chrishansen2-600x371

Kings ownership documents reveal major potential stumbling blocks for Seattle

47 Comments

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.

Tweet of the Day: Stephen Curry and crying Jordan

Curry super Bowl
Leave a comment

Stephen Curry is a Carolina guy and a huge Panthers fan — he’s been that way since childhood, this was not a bandwagon jump.

Before the Super Bowl Sunday, he got to pound the drum for the Panthers (who also gave him a locker for the day).

We all know how the game went, it wasn’t a good day for Panthers’ fans. Curry handled it beautifully in this tweet.

Five Takeaways From NBA Sunday: Stephen Curry, Kevin Durant at Super Bowl

020716-NBA-Stephen-Curry-PI.vadapt.980.high.66
Getty Images
Leave a comment

Sunday was all about Coldplay… was there something else going on? If you didn’t watch Sunday’s NBA games because you were prepping for a Super Bowl only someone who bet the under could love, here is what you missed from around the NBA Sunday. Which includes some Super Bowl talk.

1) Stephen Curry pounding a drum was not enough for the Panthers. Curry is a Carolina guy — he did not just jump on the Cam Newton/Panthers bandwagon, he’s been a fan for a long time. The Panthers rewarded him on Sunday with a locker and jersey.

They also let him pound the drum for the team pregame. Turns out, that was not enough (apparently Curry cannot secure a win without some help from Draymond Green). But he handled it beautifully on Twitter after the game.

2) Kevin Durant joined the media for a day to be a photographer at the Super Bowl. Kevin Durant’s relationship with the media has been about as smooth as a Kardashian marriage, but since he was in the Bay Area this weekend to take on the Warriors (another Golden State win), he decided to join the media for a day and be a photographer for the Players Tribune. You know, the website that will break Durant’s plans this summer. Follow this link and you can see his account and his photos.

Associated Press
Associated Press

Now, on to actual basketball….

3) Nikola Vucevic saves Magic with fade-away game winner. Orlando looked to be in control of their game with the Hawks, up 11 entering the fourth quarter and leading by eight with 3:30 left in the game — then Atlanta went on an 8-0 run. A Kent Bazemore three with :48 left tied the game at 94-94 (Bazemore finished with 23 points on the day).

But as he had done earlier in the year, Vucevic hit a game-winning fade away (this time over some good defense from Al Horford), and Orlando got the victory.

4) Chris Paul starts slow, finishes fast and Clippers pick up a road win in Miami. Chris Paul and the entire Clippers team started this game out looking like they had the South Beach Flu (after a night on the town). CP3 opened the game 0-of-9. But Paul was 6-of-10 in the second half, and when his shots fell it opened up the roll for a couple of huge DeAndre Jordan alley-oops.

The Clippers got 22 from CP3, another 20 from Jamal Crawford off the bench, and the Clippers kept right on winning with a 100-93 victory against Miami. If you want to nit-pick this team and how the teams above them in the West might attack flaws in the playoffs, go right ahead, but you’ll be missing a fantastic show in the meantime. The Clippers are playing well on the offensive end and just keep winning without Griffin in the lineup.

5) Brad Stevens gets the most out of the talent he has in Boston, George Karl does not in Sacramento. So that matchup went as you would expect. Brad Stevens has proven to be one of GM Danny Ainge’s best moves — and Ainge assembled a title team. He has a team of nice role players as the third seed in the East, with a fantastic defense and enough offense from Isaiah Thomas to get the job done. On the other side, George Karl’s job is in jeopardy in part because he can’t get buy-in from a team with some good talent (except for Rajon Rondo, who likes Karl because Karl has given him carte blanche in the offense). This game was just a contrast of organizations, and as you would expect the Celtics won handily 128-119.

Also, know that Thomas can play a little defense — he blocked a DeMarcus Cousins‘ shot.

Paul shakes off awful start, leads Clippers past Heat 100-93

Los Angeles Clippers guard Chris Paul (3) drives to the basket past Miami Heat guard Goran Dragic (7) and forward Amare Stoudemire, right, during the first half of an NBA basketball game, Sunday, Feb. 7, 2016, in Miami. (AP Photo/Lynne Sladky)
Associated Press
Leave a comment

MIAMI (AP) — Chris Paul had the worst possible start to his shooting day.

