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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.

Trail Blazers advance to face Warriors after 106-103 victory over the Clippers

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PORTLAND, Ore. (AP) — Damian Lillard scored 28 points and the Portland Trail Blazers advanced to the Western Conference semifinals by beating the resilient Los Angeles Clippers 106-103 on Friday night to claim the first-round playoff series 4-2.

Portland will open the second round against the reigning NBA champion Golden State Warriors on Sunday.

CJ McCollum added 20 points for the Blazers, who became the first team to overcome a 2-0 deficit since Memphis came back against the Clippers in the first round in 2013.

Jamal Crawford had 32 points and Austin Rivers added 21 points and eight assists despite having 11 stitches above his left eye from a collision in the first quarter. But the Clippers could not recover from injuries to Chris Paul and Blake Griffin in Game 4 of the series.

Los Angeles didn’t surrender easily in the final game, never allowing Portland a double-digit lead.

“We didn’t panic when they put up a fight,” Lillard said.

The Blazers appeared to pull away when McCollum’s 3-pointer made it 98-91 with 4:49 left, but the Clippers persisted. Already plagued by injuries, the Clippers lost DeAndre Jordan to what looked like a sprained right ankle before Los Angeles closed to 98-95 on J.J. Redick‘s jumper.

McCollum’s 3-pointer put Portland up 101-95 with 2:16 left. Again the Clippers clawed back, pulling within 103-101 on Redick’s layup with just under a minute left. Crawford tied it with free throws but Mason Plumlee was fouled by Jeff Green under the basket for free throws to make it 105-103.

Crawford missed a 6-foot jumper and Plumlee made the second of two free throws with 1.5 seconds left for the final margin. Rivers’ 42-foot hurl at the buzzer fell short.

“It’s mixed emotions right now,” Rivers said, his left eye swollen shut. “I’m very sad, I’m very disappointed, but I’m also very proud.”

Portland will face a Golden State team that is dealing with its own injury issue: Reigning MVP Stephen Curry continues to rehab his sprained right knee. There is no official word on when he might return.

The Clippers were ultimately doomed by untimely injuries to their top two scorers.

Paul broke a bone in his right hand in the third quarter of the Clippers’ Game 4 loss at Portland. The Clippers’ nine-time All-Star was averaging 23.8 points and 7.3 assists in the series before he was hurt. He had surgery the next day and the Clippers declared him out indefinitely.

In the same game, Blake aggravated the left quad injury that sidelined him for 41 games this season. He was averaging 15 points, 8.8 rebounds and four assists in the playoffs.

After dropping the first two, the Blazers took a 3-2 lead with a 108-98 victory at the Staples Center on Wednesday night. Clippers coach Doc Rivers tinkered with his starting lineup in the absence of Paul and Griffin, inserting Crawford, Rivers and Paul Pierce.

On Friday, he started Luc Mbah a Moute and Jeff Green, while Crawford and Pierce went to the bench.

“This team had more heart than any other team I’ve coached,” the elder Rivers said.

The Clippers got another scare midway through the first quarter when Austin Rivers sustained a cut above his left eye in a collision with Portland’s Al-Farouq Aminu midway through the first quarter. Rivers returned before the end of the half after getting 11 stitches.

Crawford picked up the slack in his absence and had 22 points in the half. But Lillard and McCollum countered with a combined 25 and the Blazers led 50-48 at the break.

Redick hit a 3-pointer that put the Clippers up 58-53 early in the third. Aminu and Lillard countered with 3s and neither team could push the margin to more than five points.

Rivers’ 3-pointer put the Clippers ahead 77-75 late in the third, but the lead was short-lived when Lillard hit a 3 for Portland. Crawford’s jumper and Jordan’s dunk gave Los Angeles an 81-78 lead.

TIP INS

Clippers: Redick started all six games despite a heel injury that has reportedly bothered him throughout the series.

Trail Blazers: Pro golfer Peter Jacobsen, a Portland native, made three straight free throws for a contest during a first-half timeout. … Toronto FC and U.S. national team forward Jozy Altidore was among the fans at the game.

Austin Rivers gets 11 stitches after elbow to face, returns for Clippers

PORTLAND, OR - APRIL 29: Austin Rivers #25 of the Los Angeles Clippers walks off the court after Game Six of the Western Conference Quarterfinals against the Portland Trail Blazers during the 2016 NBA Playoffs at the Moda Center on April 29, 2016 in Portland, Oregon. The Blazers won 106-103. 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 Steve Dykes/Getty Images)
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It wasn’t intentional, Portland’s Al-Farouq Aminu and the Clippers’ Austin Rivers were both going for the rebound, but Aminu’s elbow caught Rivers clean in the eye.

That was nasty.

Rivers required 11 stitches, and after the game looked like Glass Joe after a rough day.

But you have to be impressed — Rivers came back into the game. He finished with 21 points and played hard, but the Clippers fell to the Trail Blazers 106-103 and were eliminated from the playoffs.

