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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.

Doc Rivers calls anthem protests “the most patriotic thing we can do”

OAKLAND, CA - MARCH 23:  Head coach Doc Rivers of the Los Angeles Clippers shouts to his team during their game against the Golden State Warriors at ORACLE Arena on March 23, 2016 in Oakland, California.  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 Ezra Shaw/Getty Images)
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With the NBA season around the corner, there are a lot of eyes on how teams and players will handle the national anthem protests that have become prominent in the NFL. Clippers head coach Doc Rivers wholeheartedly supports the notion of his players participating, and hopes the whole team can figure out a statement to make together. Via Dan Woike of the Orange County Register:

“Listen, we need social change. If anyone wants to deny that, they just need to study the history of our country,” he told the Southern California News Group on Friday. “… I’ve said it 100 times. There’s no more American thing to do than to protest. It’s the most patriotic thing we can do. There are protests I like and protests I don’t like. It doesn’t matter. …Protests are meant to start conversation. The conversation, you hope, leads to acknowledgement, and the acknowledgement leads to action. We’re, right now, still in the conversation.”

“I hope we do it as a group. I know whenever you protest as one solid group, the protest has more teeth if you want to protest,” he said. “… I’m supporting our guys’ right to protest. I’m saying that up front. My hope is you believe it and do it for the right reasons and not just because it’s a hot topic on Instagram.

Rivers has a unique perspective — his father was a police officer, but he’s seen plenty of racism in his life. This won’t be his first time leading a team when it comes to social issues — he was able to unite the Clippers in the spring of 2014 when the Donald Sterling racism scandal broke. It’s encouraging to see NBA coaches trending towards fostering open dialogue on their teams about these issues.

Harden focused on helping Rockets improve after tough season

HOUSTON, TX - APRIL 24:  James Harden #13 of the Houston Rockets warms up before playing the Golden State Warriors in game four of the first round playoffs at Toyota Center on April 24, 2016 in Houston, Texas. NOTE TO USER: User expressly acknowledges and agrees that, by dowloading and/or using this photograph, user is consenting to the terms and conditions of the Getty Images License Agreement.  (Photo by Bob Levey/Getty Images)
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HOUSTON (AP) James Harden was second in the NBA with 29 points per game last season and his 7.5 rebounds were a career high.

Still, it was a disappointing year for Harden and the Houston Rockets, who were ousted in the first round of the playoffs by Golden State, and the star knew he had to adjust things to take the team farther this year.

“Last year was frustrating, numbers individually was pretty solid, but just the love and excitement wasn’t there,” he said. “So I had to look in the mirror this summer and realize that I got to change and I got to get back to how I was.”

To that end, he refocused this offseason and put an emphasis on becoming a better leader. He organized players-only training and outings in both Miami and Las Vegas in an attempt to create cohesiveness within the group before camp.

“Just getting to know somebody and hanging out … it was really good,” he said. “That’s going to carry over onto the court.”

The way his embraced his role as the undisputed leader of this team has impressed everyone in the organization, starting with owner Leslie Alexander.

“It shows that James wants to win very badly,” Alexander said. “He’s a winning player … James is one of the top three or four players we’ve ever had here and he wants to win as much as (Hakeem) Olajuwon and (Clyde) Drexler and everybody else.”

Trevor Ariza is entering his 13th NBA season, but had the excitement of a rookie on Friday as he talked about how much better things feel entering this season than they did last year. It was a season that saw coach Kevin McHale fired after just 11 games and the Rockets take a step back after reaching the Western Conference finals in 2015.

“I think just last season was frustrating for everybody because we just couldn’t figure it out together,” Ariza said. “I don’t even know how to explain. It was just a weird, weird, weird year.”

So how have things changed now?

“The vibe has just been totally different,” Ariza said. “Everybody is excited to show what they’ve worked on and excited just to be around each other.”

These positive-attitude Rockets enter the season with new coach Mike D’Antoni and without eight-time All-Star center Dwight Howard, who signed with Atlanta in the offseason. A big question for this team will be who will step in to make up for Howard’s absence.

Their top options are Clint Capela, a third-year player who saw limited action the past two seasons as Howard’s backup, and Nene, who played 53 games for Washington last year before joining Houston in the offseason.

General manager Daryl Morey raved about Capela’s improvement in his first year, but knows he’ll have to do more this season if the Rockets hope to be a force in the Western Conference.

“Clint is going to have to take a big step forward and it’s not an easy step,” Morey said. “To go from playing 15-20 minutes against often not the starting center to playing 25-plus minutes against front-line guys, that’s a big step forward. It’s more physical. It takes a big toll on your body to do that night-in and night-out.”

Along with Nene, the Rockets also added outside shooters Ryan Anderson and Eric Gordon this offseason. Houston expects the addition of those two to fill a void that this team has had in recent years.

