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.

Cory Joseph drains game-winning three at buzzer for Raptors (VIDEO)

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WASHINGTON (AP) — Cory Joseph made a 3-pointer at the buzzer to give the Toronto Raptors an 84-82 victory over the Washington Wizards on Saturday night.

Kyle Lowry scored 27 points for the Raptors, who before Joseph’s 3 had not led since early in the first quarter.

Joseph took DeMar DeRozan‘s pass in the corner and nailed the winning shot. He finished with 12 points as Toronto won its fourth straight despite tying a season high with 22 turnovers

Bradley Beal scored 20 points for Washington, which lost its fourth straight despite allowing its fewest points of the season.

John Wall added eight of his 18 points in the fourth quarter, but missed a pair of late free throws that opened the door for Toronto to win in regulation.

With 3.0 seconds left following those misses and a timeout, DeRozan got the ball, drove toward the baseline and kicked the ball out to Joseph in the left corner. Joseph rose and sank his 3-pointer as time expired.

Washington failed to hit a field goal over the final 4:24 to fall to 1-8 in its last nine regular-season games against Toronto. The Wizards did sweep the Raptors in the first round of last season’s Eastern Conference playoffs.

Toronto trailed by as many as 10 before Lowry’s 3-pointer from the left wing tied it at 70-all early in the fourth.

Washington answered with a 10-2 run before Toronto scored the next seven points, with Lowry’s 3-pointer off DeRozan’s kickout making it 80-79.

After DeRozan and Lowry each missed shots with a chance to take the lead, Wall and DeRozan traded free throws. But Wall missed a pair next, setting up the final sequence.


James hits game-winner, Cavs edge Nets (VIDEO)


CLEVELAND (AP) — LeBron James made a running hook shot with a second left and scored 26 points, giving the Cleveland Cavaliers a 90-88 victory over the Brooklyn Nets on Saturday night.

After Joe Johnson‘s three foul shots tied the game with 15.2 seconds left, the Cavaliers called timeout and took the ball at midcourt.

James took the inbounds pass, dribbled to the top of the key before cutting to the right of the lane and hitting a hook shot over Brook Lopez, the Nets’ 7-foot center.

James scored 10 points and added a key steal late in the game to help Cleveland (13-4) remain unbeaten at home in nine games.

Kevin Love also scored 26 points for Cleveland, which played a sluggish first half and didn’t take its first lead until midway through the third quarter.

Lopez led Brooklyn (4-12) with 22 points. Johnson added 17 for the Nets, who fell to 1-10 on the road.

Tristan Thompson‘s basket with 1:13 remaining gave Cleveland an 86-85 lead and James made two free throws with 16 seconds left, but Johnson was fouled by J.R. Smith attempting a 3-pointer.

Johnson hit all three foul shots, but James made sure the Nets’ strong effort fell short.

James helped Cleveland rally from an 83-76 deficit in the fourth quarter with a 3-pointer and a three-point play before the Cavaliers took the lead on Thompson’s basket with 2:44 remaining.

Brooklyn built the lead to double figures in the second quarter and led 50-44 at halftime. Cleveland took its first lead at 61-60 on Love’s 3-pointer midway through the third. Matthew Dellavedova‘s 3-pointer gave the Cavaliers a 69-68 lead going into the final period.

Mo Williams scored 14 points for the Cavaliers while Thompson had 10 points and 11 rebounds. Thaddeus Young had 16 points and 12 rebounds for the Nets.


Scott Skiles says he would not have traded Tobias Harris to Magic

Tobias Harris, O.J. Mayo
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Back at the start of the season in 2012 and into early 2013, Tobias Harris was buried on the bench in Milwaukee — glued there by coach Scott Skiles. At the trade deadline that February, the Bucks sent Harris to Orlando  — where he blossomed into a quality forward that is part of the Magic’s future.

The Magic now coached by Scott Skiles.

Did Skiles want Harris moved at the time? No, he told Journal Sentinel (hat tip Eye on Basketball).

“He was pretty mature as a person even then,” Skiles said of Harris, who left Tennessee after his freshman year to enter the NBA draft. “In camp he got sick; he fell behind.

“At that time, we just felt (Luc) Mbah a Moute was a better defender and (Mike) Dunleavy was a better offensive player, and Tobias didn’t get as many minutes. But we were high on him.

“Not that anybody would have listened to me, but if I would have still been the coach, I would not have been for moving Tobias. That’s for sure, if somebody would ask my opinion.”

Skiles was under pressure to win back then in Milwaukee (he was let go at the end of the season) so you can’t be surprised he was playing the veterans he trusted over the young player who would be making mistakes.

Skiles trusts Harris now; he’s giving him more than 30 minutes a night. While he’s played some small four to start the season, Skiles has switched the lineups and now has Harris starting at the three (Channing Frye is at the four). In that role he has averaged 18 points through two games, Harris has looked more comfortable. We’ll see if that sustains, but you know Skiles is giving him a chance.


DeMarcus Cousins out for Kings vs. Warriors Saturday

DeMarcus Cousins, Nicolas Batum, Marvin Williams
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As if Golden State was not already a prohibitive favorite Saturday night.

DeMarcus Cousins, who has missed the last two games for Sacramento with a strained back and that will continue Saturday. Our old friend Bill Herenda tweeted it first.

Not only are the Kings 1-6 without Cousins, but they were also on their way to beating Charlotte Monday until Cousins had to leave the game.

Golden State will likely be without Harrison Barnes in this game after spraining his ankle in the last game. Expect Andre Iguodala to get the start, or if interim coach Luke Walton doesn’t want to mess with the bench rotation he could go with Brandon Rush.