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.

Kevin Durant gets into Twitter debate with reporter over White House comments

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Kevin Durant became the latest Warrior — joining Stephen Curry, Andre Iguodala, and Shaun Livingston, that we know of — to say he would not visit President Donald Trump’s White House as NBA champion. Which is all kind of moot because it’s unlikely the White House invites them and outspoken Trump critic/Warriors coach Steve Kerr and his players any way. (The White House’s biggest concern should be that Kerr accepts the invitation and uses that platform to challenge the president’s policies and style in front of him.)

Durant’s comments led to plenty of talk on sports talk radio and around the sports world online about whether a player or team should decline an invitation from the president. It’s not a new debate, Tom Brady denied that politics is why he didn’t visit Barack Obama’s White House (although I’m not sure many believed him), but KD’s on a big stage now so it became a talking point.

Former ESPN reporter Britt McHenry questioned a player not visiting the White House, and Durant responded, leading to a little Twitter back-and-forth.

Durant had previously Tweeted in response “by doing the opposite, I am inspiring more people” but that Tweet was deleted.

There is no one correct way to protest a person/policy/action, McHenry may see things differently, but Durant has chosen to stay away. That’s valid — traditionally these “champions to the White House” things are tedious photo ops with a few bad jokes thrown in. Having a hoops fan/player in Obama in the White House made the NBA visits more entertaining the past eight years, there was some trash talk, but still, they are largely just a public relations moment. If KD doesn’t want to play the PR game with Trump, that’s a legitimate response.

This has all been a tempest in a teapot. Until/unless the White House actually invites the Warriors to come, it’s all kind of moot.

Dwight Howard on Hornets’ coach Clifford: “It’s a great feeling when somebody believes in you”

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Dwight Howard‘s game is much better than his reputation among fans.

He’s not the Defensive Player of the Year/All-NBA/MVP candidate level player he was back in Orlando, but Howard is still one of the best rebounders in the game, he’s strong defensively, and he’s an efficient scorer inside. He’s a quality center, if he plays within himself and is used well. His perception as a guy who does not take the game seriously and held back Houston and Atlanta in recent years has validity (he plays better in pick-and-roll than on the move, but wants the ball in the post), but the idea he is trash is flat-out wrong. He’s still good.

Howard wants to change his reputation, rewrite the final chapters of his career, and told Adrian Wojnarowski of ESPN that Steve Clifford’s Charlotte Hornets are the place that is going to happen.

“The other places I was, the coaches didn’t really know who I am,” Howard told ESPN. “I think that they had perception of me and ran with it. Cliff knows my game. He knows all the things that I can do. I’m very determined to get back to the top. It’s a great feeling when somebody believes in you. They aren’t just saying it; they believe it. It really just pushed me to the limit in workouts: running, training, everything. I want to do more.

“In Orlando, I was getting 13-15 shots a game. Last season, in Atlanta, it was six shot attempts. It looks like I’m not involved in the game. And if I miss a shot, it sticks out because I am not getting very many of them. But I think it’s all opportunity, the system. I haven’t had a system where I can be who I am since I was in Orlando.”

Howard averaged 8.3 field goal attempts per game in Atlanta, which is about five a game below his peak. Last season 75 percent of Howard’s shots came within three feet of the rim — is is not there to space the floor, however, he can still move fairly well off the roll and is a good passer for a big.

Last season, 28 percent of Howard’s possessions came on post ups, and he averaged a pedestrian 0.84 points per possession on those. On the 21 percent of shots he got on a cut, he averaged a very good 1.36 PPP. When he got the ball back as a roll man (again on the move), it was 1.18 PPP. The challenge long has been Howard is better on the move but doesn’t feel involved unless he gets post touches, and if he doesn’t feel involved and engaged he’s not the same player.

Maybe Clifford can make this all work with some older plays where Howard feels comfortable.

Charlotte, with Howard in the paint and on the boards, should get back to being a top 10 NBA defensive team, not the middle of the pack as they were last season. Clifford is better than that as a coach, and Howard is an upgrade in the paint (on both ends). Charlotte should be a playoff team again in the East.

But it all will come back to Howard. Fair or not. And Wojnarowski is right, this is Howard’s last best chance to write the ending he wants to his career.

Friday afternoon fun: Watch James Harden’s 10 best plays from last season

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James Harden had a historic season in Houston.

Since it’s Friday afternoon and your sports viewing options consist of watching guys about to be cut from NFL rosters try to impress, why not check out Harden’s best plays from last season. It’s worth a couple minutes of your time.

Mavericks sign Jeff Withey to one-year contract

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Jeff Withey‘s ex-fiancée accused him of domestic violence, but he was not charged.

That frees him to continue his basketball career, which he’ll do in Dallas.

Shams Charania of Yahoo Sports:

The Mavericks could use another center, even if they re-sign Nerlens Noel. Salah Mejri is the only other true center, though Dirk Nowitzki will now play the position.

Withey is a good rim protector. Just don’t ask him to do anything away from the basket.

Dallas annually brings excess players to training camp and has them compete for regular-season roster spots. Whether or not his salary is guaranteed, Withey will likely fall into that competition.