and 14 assists for John Wall, and some transition baskets (20 fast break points) and you get a 103-98 win for the Wizards. Washington now has a 3-2 series lead with Game 6 in Atlanta Friday night (if necessary, Game 7 would be Sunday).

Washington always seemed to be the better team in this one, but they could never get a comfortable lead — when Washington would get up double digits, the Hawks would close the gap again and hang around.

A lot of credit for that goes to point guard Dennis Schroder, who had 29 points on 10-of-18 shooting, and was 5-of-6 from three, to lead the Hawks. As it has been all series, the Wizards game plan with Schroder was to go under every pick and dare him to beat them with his jumper — and he almost did. Schroder also had 11 assists on the game.

While he played well and Paul Millsap was his usual impressive self inside (21 points, although on 8-of-19 shooting), the Hawks wings were a mess. Kent Bazemore, Taurean Prince, and Tim Hardaway Jr. combined to shoot 13-of-41 (31.7 percent) and they were 3-of-18 from three (Hardaway had all the makes).

Meanwhile, Beal had one of his best games of the playoffs, and he deserves some credit for the struggles of the Hawks’ wings.

“I think (Beal) is one of the best two-way players in the league,” Brooks said. “He’s not going to tell anyone he’s a great defender, but his coaching staff, his teammates know he locks up defensively.”

Washington also got some help from Otto Porter (17 points) and Bojan Bogdanovic off the bench with 14 points. Both of them made some clutch shots.

Scott Brooks threw some new wrinkles at the Hawks that worked for stretches — using Wall to double Millsap at times, or going for a stretch with Markieff Morris at the five. Morris still had foul trouble despite the help, the veteran Millsap knows how to get calls. Still, the tweaks worked well enough to get Washington some buckets, and the win.

The question becomes will the Wizards be able to do that on the road — the home team has won every game this series. If the Hawks’ wings feel more comfortable and hit some shots, if Atlanta can get some more easy points inside Friday night, we will be watching Game 7 of this series on Sunday.

No. 1 pick in WNBA draft LAUNCHES shirt deep into stands at Spurs-Grizzlies game (video)

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If the Cleveland Browns are still considering a quarterback with the No. 1 pick in the NFL draft tomorrow, maybe they ought to take Kelsey Plum.

Plum, the No. 1 overall pick in the WNBA draft, will play for the San Antonio Stars. First, she went to San Antonio for last night’s Spurs-Grizzlies Game 5 and showed off her arm by launching a shirt far into the crowd.

And she’s witty: