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.

As expected, Blake Griffin reportedly opted out of contract with Clippers

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Doc Rivers says he wants Blake Griffin back with the Clippers next season.

The bigger question: Does Blake Griffin want to be back with the Clippers next season?

The decision is in Griffin’s hands as he has done what was expected, opting out of his contract for the coming season, reports Adrian Wojnarowski of The Vertical at Yahoo Sports.

A number of teams — Boston, Miami, and others — are expected to take a run at Griffin. (In Boston’s case, he’s a backup plan to Gordon Hayward, but there will be conversations.)

What Chris Paul — also expected to opt out and become a free agent this summer — and Griffin choose to do will help set the market. They are two of the biggest free agent names out there where they could switch teams (Stephen Curry and Kevin Durant are staying put). If they take their time making a decision, it leaves the Clippers in a bind — they have to wait to hear from these two before starting replacing or rebuilding, but by the time they know other players may have decided — and could bottleneck the free agent process.

The Clippers are going to be one interesting team to watch this summer.

Pistons’ Kentavious Caldwell-Pope suspended two games for DUI

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This is the standard penalty for coaches and players hit with a DUI. I don’t think the penalty is stiff enough in general for a serious issue, but this is the precedent that has been set.

Detroit Pistons’ guard Kentavious Caldwell-Pope has been suspended two games by the NBA for “pleading guilty to operating a motor vehicle while intoxicated, in violation of the law of the State of Michigan,” the NBA announced. He will miss the first two games of next season.

This will not stop Caldwell-Pope from getting PAID this summer.

A quality wing defender who hit 35 percent from three last season, he plays a position of need for a lot of teams and he is a restricted free agent. Other teams with cap space — Brooklyn and Sacramento come to mind — could step in and give him a max or near max offer. Then Stan Van Gundy needs to decide if he is going to match. He may not have much of a choice, if he wants to keep Andre Drummond and build an inside-out team around him, he needs Caldwell-Pope, and the Pistons don’t have the cap space to replace him.

One way or another, Caldwell-Pope is in line for a massive pay raise. This suspension will not slow teams, it just takes a little money out of his pocket.

 

Lonzo Ball tops Rookie of the Year early betting odds

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If you are betting right now on next year’s NBA Rookie of the Year award, you are a die-hard fan of your team and their new addition. Or, you have a problem and need to seek help. Maybe both.

Either way, the people at the gambling site Bovada have posted the early betting odds for the ROY award for next season.

Lonzo Ball (Lakers) 5/2
Ben Simmons (76ers) 3/1
Markelle Fultz (76ers) 5/1
De”Aaron Fox (Kings) 7/1
Josh Jackson (Suns) 9/1
Jayson Tatum (Celtics) 9/1
Jonathan Isaac (Magic) 16/1
Malik Monk (Hornets) 16/1
Dennis Smith (Mavericks) 16/1
John Collins (Hawks) 20/1
Justin Jackson (Trail Blazers) 22/1
Lauri Markkanen (Bulls) 22/1

Yes, Ben Simmons is in the mix.

The two bets I like here, if I were a gambling man, are Jackson in Phoenix and Dennis Smith in Dallas. I doubt Smith wins it, but Mavs coach Rick Carlisle said after the draft Smith will start for them next year, which means he gets opportunities and can rack up assists feeding Dirk Nowitzki at the elbow for a year.

Jackson is going to be unleashed in an up-tempo Suns offense where he will be the defender they need on the wing, play with high energy, and get buckets in transition. Winning ROY is as much about fit and opportunity as talent, and Jackson has landed in a good spot.

Paul George-Gordon Hayward-Celtics rumor doesn’t add up

AP Photo/George Frey
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Paul George reportedly wants to play with Gordon Hayward. George is also reportedly willing to join his desired team (universally accepted to be the Lakers) by means that don’t guarantee the highest salary.

Could the Celtics – who are pursuing Hayward in free agency – leverage those conditions into getting George?

Adam Kauffman of 98.5 The Sports Hub:

I don’t what George would do, but it’d be a MAJOR financial disadvantage to go this route.

There a couple ways it could happen – George getting extended-and-trade or George getting traded then signing an extension six months later. The latter would allow George to earn more than the former, but even if he pledged to sign an extension, would the Celtics trade for him knowing he’d have six months to change his mind if he doesn’t like Boston as much as anticipated?

There’s a bigger issue, anyway. Both extension routes would leave George earning far less than simply letting his contract expire then signing a new deal, either with his incumbent team or a new one.

Here’s a representation of how much George could earn by:

  • Letting his contract expire and re-signing (green)
  • Letting his contract expire and signing elsewhere (purple)
  • Getting traded and signing an extension six months later (gray)
  • Signing an extend-and-trade (yellow)

image

Expire & re-sign Expire & leave Trade, extend later Extend-and-trade
2018-19 $30.6 million $30.6 million $23,410,750 $23,410,750
2019-20 $33.0 million $32.1 million $25,283,610 $24,581,287
2020-21 $35.5 million $33.7 million $27,156,470 $25,751,825
2021-22 $37.9 million $35.2 million $29,029,330
2022-23 $40.4 million
Total $177.5 million $131.6 million $104,880,158 $73,743,861

Firm numbers are used when it’s just a calculation based on George’s current contract. When necessary to project the 2018-19 salary cap, I rounded.

The Celtics could theoretically renegotiate-and-extend, but that would require cap room that almost certainly wouldn’t exist after signing Hayward.

Simply, it’s next to impossible to see this happening. It’d be too costly to George.