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.

Jimmy Butler trade sets the stage for looming free agency

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(AP) — As draft night approached, some of the heavy hitters in the NBA – Cleveland, San Antonio, Houston, Boston, the Clippers among them – were jockeying, making calls and looking for deals to try to position themselves to make a run at the Golden State juggernaut.

The Warriors’ greatness has forced the rest of the league to do deep self-examination and be aggressive in upgrading their rosters if they’re even going to have a chance to compete. The Celtics and Cavaliers were looking hard at Pacers star Paul George and Bulls guard Jimmy Butler, the Rockets and Spurs were looking at clearing cap space to make a run at some big-name free agents next week and the Knicks were, well, the Knicks.

Draft night always lays the groundwork for what will happen when the circus (officially known as free agency) begins on July 1. And with all of those contenders looking to make a splash, the biggest move was made by … the Minnesota Timberwolves.

The Wolves reunited Tom Thibodeau with Butler, giving up two promising young players in Zach LaVine and Kris Dunn and the No. 7 overall pick to land one of the best two-way players in the game. The move should jumpstart Minnesota’s pursuit of its first playoff spot since 2004 and, the Wolves hope, pave the way for success in free agency.

“I think it will (help) a lot,” Thibodeau said. “With players, they look around the league, they see the makeup of the team, they see how they play, play together. That’s the main thing. Both offensively and defensively.”

The Timberwolves have long had difficulty attracting free agents to a relatively small market that spends four months of the year covered in ice and snow. Landing a top-15 player like Butler to team with Karl-Anthony Towns and Andrew Wiggins sends a sign of how aggressive the teams could be.

The Bulls plunged head-first into a rebuild with the decision, and now it’s up to the Pacers to decide if they want to do the same.

Much to the dismay of Pacers GM Kevin Pritchard, George let it be known last week that he did not plan to re-sign in Indiana when he becomes a free agent next summer. Most of the league assumes that he wants to play for the Los Angeles Lakers, who appear to be in a tug-of-war with the rival Celtics for George’s attention.

“I’m confident we’ll get something,” Pritchard told reporters in Indianapolis on Friday.

One of the big markets affected on Thursday night was at point guard, the deepest position in the league. Philadelphia, the Lakers, Sacramento, New York and Dallas all drafted point guards in the top 10, which could diminish the options for veterans like Jrue Holiday, George Hill, Jeff Teague and Patty Mills.

The elite point guards available – Chris Paul and Kyle Lowry – should have no trouble finding significant contracts. With Tony Parker suffering a serious injury in the playoffs, the Spurs were reportedly trying to clear space to make a run at Paul, who is widely considered the best point guard in the league. Paul has spent the last six seasons with the Los Angeles Clippers, but has yet to advance to the Western Conference finals.

The Clippers are trying to make a decision about retooling around the core of Paul, Blake Griffin and DeAndre Jordan, but really it’s a decision that depends largely on Paul’s thinking. He has long struggled to win big in the postseason, and heading to San Antonio to join with Kawhi Leonard or Houston to team up with James Harden could prove to be more attractive.

Lowry figures to remain in Toronto with a Raptors franchise that he has helped put back on the map, but after that there will be few teams in the market for a high-priced starting point guard. Denver, Utah, New York and Indiana could wade into those waters. But if they look at themselves as still being a couple of year away, they might be hesitant to spend big bucks on a veteran.

Other big names available include Gordon Hayward, Paul Millsap and Andre Iguodala. And while some of the very biggest names like Kevin Durant and Steph Curry figure to stay put, it only ramps up the sense of urgency for teams that have big holes to fill.

The clock is ticking and Thursday night provided the first steps toward making big improvements to the roster.

The Timberwolves rocked the boat with Butler, but the waters were calm after that, which should only mean one thing: It’s about to get real choppy when the clock strikes midnight on July 1.

 

Report: Dallas picks up option on Yogi Ferrell for next season. As expected.

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When teams sign a guy out of the D-League, or late second-round picks/undrafted guys as you see this summer, they are often announced as “a three-year deal.” The reality, this is a non-guaranteed contract (or at most a guaranteed contract for a short period of time) with team options for future years.

