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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.

NBA report: Wizards should have gotten technical for assistant coach being on court vs. Knicks

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The Knicks were down 113-110 with just 13.7 seconds remaining when Carmelo Anthony passed to an open Courtney Lee, who passed up a clean look at a 3-pointer from the corner, instead passing to Brandon Jennings, who turned the ball over, and the Wizards got the win.

After the game, Lee said he didn’t shoot because he felt and heard what he thought was a defender near him, but it turned out to be Wizards assistant coach Sidney Lowe, who came onto the court and barked words implying he was switching out onto Lee.

The NBA’s Last Two Minutes Report sides with Lee, saying the Wizards should have gotten a technical. From the report:

A WAS assistant coach stands on the floor close to Lee (NYK) for several seconds and should have been assessed a technical foul.

This is an area the NBA needs to crack down on, coaches walk out onto the court all the time. Far too often. Frankly, I have an issue with coaches on the bench stomping their feet or yelling at shooters near their sideline, but Lowe took it a step further.

Much like telling a six-year-old to stop licking their shoes this isn’t something NBA officials should have to deal with, it should be common sense, but the league needs to crack down on coaches stepping onto the court. Maybe this will push the league to start enforcing that rule.

 

PBT Extra: Russell Westbrook was snubbed as All-Star starter, but worse snubs coming

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Should Russell Westbrook have been a starter for the All-Star game over Stephen Curry? Sure. Going on stats from the first half of this season — when Westbrook is averaging a triple double — Westbrook deserves the nod. But I have a hard time getting worked up over the fans choosing the two-time MVP to start the All-Star Game.

The real snubs are coming.

When it comes to choosing the All-Star Game reserves, the coaches are facing some tough choices. How many point guards in the East? Does Joel Embiid deserve to go? Kristaps Porzingis? Out West the questions shift to Mike Conley, Damian Lillard and others.

I talk about those tough choices and who I would pick in this latest PBT Extra.

 

Bucks’ Greg Monroe says he’s not thinking of player-option decision

MIAMI, FL - JANUARY 19: Greg Monroe #15 of the Milwaukee Bucks is defended by Hassan Whiteside #21 of the Miami Heat during a game  at American Airlines Arena on January 19, 2016 in Miami, Florida. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and/or using this photograph, user is consenting to the terms and conditions of the Getty Images License Agreement. Mandatory copyright notice:  (Photo by Mike Ehrmann/Getty Images)
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The Bucks reportedly already planned for Greg Monroe to opt in after this season, a reasonable conclusion considering they tried to dump him in a trade all summer and found no takers.

But Monroe has quietly boosted his stock this season. Coming off Milwaukee’s bench, he’s still a skilled interior scorer. But he’s defending and rebounding better, using his quick hands to strip opponents and taking plenty of charges.

Could he even decline his $17,884,176 player option?

Monroe, via Charles F. Gardner of the Milwaukee Journal-Sentinel.

“I’m not thinking about anything like the off-season right now. There is a time and place for everything. If and when I have to make a decision, that time is not right now.”

The time might approach more quickly than Monroe expects. If the Bucks shop him again, potential trade partners will want to know Monroe’s intention. Some might prefer the flexibility created by him opting out, and others would like the certainty of having a productive player at a reasonable-enough cost next season. But all would want to know where they stand.

That said, it’s hardly a give Milwaukee moves Monroe. Though he has backed up John Henson and Miles Plumlee, Monroe (21.2 minutes per game) plays more than both. He’s a valuable contributor on a team jockeying for playoff position.

Most importantly, Monroe appears to complement Bucks franchise player Giannis Antetokounmpo well. Antetokounmpo scores more (23.5 to 26.3 points per 36 minutes) and more efficiently (59.0% to 65.7% true shooting percentage) from when he plays without Monroe to when he plays with Monroe, and Milwaukee’s offense improves accordingly (104.3 to 114.6 points per 100 possessions).

Andre Iguodala: Jealous media tries to make players ‘feel less than what we are’

CLEVELAND, OH - JUNE 11:  Andre Iguodala #9 of the Golden State Warriors spwaks in overtime the media after Game Four of the 2015 NBA Finals against the Cleveland Cavaliers at Quicken Loans Arena on June 11, 2015 in Cleveland, Ohio.  NOTE TO USER: User expressly acknowledges and agrees that, by downloading and or using this photograph, user is consenting to the terms and conditions of Getty Images License Agreement.  (Photo by Jason Miller/Getty Images)
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Stephen Curry is having a down year relative to his last two seasons.

That shouldn’t qualify as a controversial statement. Curry won MVP the last two years. There wasn’t much room to go anywhere but down. Adjusting to playing Kevin Durant has taken time, and Curry might have been due for regression to the mean, anyway. It isn’t as if Curry is having a bad season. He remains a superstar, and I haven’t seen anyone credible unfairly admonish Curry for his production slip.

Yet, the slightest sniff of Curry criticism prompted teammate Andre Iguodala to unload on the media.

Iguodala, via Chris Haynes of ESPN:

“I be like, ‘What are y’all even talking about.’ Like, why? That’s just the world we live in,” Iguodala told ESPN. “It’s like, whatever. You can be on the best team and winning the most games and they’ll try to find something. It’s almost sad because they look for things to say negative. They just look [for] something, anything.”

He blames the media for reaching for a narrative.

“I think they’re just looking for something,” Iguodala continued. “It’s not just that he set the bar so high. I don’t think it’s that. It’s just the hate. That’s just how they’ve been since the beginning of time. And you’re not going to write that, but that’s just how they are. Since the beginning of time, it’s some things that we can do that they can’t do. And they’ve been trying ever since to either try to do it, which they can’t, and they figure that out, and to make us feel less than what we are.”

There is some truth to that. Most media members at one point dreamed of playing in the NBA, and none of us can do it. Otherwise, we would be doing it.

Nearly all of us learned long ago we’d fall far short of playing in the NBA, so I don’t think there’s such a direct jealousy as Iguodala paints. It’s just not something most of us are dealing with.

That said, some reporters can be overly negative for varying reasons. I caution against speaking as broadly as he does, but Iguodala certainly has a right to express his opinion.

Perhaps, Haynes negating Iguodala’s prediction that his comments won’t be written up shows that we’re not all so bad?