His finish, however, was perfect.

Paul’s consecutive 3-pointers in the final minutes were daggers to a Miami comeback, and his game-high 22 points helped the Los Angeles Clippers hang on to beat the Heat 100-93 on Sunday.

“I kept shooting it,” Paul said, “because sooner or later it had to go in.”

J.J. Redick scored 14 points, Wesley Johnson had 10 and DeAndre Jordan and Cole Aldrich grabbed 11 rebounds each for the Clippers, who won despite a 1-for-15 start from the field and swept the two-game season series with Miami.

“That was a team win because nobody really had it going,” Clippers coach Doc Rivers said. “But our defense really had it going all game.”

Chris Bosh, Dwyane Wade and Goran Dragic all scored 17 points for Miami. Luol Deng added 15 points for the Heat, and Hassan Whiteside finished with 10 points and 10 rebounds off the bench.

“They did to us what we’ve been doing the last few games, just grinding an opponent,” Heat coach Erik Spoelstra said. “That’s what they did to us, then made the bigger plays down the stretch.”

Paul was 0 for 7 in the opening period, the worst one-quarter shooting performance of his NBA career, and was 0 for 9 before he finally got a shot to fall. But his 3-pointers in the fourth snuffed out a Miami rally, and his lob that set up Jordan for a dunk was the clincher for the Clippers – who, after that horrid start, shot 55 percent the rest of the way.

Redick made a layup on the game’s first possession and the Clippers proceeded to misfire on their next 14 shots, but recovered to win for the 11th time in their last 13 road games, most of that with Blake Griffin sidelined by injuries.

“We’re just trying to hold it down until our big fella comes back,” Paul said.

Miami went to the oft-used strategy of intentionally fouling Jordan in the third quarter to slow the Clippers’ offense. And while it worked to a point – Jordan went 3 for 10 from the free throw line in the quarter – Miami couldn’t score. The Heat were 4 for 20 in the third, got down by as many as 11 and never led again.

“They made big plays down the stretch,” Wade said. “That’s the way we’ve been winning of late, so we can’t be mad at that. We got a little taste of our own medicine.”

TIP-INS

Clippers: G Austin Rivers will miss four to six weeks with a broken left hand. For now, the Clippers aren’t planning on making any roster changes to add depth. “We may have to make a decision but we’re just going to try to ride it out,” Doc Rivers said. … Paul has faced the Heat 19 times, and his teams are 13-6 in those games.

Heat: Whiteside took his first charge of the season. … Wade’s first point of the day gave him outright possession of 41st place on the NBA’s all-time scoring list. He came into the game tied with John Stockton at 19,711 points. … Deng has scored at least 15 points in five of his last six games.

 

SUPER SATELLITE

The Clippers were using a different plane than usual for their postgame flight from Miami to Philadelphia, for Super Bowl 50 reasons. They changed planes in order to have satellite television access so they wouldn’t miss any of the Carolina-Denver game.

“It’s really nice of the NBA to have us play today and then travel during the Super Bowl,” Doc Rivers said. “Just really a great move. But at least we get to watch it.”

 

NBA: Kenneth Faried got away with foul on decisive basket in Nuggets’ win over Bulls

2 Comments

The Bulls’ biggest loss Friday was Jimmy Butler to injury. His absence certainly contributed to a loss to the Timberwolves the following night.

But Chicago also lost to the Nuggets on Friday, and perhaps that wouldn’t have happened if the game were called correctly down the stretch.

With Denver up two points and 21.1 seconds remaining, Kenneth Faried offensively rebounded a free throw and scored. The Bulls then intentionally fouled down the stretch, and Faried and Danilo Gallinari added a few free throws in the Nuggets’ 115-110 win.

One problem: Faried should’ve been called for offensively fouling Taj Gibson on the key putback, according to the NBA’s Last Two Minute Report:

Faried (DEN) extends his arm into Gibson (CHI) and dislodges him, affecting his ability to retrieve the rebound.

This was a huge swing. Instead of Taj Gibson – a 69% career free-throw shooter – going to the line for two attempts with Chicago down two points, Faried put the Nuggets up four. Even if Gibson split at the line, the Bulls would have been in significantly better shape.

As usual, we can’t know what would’ve happened if this call were made correctly. But it significantly set back Chicago.