“We were able to upgrade our shooting … for the style we want to play,” Morey said. “I don’t feel like we had enough shooting (before). We do have that.”

Everyone is saying the right things and Morey believes he made the upgrades necessary for the team to succeed in D’Antoni’s system. But with all the improvements other teams made in the West, it’s hard to know what to expect from this team.

Alexander was confident, yet tempered when asked about his expectations.

“I think we’ll win more games than people anticipate,” he said. “But when the season rolls on we’ll see how well we do.”

Front desk at new Sixers practice facility made out of court from Wilt Chamberlain’s 100-point game

NEW YORK, NY - JUNE 23:  Ben Simmons walks on stage after being drafted first overall by the Philadelphia 76ers in the first round of the 2016 NBA Draft at the Barclays Center on June 23, 2016 in the Brooklyn borough of New York City. 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 Mike Stobe/Getty Images)
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The Philadelphia 76ers have just opened a new, state-of-the-art practice facility, and maybe the coolest part is a unique touch that nods to one of the iconic moments in the history of Philadelphia basketball. The reception desk in the lobby of the building is made out of hardwood, but not just any hardwood — it’s a part of the court from Wilt Chamberlain’s 100-point game on March 2, 1962. Here’s a photo, via CSN Philly’s Jessica Camerato:

When Chamberlain scored 100 points, it was for the Philadelphia Warriors, not the 76ers, but it’s still a piece of the city’s sports history, and this is a cool, unique way to honor it.

51 Q: Will Tom Thibodeau fast-track the Timberwolves’ ascension?

OAKLAND, CA - APRIL 05:  Karl-Anthony Towns #32 of the Minnesota Timberwolves is congratulated by Ricky Rubio #9 after he made a basket against the Golden State Warriors at ORACLE Arena on April 5, 2016 in Oakland, California. 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 Ezra Shaw/Getty Images)
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The Minnesota Timberwolves won just 29 games last season, but few teams have more crowded bandwagons right now, or brighter futures. In many ways, their position isn’t too dissimilar to the Oklahoma City Thunder circa 2009 — still a lottery team, but the talent of Kevin Durant and Russell Westbrook was obvious. The Wolves have a similarly promising young core with the last two Rookie of the Year winners, Andrew Wiggins and Karl-Anthony Towns, the latter of whom has all the makings of a once-in-a-generation, MVP-caliber big man and an unbelievable amount of poise and polish for his age.

Young teams take time to come together, but the Timberwolves set themselves up to make a leap with their biggest offseason move, parting ways with interim head coach Sam Mitchell (who filled in admirably following the passing of Flip Saunders before last season) and hiring Tom Thibodeau. Because of this alone, the Timberwolves will win more games than they did last year. That’s what Thibodeau does — he wins games, no matter what his roster looks like. He does this by treating every game like it’s Game 7 of the Finals, and unlike the injury-riddled Bulls teams he got to overachieve, this Wolves group is young, healthy and unproven.

But even though any group with Wiggins, Towns and Thibodeau projects long-term to be in the title race, it would be unfair and unreasonable to expect contention overnight. Even Thibodeau, who expects the absolute most out of any group he coaches, is fully aware of that. Here’s what he told the St. Paul Pioneer Press in July:

“We like our young core a lot,” Thibodeau said, “and I would say this: We’re also not fooling ourselves. We know we’re in a very competitive conference. We won 29 games last year.”

Short of the kind of offseason haul of superstars that transforms a roster (think the Celtics getting Kevin Garnett and Ray Allen in 2007, or the Cavaliers getting LeBron James and Kevin Love in 2014), going from a bottom-tier lottery team to a contender overnight just doesn’t happen. A more realistic expectation of a best-case scenario for the Timberwolves under the first year of Thibodeau would be the 2009-10 Thunder. After winning just 23 games in 2009, Oklahoma City went 50-32 in 2009-10, grabbed the eighth seed in the Western Conference and lost to the eventual champion Lakers in the first round of the playoffs. A playoff berth and a competitive first-round loss to the Warriors or Spurs is only incremental progress, but considering what the starting point is, and the fact that the Timberwolves haven’t made the playoffs since 2004, a similar season would be a resounding success for the first year under Thibodeau.

The bottom of the Western Conference playoff race is going to be an uphill battle for the Wolves to break into. Beyond the top tier (Golden State, San Antonio and the Clippers), it seems to be a safe bet that the Jazz, Blazers, Thunder and Grizzlies will be in the playoffs. The Timberwolves will be one of the teams fighting for the final spot, but they’ll have stiff competition with the Rockets, Pelicans and Mavericks in the hunt. It’s not hard to picture the Wolves edging those teams out, but it’s far from a sure thing.

Long-term, it’s hard to think of a team with a higher ceiling than this Timberwolves group. In the here and now, though, it’s best to keep expectations in check.