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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.

Jeanie Buss says decision to fire brother Jim was so hard “I probably waited too long”

EL SEGUNDO, CA - AUGUST 10:  Jim Buss and his sister Jeanie Buss of the Los Angeles lakers attend a news conference where Dwight Howard was introduced as the newest member of the team at the Toyota Sports Center on August 10, 2012 in El Segundo, California. The Lakers acquired Howard from Orlando Magic in a four-team trade. In addition Lakers wil receive Chris Duhon and Earl Clark from the Magic.  (Photo by Kevork Djansezian/Getty Images)
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The question has been for weeks not if but when. Ever since Magic Johnson was brought on as a “consultant to ownership” for Jeanie Buss and the Lakers the writing was on the wall, Jim Buss and Mitch Kupchak were going to be out. Magic’s heavy-handed public campaign to take over Jim’s spot added to the obviousness of the situation.

Nobody expected to be this fast — and certainly not two days before the trade deadline.

Why now? Lakers owner and team governor Jeanie Buss and Magic — the new head of Lakers’ basketball operations — were on the Lakers’ cable network Spectrum Sportsnet in Los Angeles and answered those questions.

“It’s something I thought about for a long time, and once the decision became clear in my mind there was really no reason to wait, Buss said…

“In today’s NBA there is no offseason, you’re constantly preparing for the draft, for the season, for Summer League, so there was no time like the present.”

This was very different from most teams firing a GM and basketball president — Jim Buss is Jeanie’s brother (and will remain part owner), Mitch Kupchak has been a loyal Laker front office soldier for decades. For Jeanie Buss, this was emotional and was not just business.

“This was a very difficult decision,” Buss said. “It was probably so hard for me to make that I probably waited too long. And for that, I apologize to Lakers fans. But now with clarity and direction, and talking to with Ervin, really knowing a change was needed, and that’s why we’re here today.”

Why did she wait so long, through what she called an “erosion” of what the Lakers should be?

“I wanted for the current (she meant former) front office to show us what Laker basketball was going to be. It just wasn’t going in a direction that was satisfactory for what this organization stands for,” Buss said.

Magic added perspective.

“It really wasn’t about the last couple weeks, it’s been about years,” Magic said.

However, Johnson did say in a later Los Angeles radio interview that he was kept out of the loop on the Lakers’ pursuit of DeMarcus Cousins All-Star weekend. He would not say if that impacted the timing, and he dodged the question about whether he would have included Brandon Ingram in the trade.

Johnson said he has talked to numerous other general managers already, both getting well wishes and talking trades — Los Angeles remains expected to move Lou Williams before the trade deadline, according to sources around the league.

“After we leave (the studio where this interview was taking place) we’re going to go back to the war room with coach Walton, Ryan West (an assistant GM), Jessie and Joey (Buss children working in the front office), we’re all going to sit in a room and evaluate trade possibilities,” Magic said.

Johnson continually praised both Luke Walton and the young core of the team — all of which were put in place by the former front office. He said he wanted to build with this core.

“We have the right coach with Luke Walton and a lot of great young players, that we can build and make sure we develop, and help them turn into the stars we think they can become,” Magic said.

“This isn’t about going back to Showtime, we’re not turning back the clock,” Buss said. “The Lakers have figured out how to win in every era, and certainly the game has evolved, and the rules have changed. We, in our discussions, were looking at evolving with the game and what the modern NBA is about.”

Magic said he wants a GM who can work with him and who also knows the CBA and has relationships with teams, “someone smarter than me.” He also talked about everyone in the organization working together in the front office, in a collaborative way.

“That’s how I built my (business) organization, that’s how I want to build this one,” Johnson said.

As expected, both Johnson and Buss said this was about winning and getting the organization going back in the right direction.

“When we sat down for dinner, and she asked me to come back, I think the timing was right,” Johnson said. “It was right for me to put my businesses aside and focus on Laker business, try to build an organization fans can be proud of, both on the court and in the offices.”

Report: Lakers pursued Warriors president Bob Myers

Bob Myers
AP Photo/Paul Sakuma
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Give Knicks owner James Dolan this: He was so committed to winning, he spent an unheard of $60 million over five years to hire a lead basketball executive. This is how big-market teams should leverage their advantages, spending big on positions that don’t count toward the salary cap.

Dolan’s problem is that he hired Phil Jackson, who had no front-office experience.