Why teams do that is guys like Yogi Ferrell.

Dallas snapped him up out of the D-League last season when they needed a point guard, and Ferrell proved to be a solid rotation-level player to bring off the bench. With that Dallas now has the option to bring him back at a good price next season, and they will do just that, reports Tim MacMahon of ESPN.

Sources say the Mavs have informed PG Yogi Ferrell that they are picking up his team option for next season, an easy decision after he proved himself capable of being a rotation player after his promotion from the D-League.

Ferrell will make $1.3 million next season, a steal for a rotation player. Dallas needs that, because the cost of keeping Nerlens Noel could push the Mavericks close to the luxury tax.

If Ferrell keeps playing like he did last season, and his big payday is coming in a couple of years.

What exactly was on the table for Bulls in Jimmy Butler trade?

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It’s been the cry since the Bulls’ front office traded Jimmy Butler for Zach LaVine (coming off an ACL surgery), Kris Dunn, and the No. 7 pick (Lauri Markkanen):

Why didn’t the Bulls get more?

I’m in the camp they didn’t get enough, starting with the question why did they give Minnesota the No. 16 pick in the deal? Even if the Bulls keep that pick, it doesn’t feel like they got enough for an All-NBA player, a top-flight wing defender who can also get buckets with the ball in his hands. The Bulls could have been patient and waited out a better offer, one of this quality would always have been on the table.

However, the deals for Butler may not have been as rich as fans assume. Here is part of what ESPN’s Zach Lowe wrote breaking down the trade.

It’s not as if Chicago didn’t canvas the league, either. The Bulls talked to Phoenix about a package centered around Eric Bledsoe and the No. 4 pick, but nothing came close, according to league sources. (Those talks may have been linked at one point to Cleveland’s pursuit of Butler, which apparently fizzled Thursday as Dan Gilbert, the Cavs’ owner, tried to hire a new president of basketball operations on the freaking day of the draft.)

They poked around with Denver, but the Nuggets drew a line at Jamal Murray, sources say. Those teams had to weigh the possibility of Butler bolting in 2019, which cooled the market a bit, sources say.

Boston has danced around Butler for almost a year now, and would not include the No. 3 pick in any package for him as the draft approached, sources say. Other reports suggest they refused to offer next year’s Nets pick, or the Lakers-Kings pick they snagged from Philly in the Markelle Fultz deal.

Boston’s Danny Ainge wanted a deal, a bit of a discount, and the Bulls were not going to give it. Those pick requests are reasonable for a Top 15 player, but Ainge knows he can be patient and the Celtics will still win more than 50 games next season and be a contender in a couple of years. Ainge knows he has a real shot at Gordon Hayward as a free agent this summer. He knows it’s not Butler or bust, so he didn’t go all in. He can afford to be patient right now, but eventually he will have to make a move.

The lack of a better market for Butler speaks to a couple of things. Phoenix, Denver, and other teams are correct to worry about overpaying for a player that could leave in a couple of years. Maybe they can win him over with their culture, maybe a team like Denver becomes very dangerous with Butler in the mix with Nikola Jokic, but is that enough. This is also where the looming shadow of Golden State, the Mount Everest looming over all things in the West, comes into play — how much do teams want to pay to try to contend right now?

Still, the Bulls could have done better. At least know a direction is set, the Bulls are rebuilding. Can Gar/Pax pull that off is another question entirely.

Klay Thompson goes up for 360 dunk in exhibition… and he’s not a dunker (VIDEO)

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Klay Thompson has an amazing skill set — one of the best pure shooters in the league, he can put the ball on the floor and create, and he’s a very good perimeter defender.

He’s not a dunker. Oh, he can dunk, but he’s not the guy you’re inviting to the Dunk Contest.

Case in point, this video out of China where Thompson was part of an exhibition and tried to show off his dunking skills.

Thompson’s shoe sponsor is China-based Anta, which explains why he’s there playing some exhibition ball. In case you missed it, Thompson had a Finals shoe released.

Those are about as good as the 360 dunk.