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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.

Thunder’s Russell Westbrook, Kevin Durant put on first-half show at Warriors’ expense

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I’d say Warriors fans are stunned, but more than that Warriors players look stunned — they are getting steamrolled by Oklahoma City again, giving up 72 first half points and being down by 19.

I guess we tell Warriors’ fans what we have told the fans of teams they have steamrolled the past couple years — enjoy the show, you don’t get to see many like this.

Above was a Kevin Durant to Russell Westbrook fastbreak assist and bucket. Now check out the fantastic Steven Adams pass, and a highlight package of Westbrook dropping 16 in the second quarter on the Warriors (21 in the first half).

 

Charles Barkley: “I’ve never seen the NBA as bad as it is”

HOUSTON, TEXAS - APRIL 04:  Former NBA player and commentator Charles Barkley looks on prior to the 2016 NCAA Men's Final Four National Championship game between the Villanova Wildcats and the North Carolina Tar Heels at NRG Stadium on April 4, 2016 in Houston, Texas.  (Photo by Scott Halleran/Getty Images)
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Charles Barkley is walking entertainment and the brilliant Inside the NBA would not be the same without him and his off-the-cuff opinions (which is a great thing in sports talk, not so much with national policy).

But he remains the leader of the annoying #getoffmylawn crew of older players who don’t like today’s game.

Barkley was on the Bickley and Marotta on Arizona Sports 98.7 FM last week and went off again on the state of the game, (hat tip For The Win).

“People think us old guys hate when we talk about it. It has nothing to do with the Warriors’ greatness, LeBron’s greatness. But I’ve never seen the NBA as bad as it is, and I’ve been saying it the last three or four years. We’ve got too many young players coming out of college that don’t know how to play. It’s frustrating for me because I want to see competitive basketball.

“We took a survey on our crew … How many actual NBA teams would you buy season tickets for?” he added. “Four in the west and Cleveland obviously in the east. That’s not good for our league.”

To be fair, Barkley speaks for a lot of people here.

I think they are all wrong, but he speaks for them. And I think they are a plurality. Based on television ratings going up even as streaming of live games spikes (as someone who works for Comcast/NBC, I can say the in-market streaming of CSN teams such as the Warriors, Celtics, Wizards, etc. did well this year and grew faster than projections), as I look at the crossover appeal of Stephen Curry, the sendoff Kobe Bryant got, the popularity of LeBron James and Kevin Durant etc, the league is doing well by any measure.

But more than that, the game now is more entertaining than it’s been in years. Tell me how grabbing some guy on the perimeter, the clutching and clawing to slow the game down in the 1990s leading to 86-82 slogs, was more fun than the skill being shown today. Jordan was must watch, frankly Barkley was fun, but Mike Fratello’s Cavaliers teams? The Mavericks and Clippers of that era? I think Barkley and others look at the past through some Mr. Magoo glasses, but that is their prerogative. I loved 80s basketball. I liked 90s basketball. But to constantly dismiss the game today just sounds like someone clinging to the past.

Ex-NBA player Kermit Washington arrested in Los Angeles

ASHEVILLE, NC - APRIL 16:  Assistant coach Kermit Washington of the Asheville Altitude reacts to a call during the game against the Huntsville Flight in the NBDL semifinal playoff game at the Asheville Civic Center on April 16, 2005 in Asheville, North Carolina. The Altitude won 90-86 to advance to the championship game. 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.  Mandatory Copyright Notice: Copyright 2005 NBAE (Photo by Joe Murphy/NBAE via Getty Images)
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LOS ANGELES (AP) — Kermit Washington, a former NBA player who notoriously gave a bone-breaking face punch to the Houston Rockets’ Rudy Tomjanovich during a 1977 Lakers game, has been arrested by federal agents.

Washington was arrested on a warrant Tuesday in Los Angeles. It’s unknown if he has a lawyer.

Officials won’t discuss the arrest, but they have set a news conference for Wednesday in Kansas City, Missouri.

That’s where football Hall of Famer Ron Mix pleaded guilty Monday to filing false tax returns.

Authorities say Mix, a San Diego-area lawyer, paid someone to refer clients to him in return for donations to the charity Contact Project Africa.

Prosecutors say Mix paid $155,000, but the money went into his associate’s pocket.

Washington founded the charity, which is no longer functioning.

Dwyane Wade creates tie, sale proceeds benefit Craig Sager’s foundation

PHOENIX - FEBRUARY 13:  Assistant coach Dwyane Wade of the Rookie team is interviewed by Craig Sager during the T-Mobile Rookie Challenge & Youth Jam part of 2009 NBA All-Star Weekend at US Airways Center on February 13, 2009 in Phoenix, Arizona.  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 Ronald Martinez/Getty Images)
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Sager Strong.

Despite undergoing chemotherapy to battle the acute myeloid leukemia that has returned to his body, Sager has been a sideline reporter for TNT through these playoffs and the Western Conference Finals, doing as many games as he can. He’s been an inspiration to everyone in the business, and to fans. Dwight Howard put together a blood drive in his honor.

Now, Dwyane Wade has partnered with The Tie Rack, creating a tie where the proceeds of the sale go the SAGERSTRONG Foundation, created by Sager.

From the Tie Rack page:

Proceeds from the sale of this tie will be donated directly to the SAGERSTRONG Foundation, Inc., founded in support of TNT sports personality Craig Sager. SAGERSTRONG works with various charitable partners to support the treatment of those suffering from blood cancers and AML.

“Together, we can play defense on cancer, one tie at a time.” Much love, Dwyane Wade.

The tie sells for $25 (and you can get a matching pocket square for $15). If you wear ties, you can join me in picking one up and helping out a good cause.

(Hat tip Eye on Basketball)