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.

Philadelphia has dropped record 27 in a row dating back to last season

Brett Brown
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We tend to think of record streaks having to be in one season, not broken up across two.

But if you can suspend that, the Philadelphia 76ers are now the owners of the longest losing streak in NBA — and major professional sports — history.

With their tough two-points loss to Houston Friday night, the Sixers have lost 27 in a row. The Sixers dropped their final 10 last season and with the loss to the Rockets are 0-17 to start this one.

That bests the 26-game losing streaks of the 2010-11 Cleveland Cavaliers and these same Sixers from 2013-14. Looking across sports, the Tampa Bay Buccaneers of 1976-1977 also lost 26 in a row, which when you consider the length of the NFL season is pretty embarrassing.

The Sixers struggles are born from a plan by GM Sam Hinkie (and approved by ownership) to get better long-term by being bad now and hoarding draft picks. It’s a strategy that can work if Hinkie nails the draft picks (the book is out on how Hinkie is doing on that front). And they are committed to it through at least this draft.

But don’t think for a second the players and coach are trying to lose.

If you have watched the Sixers play their last few games you know the players are trying hard to get that victory (and almost have a couple of times). The effort is there, they are just outmatched and lack the kind of presence at the end of games to execute under pressure (something a couple of quality, regularly-playing veterans might help, but that’s another discussion). They have the point differential of a team that should have a couple wins; they just haven’t been fortunate. It happens. Go ahead and blame management if you think this plan is an abomination. Just don’t question the desire or effort of the players or coaches, that is not in doubt.

The Sixers play at the Grizzlies Sunday, then have maybe their best shot at a win for a while when they host the Lakers on Tuesday.



Byron Scott, is it time to bench Kobe Bryant? “That’s not an option.”

Kobe Bryant, D'Angelo Russell, Byron Scott

Kobe Bryant‘s shooting woes this season have been well documented. Let me explain… no, there is too much. Let me sum up. Kobe is shooting 31.1 percent overall and 19.5 percent from three, all while jacking up more threes than ever before. He was 1-of-14 shooting against Cleveland, and that’s as many shots as rookies D'Angelo Russell and Julius Randle got combined.

If Kobe keeps shooting like this while dominating the ball, is it time to bench Kobe? Coach Byron Scott laughed at the idea, as reported by Baxter Holmes at ESPN.

“I would never, never, never do that,” Scott said after practice at the Lakers’ facility. “That’s not an option whatsoever. No, that’s not an option.”

It’s not an option because this is the guy the fans have paid to see, at home and on the road (the Lakers have still sold out every road game this season, the only team to have done so). Kobe is the draw, he’s going to play.

That doesn’t mean Scott is handling all this well, Kobe has no repercussions for his actions.

Byron Scott is an enabler with Kobe. In his mind Kobe has earned the right to play poorly because of his career, which is just hard to watch.

The real issue I have with Scott enabling Kobe is the double standard — minutes for Russell and the other young players get jerked around when they make mistakes. Scott sounds and acts like a guy with a couple rookies on a veteran team where the objective is to win as many games as possible.

This can’t be emphasized enough: the primary goal for the Lakers this season is to develop Russell, Randle, and Jordan Clarkson (and Larry Nance Jr., who has impressed). But Russell has sat a lot of fourth quarters, and when Scott is asked if playing in those blowout minutes might help develop the young point guard faster, he says, “Nah.” Scott has benched Clarkson at points and called him out in the media.

Reduction of minutes can be a valuable teaching tool with young players — if the conditions of them getting those minutes are precisely laid out. Clear rules with rewards and consequences. That is not the case in Los Angeles, where Russell has said Scott has not spoken to him much about what he’s doing wrong and why he’s spending the ends of games benched. That’s not coaching a guy up; that’s not player development. There need to be clear guidelines and structures for young players to follow.

The only guideline in LA seems to be “Kobe has carte blanche.”

Boston police now probing fight involving 76ers center Okafor

Jahlil Okafor

BOSTON (AP) — Boston police say a man has come forward saying he’s the victim in a fight involving Philadelphia 76ers center Jahlil Okafor that was recorded and posted online.

Authorities say a man filed a police report Friday saying the fight outside a nightclub left him with stitches over his eye.

Police say the alleged victim reported the fight began after some of his female friends refused the advances of two men, including one believed to be Okafor. The man told police Okafor punched him and knocked him to the ground.

Okafor says he’s embarrassed about the scuffle and is dealing with the team and league on possible discipline.

The confrontation happened early Thursday morning after the 76ers fell to 0-16 on the season. The Sixers rookie said he was being heckled.

Previously, the police had said they were not investigating the incident.

Durant, Westbrook throw shade at Reggie Jackson after Thunder beat Pistons

Reggie Jackson
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Reggie Jackson‘s exit from Oklahoma City a year ago was not smooth or pretty. He wanted a bigger stage, he wanted out, and he let everyone know it. “We felt like everybody wanted to be here except for one guy,” Kevin Durant said after the trade that sent Jackson to Detroit.

The Pistons and Jackson were back in Oklahoma City Friday night. The fans let Jackson know they didn’t appreciate his words with plenty of boos. After the game, when asked about Jackson both Durant and Russell Westbrook threw shade at Jackson, as reported by Royce Young at Daily KD didn’t even mention Jackson among Detroit’s best players.

“Steven (Adams) did a great job on their best player and Andre (Roberson) did a great job on their second best player in (Kentavious Caldwell) Pope and Russ did his job,” Durant said…

“Who?” Westbrook said, after very clearly hearing who he was asked about.

Reggie Jackson.

“What happened?”

Those comments were more aggressive toward Jackson than the Thunder players seemed to be during the game, where he was treated as an afterthought.

Jackson has played well for Detroit this season — averaging 19.1 points and 5.9 assists per game, with a PER of 20.3 and real chemistry with Andre Drummond — but he was held in check against the Thunder. Spending much of the night battling foul trouble, Jackson had 15 points on 16 shots on the night.

Durant was the stud for the Thunder, with 34 points and 13 rebounds, and the Thunder won comfortably 103-87.