If you’re going to offer the highest salary in the league, why not try to poach someone who’s already succeeding in the same role?

It seems the Lakers, who are looking for a general manager to work under new president Magic Johnson, understand that better,

Adrian Wojnarowski of Yahoo Sports:

Before the Lakers fired Mitch Kupchak and Jim Buss on Tuesday, the franchise had already moved away from trying to pursue the Golden State Warriors’ Bob Myers, the franchise’s original top target for general manager, league sources told The Vertical.

After Myers signed a recent contract extension, it became clear to Lakers brass that it would be unable to lure Myers, league sources said.

Myers inherited Stephen Curry and Klay Thompson, but he drafted Draymond Green and lured Kevin Durant and Andre Iguodala to Golden State. The 2015 Executive of the Year, Myers has cemented himself among the league’s best.

The Lakers had little shot of getting him, though. Myers already holds the president title so it would have been tough to see him leaving for a lesser role — especially in the midst of so much success. The Warriors also possess the financial wherewithal to hang with the Lakers in a bidding war.

But good for the Lakers for trying.

If not Myers himself, it seems Los Angeles likes the idea of an agent-turned-general. Kobe Bryant’s agent, Rob Pelinka, has emerged high on the list of candidates.

Report: Jeanie Buss, Magic Johnson kept in dark on Lakers’ DeMarcus Cousins trade discussions

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Lakers owner Jeanie Buss wielded her power, installing Magic Johnson as President of Basketball Operations and ousting Jim Buss and Mitch Kupchak from the front office.

Why did she drop the hammer today?

It wasn’t just that Jim Buss and Kupchak failed to trade for DeMarcus Cousins. It’s how they internally managed negotiations with the Kings, who ultimately sent Cousins to the Pelicans.

Bill Reiter of CBSSports.com:

One source close to the situation said Kupchak and Jeanie Buss had not spoken since Nov. 1, despite her role as president of basketball operations and the power that gave her to fire Kupchak, and that her brother had resorted to communicating with his sister only through lawyers. The same source said Jeanie never was informed of a potential DeMarcus Cousins trade over the weekend and described a chaotic scene in which Jim Buss insisted low-level basketball officials “vote” on the proposed deal while Jeanie and Magic were left in the dark.

Jeanie allowed this culture by indulging Jim’s silly timeline pledge. That led to too many desperate tactics, even when he wasn’t so desperate to save his job.

She also exacerbated these issues by hiring Johnson as an advisor and then watching him repeatedly spout off about being in charge. Think Jim Buss and Kupchak were eager to answer to and be evaluated by someone gunning for their jobs?

This doesn’t mean Jim Buss and Kupchak handled the situation well, but chaos breeds chaos. There’s plenty of blame to spread around for the Lakers’ predicament.

Jeanie Buss and Johnson should have a better working relationship. At least it won’t face the same pressures as the siblings’ partnership.

 

Report: Kobe Bryant’s agent, Rob Pelinka, leads list of Lakers’ GM candidates

ANAHEIM, CA - MARCH 26:  Agent Rob Pelinka talks with Kobe Bryant during the NCAA Men's Basketball Tournament West Regional Final at Honda Center on March 26, 2016 in Anaheim, California.  (Photo by Harry How/Getty Images)
Harry How/Getty Images
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Magic Johnson is now the Lakers’ President of Basketball Operations, and he has said his first call will be to Kobe Bryant.

Maybe that’s just to get the number of Kobe’s agent, Rob Pelinka.

Ramona Shelburne of ESPN:

Kevin Ding of Bleacher Report:

Marc Stein of ESPN:

Sam Amick of USA Today:

Pelinka is still an agent, and Arn Tellem is a former agent who now works for the Pistons. Agents are becoming trendier picks for front-office jobs since Warriors general manager Bob Myers blazed the trail.

If the Lakers are willing to spend big, Neil Olshey — who previously worked in Los Angeles with the Clippers — would be a good choice. A large salary could pull him from Portland.

Kevin Pritchard or Peter Dinwiddie could be fine if the Lakers aren’t willing to make a mega-offer good enough to lure a sitting general manager. Chris Grant might bring baggage.

As Johnson has acknowledged, he needs a general manager more savvy in the nuances of the salary cap. Any of these names would qualify. It’s about finding the very best person for the job, because Johnson needs all the help he can get.