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.

Report: Bucks preparing for Greg Monroe to opt in next summer

Milwaukee Bucks center Greg Monroe, center, drives to the basket against New Orleans Pelicans center Alexis Ajinca, left, and guard Tyreke Evans, right, during the first half of an NBA basketball game Saturday, Jan. 23, 2016, in New Orleans. (AP Photo/Jonathan Bachman)
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The Bucks got a rude awakening about Greg Monroe‘s value when they tried to sell low on him this offseason – and still got no takers.

Now, Milwaukee seems to have gotten the picture. Monroe – whose agent claimed the center could name his contract terms from multiple teams last year – might opt into the final year of his deal, which would pay $17,884,176.

Zach Lowe of ESPN:

Milwaukee is already preparing for the possibility Monroe opts into his deal for 2017-18, league sources say.

The Bucks indicated this thinking when they extended Giannis Antetokounmpo‘s contract, putting a large 2017-18 salary rather than a relatively low cap hold on the books to begin next offseason. If Monroe opts in, the difference in Antetokounmpo’s initial cap number is far less likely to matter. (Though Antetokounmpo’s extension wasn’t a complete giveaway into Milwaukee’s Monroe expectation, because the Bucks saved over the life of the extension.)

Don’t put it past Monroe to opt out if he believes he can find a better situation. After all, he signed the small qualifying offer to leave a tough basketball fit with Andre Drummond in Detroit. Monroe also took the risk of a shorter detail in Milwaukee. He’s secure enough in himself to at least consider moving on if he’s unhappy.

It’s also possible he finds a satisfying role with the Bucks. They’ll bring him off the bench, which could hide his defensive shortcomings and give him a chance to mash backup bigs. Heck, he could even play well enough to justify opting out.

There’s still a full season before Monroe must decide on his option, and a lot can change by then. But it seems Milwaukee now has a realistic expectation.

Report: NBA increases 2017-18 salary-cap projection to $103 million

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The NBA is reportedly closing in on a new Collective Bargaining Agreement, and the new deal will still call for owners and players to split Basketball Related Income about 50-50.

So, July’s projection of a $102 million salary cap in 2017-18 still carries weight – except it’s been updated.

Brian Windhorst of ESPN:

Why the change?

Perhaps, the shortfall adjustment – which increases the cap when teams don’t spend enough the previous year – is being revised in the new CBA.

More likely, the league anticipates more revenue. These projections tend to start conservative then rise as July nears.

Rip Hamilton says 2004 Pistons would beat 2016 Warriors

CLEVELAND - FEBRUARY 22:  Richard Hamilton #32 of the Detroit Pistons looks up during the game against the Cleveland Cavaliers on February 22, 2009 at the Quicken Loans Arena in Cleveland, Ohio.  The Cavaliers won 99-78.  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.  (Photo by Gregory Shamus/Getty Images)
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Add Rip Hamilton to team #getoffmylawn.

The long list of veteran players who somehow feel their legacy is threatened by this era’s Golden State Warriors and their freestyling system has now added one of the key players from the 2004 Pistons title team to their ranks. CBS’ NBA Crossover asked the masked man Rip Hamilton about it, and he thought the vaunted Pistons defense was well designed for dealing with the Warriors.

“It would be no comparison.” Hamilton said on CBS Sports’ NBA Crossover. “We can guard every position. Every guy from our point guard to our five, can guard any position. We were big. We were long.”

Hamilton is right that it would be an interesting defensive matchup. The book on the Warriors — especially when facing the smaller “death lineup” — is to switch everything, and those Pistons would have been well suited to that task. Of course, there are two ends of the court and the Warriors are also a good defensive team going against a Pistons team that had limited offensive options (people underestimate how great Chauncey Billups was playing during that 2004 playoff run, he was elite, but that was not a deep offensive team). The real issue would have been pace — the Warriors want to play fast, the Pistons wanted to grind it out, who won that battle would be huge?

But that last graph talking strategy doesn’t address the biggest question: Whose rules are the games played under? 2016 or 2004?

Those 2004 Pistons were the height of the grabbing/hand-checking on the perimeter era that would be an automatic foul today. (There was a lot more hand checking uncalled in the NBA last season, but not the level of grabbing and holding that was allowed in 2004 and before back into the Jordan era.)

