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.

LeBron James calls President Trump a “bum”

Associated Press
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LeBron James isn’t going to stick to sports.

The way the president isn’t sticking to politics.

Donald Trump pulled his White House invitation to the Warriors Saturday after Stephen Curry said he would vote not to go to make.a statement.

LeBron James came to Curry and the Warriors defense on Twitter.

LeBron endorsed and campaigned for Hillary Clinton in the last election.

LeBron has been more outspoken on social and political issues in recent years, which has worked for him in an era where fans want players to be authentic and themselves.

Trump on Friday night at a rally in Alabama slammed the NFL for its increased focus on concussions saying it was ruining the game, and said regarding national anthem protests in the league:

“We respect our flag. Wouldn’t you love to see one of these NFL owners, when somebody disrespects our flag, to say get that son of a b—h off the field, right now, out? He’s fired.”

This may resonate with some NFL fans, but LeBron will resonate more with NBA fan base, which is younger, more urban, and much more multicultural. The NBA fan base leans left of the NFLs, plus is far more international (where Trump bashing plays well).

Saturday morning, after being told the NBA was going to vote on whether to come to the White House, he pulled his invitation.

Now we know how LeBron feels about that.

President Trump withdraws Warriors invitation to White House after Curry’s remarks

Associated Press
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As tends to happen with presidential decrees in this administration, the announcement came via Twitter — the Golden State Warriors are no longer invited to the White House.

Curry had been clear Friday at Warriors’ media day that he planned to vote no when the Warriors discussed visiting the White House.

“We have an opportunity to send a statement that hopefully encourages unity, encourages us to appreciate what it means to be American, and stand for something.”

Curry, along with coach Steve Kerr and other members of the Warriors organization had been openly critical of President Donald Trump and his policies. They were expected on Saturday to vote to decline the invitation. The NBA had let the White House know what was coming.

Trump decided to be proactive.

The tradition of championship teams going to the White House for a PR photo-op — it is nothing more than that — goes back many administrations. Some sports figures have skipped the White House event in the past when Barack Obama was president (even if Tom Brady wants to deny that’s why he bailed), but teams have not skipped it. Of course, now the Warriors aren’t skipping it, they are not invited.

 

Russell Westbrook to miss start of training camp after PRP injection in knee

Associated Press
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There is a physical price for the historic, MVP season Russell Westbrook had last go around.

When the Oklahoma City Thunder open training camp next week, Westbrook will be sidelined for a couple of days to rest his knee after getting a platelet-rich plasma therapy injection, Thunder GM Sam Presti told the media (as reported by Royce Young of ESPN).

PRP therapy was made popular in the NBA by Kobe Bryant and now a number of players have used the treatment. It involves the player giving some blood, which is then spun in a centrifuge to separate the platelets, which are then injected back into the area where the person wants to promote healing.

Westbrook is the heart and soul of the Thunder, averaging a triple-double last season with 31.6 points, 10.7 rebounds and 10.4 assists per game. With the off-season addition of Paul George, the Thunder are a dangerous team in the West, one that will have a very strong defense and a couple of elite scorers now.

Westbrook also has a max contract extension sitting in front of him from the Thunder, as he has since July 1, which he has yet to sign. That should make Thunder fans a little nervous. George is in the last year of his contract, and there have been not-so-subtle hints out of his camp he is headed to the Lakers next summer. If this year goes well in Oklahoma City — such as the Thunder reaching the Conference Finals — maybe George reconsiders, and with that Westbrook would stay (he has professed and shown loyalty to the city so far). Maybe they stay anyway. However, both men seem to be using the LeBron James playbook of keeping all their options open.

Report: Carmelo Anthony “heavily considering” adding Portland to trade list

Associated Press
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If he could choose his destination, Carmelo Anthony would be playing this coming season alongside Chris Paul and James Harden in Houston. However, since that seems dead, Anthony has told the Knicks he also would waive his no-trade clause for Cleveland or Oklahoma City.

What about Portland, a team hot on the rumor mill?

Anthony has yet to tell the Knicks he would waive his no-trade to head to the Pacific Northwest, but he’s seriously considering adding the Blazers to the list, reports Marc Berman of the New York Post.

The source told The Post that Anthony is heavily considering putting the Trail Blazers on his list as well.

Portland’s stars Damian Lillard and C.J. McCollum have been very public in their recruitment of Anthony. That seems to be having an effect.

Portland has the pieces to get a trade done, much more so than the Thunder or Cavaliers. The Knicks would certainly ask the Blazers for the just drafted Zach Collins, and Evan Turner with his $17 million salary would be part of the deal to match up the numbers, then after that there would be other players and picks needed to round everything out. However, there are multiple ways to get that deal done.

Anthony just added Cleveland and Oklahoma City to his list of acceptable trade destinations, he likely lets Cleveland negotiate with them for a while to see if a trade can be reached. However, if no deal is reached — and it will not be easy to find a trade the Knicks like with those rosters, plus both of those teams are already paying the luxury tax so there are financial considerations — then the Trail Blazers could be in luck.