Pacers force Game 7 against Raptors with 101-83 win

of the Toronto Raptors against the Indiana Pacers in game six of the 2016 NBA Playoffs Eastern Conference Quarterfinals on April 29, 2016 in Indianapolis, Indiana.  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.
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INDIANAPOLIS (AP) Paul George scored 21 points, Myles Turner added 15 and the Indiana Pacers beat the Toronto Raptors 101-83 on Friday night to force a Game 7 of their series.

That will be played Sunday in Toronto, and the winner will advance to the Eastern Conference semifinals.

Indiana scored 18 straight points in the second half to pull away from the second-seeded Raptors, who haven’t won a postseason series since the first round in 2001.

DeMarre Carroll and Cory Joseph each had 15 points for the Raptors.

Kyle Lowry (4 for 14) and DeMar DeRozan (3 for 13) struggled again, and now the Raptors will head home and hear again about their troubled playoff problems: a Game 7 loss at home to Brooklyn in 2014, Washington’s four-game sweep last season and no series wins in a seven-game series. And there 15-year victory drought is the longest active streak in the league.

Indiana trailed by as much as 12 early, never led until early in the third quarter and had to fend off a late third-quarter charge from the Raptors before blowing it open in the fourth.

After Toronto cut the deficit to 65-64, Indiana responded by scoring the last six points of the third and the first 12 of the fourth to take an 83-64 lead.

The Raptors never recovered.

For Indiana, it was a dramatic turnabout.

Three days after blowing a 13-point, fourth-quarter lead, they came out flat. The Pacers struggled to make baskets, struggled to defend and played catch-up the entire first half after Toronto took an 18-6 lead just 6 1/2 minutes into the game.

But once the Pacers got righted, they took control and pulled away.

Indiana rebounded from a 44-40 halftime deficit with a 10-2 run to take its first lead, 49-48 on Ian Mahinmi‘s tip-in with 9:33 left. They extended the lead to 63-55 before Toronto charged back to get within 65-64 in the final two minutes of the quarter.

Indiana scored the next 18 points to seal it.

GOLDEN CROWD

Indiana handed out gold T-shirts to fans at the game and it caused a bit of a stir because the wording on the shirts read: United State of Basketball, We The Gold. It was a twist on Toronto’s motto – We The North. Raptors coach Dwane Casey didn’t seem to mind that Indiana stole the idea. “I know that they have a great home court. You know you’re in Pacers territory because of all the gold shirts,” he said. “But what happens between the lines for 48 minutes is what I’m concerned about.”

TIP-INS

Raptors: The Raptors wound up getting outrebounded 44-40 after dominating the post in the first half. … Jonas Valanciunas had 14 points, Lowry had 10 and DeRozan finished with eight. … Bismack Biyombo grabbed 10 rebounds. … Toronto gave up 20 points on 17 turnovers. … The last time the Raptors led a series 3-2 was in 2014 against Brooklyn. But the Nets won 97-83 on their home court before clinching the series with a 104-103 victory in Game 7 at Toronto.

Pacers: Turner blocked four shots, giving him 19 in the series to break Antonio Davis’ previous franchise rookie record in a six-game series. … Indiana started the second half by making five of its first seven shots. … Actor-comedian Mike Epps, who lives in Indy, attended the game. … The Pacers have won four straight elimination games on their home court.

Heat hang on with Wade’s heroics, force Game 7 vs. Hornets

CHARLOTTE, NC - APRIL 29:  Dwyane Wade #3 of the Miami Heat directs teammates against the Charlotte Hornets during game six of the Eastern Conference Quarterfinals of the 2016 NBA Playoffs at Time Warner Cable Arena on April 29, 2016 in Charlotte, North Carolina.  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 Streeter Lecka/Getty Images)
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“It’s a make-or-miss league” has been a worn-out cliche in the NBA for years, but it was never more apt than Friday night. Dwyane Wade, a career 28.4 percent three-point shooter who hadn’t hit a shot from beyond the arc in the calendar year of 2016, knocked down two threes late to help the Miami Heat hold on and beat the Charlotte Hornets, 97-90, to force a Game 7 on Sunday.

Wade finished with 23 points on 10-for-20 shooting along with 6 rebounds and 4 assists to lead Miami, and had a key block in the closing minute to stave off a Charlotte comeback. The Heat held off Kemba Walker‘s 37-point explosion, which kept Charlotte in the game for much of the second half even as they never led in the third or fourth quarters.

Neither team got much out of their benches, and Miami overcame a rough night from Goran Dragic (6-for-17 from the field) and Hassan Whiteside fouling out in just 28 minutes of action. A three by Walker cut Miami’s lead to 90-88, the closest the Hornets got in the second half.

The two teams will now play a Game 7 in Miami on Sunday, with the winner facing the winner of that same day’s Game 7 between the Raptors and Pacers.