Tayshaun Prince said it well.

“It depends on what the rules are.” Prince said. “Because back when we played, we could play hands-on, physical. As you can see from the Pacers rivalries and all of the rivalries we had back in the day, we were scoring in the high 70s, low 80s. We were physical. So now if you play this style of play, where they’re running and gunning and touch fouls and things like that, all of sudden we would start getting in foul trouble because back when we played, we were very, very aggressive on defense.”

He gets it.

The Warriors are built for this era of basketball, one where the rules encourage space so players to have freedom and can be more creative with their playmaking. The Pistons were built for the 2004 physical games of that era. (And most of you who remember that era fondly do so through rose-colored glasses, there’s a reason ratings were down for those 84-78 slugfests.) It’s possible to have great teams built differently for different eras and say that’s okay.

But it’s the nature of sports fandom to compare things that can’t actually be compared apples to apples. So have at it in the comments (and I expect one person to tell us how Jordan was better than all of them, because somehow people always feel the need to defend his legacy in these debates).

51 Questions: Does Al Horford change perception of Celtics?

al horford

We are in the final days PBT’s 2016-17 NBA preview series, 51 Questions. For the past month we’ve tackled 51 questions we cannot wait to see answered during the upcoming NBA season. Today:

Does Al Horford change the perception of the Celtics?

This summer, Al Horford shattered the myth that Boston couldn’t attract elite free agents.

It was always a perception that lived more in the heads of frustrated Celtics fans than it did NBA reality. The Larry Bird-era Celtics didn’t attract free agents because there wasn’t free agency until that dynasty was starting to slide (and free agency didn’t fully take hold for a few years after that). Then the Celtics struggled for a long stretch, and we know it’s hard to get players to go to a team that’s not winning. During the most-recent big three era, the Celtics did land name free agents — Rasheed Wallace, Jermaine O’Neal, Shaquille O’Neal, Jason Terry — that helped round out a roster already loaded with stars.

The past couple of summers, Celtics fans saw the potential, but the reality was the team was not yet ready to win on the big market — even as much as players raved about Brad Stevens as coach. It took the Celtics getting to 48 wins and showing real promise to get the attention of top free agents. Last summer the Celtics finally in position, and they got their man in Horford.

Now Horford should put that perception to rest.

For one thing, he will throw open the door to more wins — just through the preseason the spacing of the Celtics’ offense looks better than last season. Watching them through these games, the early high dribble-hand-off move the Celtics often use between Horford and Isaiah Thomas to initiate the offense has defenses spread out. Follow that with good ball movement off the multiple actions from that early set and defenses scramble with help coverages. Celtics are getting open looks. The Celtics pretty-good-but-defendable-in-the-playoffs offense of last season already looks far more dangerous, plus we know Horford will help on defense, too.

Horford puts the Celtics on the brink of contention, either the second or third best team in the East (depending on what you think of Toronto). If you’re worried about perception, know that other players (and their agents) notice that. They notice the ball movement, they notice the players like the coach. Another strong season will cement Boston as a team where other stars will want to go because of that coach, because of the system, because they can win, and most importantly because they can get paid (it’s always about the money).

In that sense, Horford does change the perceptions of the Celtics. Although Stevens had already started that process, opening the door for Horford.

It remains more likely that the next star the Celtics land is via trade. They have the picks, they have the young players a team losing a star and considering a rebuild likely wants, plus they have a couple interesting veterans whose contracts only have a couple of years left — Avery Bradley and Isaiah Thomas. It’s the worst-kept secret in the NBA — right up there with Rudy Gay is not loving Sacramento — that Celtics’ GM Danny Ainge is working the phones for any star player who becomes available. What’s holding those deals up is not a perception of the Celtics, it’s that trading for a star is difficult. Very difficult.

Celtics fans, enjoy what should be a very special season. Boston had the point differential of a 50-win team last season, and Horford makes them better on a number of levels. This is a team poised for a strong regular season and a deep playoff run. They are still a player away from challenging the team LeBron James is on, but so is everyone else east of Oakland. That shouldn’t diminish the joy of the ride this season.

And know the perception around the league of the Celtics is very good.