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.

Lakers hire Kardashian trainer Gunnar Peterson

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LOS ANGELES (AP) A celebrity trainer known for getting the Kardashian clan into shape is going to work for the Los Angeles Lakers.

Gunnar Peterson is the Lakers’ new director of strength and endurance training, the team announced Wednesday.

Peterson has been a favorite trainer among entertainers and athletes for many years while running a well-regarded private gym in Beverly Hills. His client list has included Sylvester Stallone, Halle Berry, Ben Affleck, Jennifer Lopez, Sofia Vergara and Pete Sampras, along with most of the Kardashian family.

Peterson will develop a strength and conditioning program for the Lakers, general manager Rob Pelinka says.

The 16-time NBA champion franchise has replaced several key members of its internal staff since Magic Johnson and Pelinka assumed control of basketball operations earlier this year.

Report: Bucks interested in Cavaliers GM David Griffin

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The Magic hired Jeff Weltman, and the Hawks are reportedly close to hiring Travis Schlenk.

In other words, Cavaliers general manager David Griffin – who’s still without a contract for next season – lost his leverage with other teams.

But to the rescue are the Bucks, who will not necessarily promote assistant general manager Justin Zanik to replace Orland-bound general manager John Hammond.

Joe Vardon of Cleveland.com:

Multiple sources told cleveland.com that the Bucks, who lost general manager John Hammond to the Orlando Magic this week, have interest in Griffin, 47.

Griffin and Cavs owner Dan Gilbert have spoken about continuing their partnership in recent days, sources said, though no agreement was reached.

I still think Griffin stays in Cleveland. He helped assemble a championship contender, and he has LeBron Jamesendorsement. Plus, the Cavaliers can afford him.

But whomever gets the Milwaukee job will inherit a roster stocked with promising young talent like Giannis Antetokounmpo, Khris Middleton, Jabari Parker, Malcolm Brogdon and Thon Maker. The Bucks wouldn’t be a bad fallback option for Griffin – if he can’t use them to get a deal with the Cavs.

Cavaliers coach Tyronn Lue: Celtics’ sets harder to defend than Warriors’

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With the Cavaliers up 3-1 on the Celtics in the Eastern Conference finals, most basketball observers are focused on Cavs-Warriors III in the NBA Finals.

But Cleveland coach Tyronn Lue is more concerned with Boston, which scored surprisingly well in Games 3 and 4 after losing Isaiah Thomas to injury.

Lue, via Dave McMenamin of ESPN:

“I don’t even think about them,” Lue said of the Warriors to a small group of traveling Cleveland beat writers following the Cavs’ Game 4 win on Tuesday. “We’re just focused on Boston. The stuff they’re running, it’s harder to defend than Golden State’s [offense] for me, as far as the actions and all the running around and all the guys who are making all the plays, so it’s a totally different thing.”

Wait, the Isaiah Thomas-less 53-win Celtics are harder to defend than the Kevin Durant-supercharged 67-win Warriors? Come again, Coach?

“Like, they hit the post, Golden State runs splits and all that stuff, but these guys are running all kinds of s—,” Lue said of Boston coach Brad Stevens’ schemes. “I’ll be like, ‘F—.’ They’re running all kinds of s—, man. And Brad’s got them moving and cutting and playing with pace, and everybody is a threat. It’s tough, you know, it’s tough.”

I think Lue means in a very specific way – getting his players into proper position. And in that regard he might be right.

I also think the Warriors will take this in the broadest, most offensive way possible. That’s just the nature of this rivalry.

Without Thomas, Stevens has been forced to diversify Boston’s offense. The Cavaliers, who prepared for a very different scheme, were caught off guard and are adjusting on the fly.

That’s a real challenge. But framing it as the central issue sells Golden State short.

Even if it’s harder for Lue to get his players into proper position against the Celtics, the Warriors’ surplus talent – including Stephen Curry, Kevin Durant, Klay Thompson and Draymond Green – more than makes up for it. And it’s not as if Golden State runs a basic scheme.

So why did Lue say this?

He didn’t think the travelling Cleveland beat writers would publish his candid remarks? He didn’t convey his thoughts clearly? He naively didn’t consider how this would motivate the Warriors? All are plausible.

Another theory: Lue is trying to plant a seed that acting Golden State coach Mike Brown, whose known (fairly or not) for his simplistic offensive schemes, is holding back the Warriors. If Steve Kerr doesn’t return, resentment of Brown is one of the few things that could tear apart a dominant Golden State team.

Richard Jefferson: LeBron James was sick during Cavaliers-Celtics Game 3

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LeBron James was inexplicably bad in the Cavaliers’ Game 3 loss to the Celtics on Sunday.

Except maybe it was explicable.

Cleveland forward Richard Jefferson, via Fox Sports Ohio

I know he won’t talk about it, so I’ll give my big guy a shout. Deron Williams missed shootaround this morning, because he had like a little bug, just really lethargic, had no energy. And I think that’s what Bron had. And sometimes these little bugs can go around.

When Deron didn’t show up to shootaround, it kind of started clicking in his head. Because for him it was more of like, “I don’t know why I was so lethargic, why I had no energy, I had nothing.” And so, these little things happen. There was no panic.

Look, he was lethargic. They hit a bunch of tough shots. If Marcus Smart doesn’t go 7-for-10 from 3, then we’re not even talking about it.

I don’t know whether LeBron was truly sick or Jefferson is just trying to help a teammate’s reputation. It can be both.

LeBron was better in Game 4, but not quite right.

If he’s dealing with a minor illness, that could clear up by Game 5 tomorrow. It should especially clear up by the Finals, which begin June 1. That’d be great news for the Cavs, who have no chance against the Warriors if LeBron isn’t at full strength.

The uncertainty of why LeBron hit a slump now of all times loomed over Cleveland’s playoff future. But Jefferson provided reason for the Cavaliers to breathe easy.