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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.

NBA local television ratings up, led by spike in Warriors viewship

PHILADELPHIA, PA - JANUARY 30: Klay Thompson #11, Draymond Green #23, Harrison Barnes #40, Shaun Livingston #34 and Stephen Curry #30 high five one another in the game against the Philadelphia 76ers on January 30, 2016 at the Wells Fargo Center in Philadelphia, Pennsylvania. 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 Mitchell Leff/Getty Images)
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Everyone wants to watch Stephen Curry and the Golden State Warriors.

Local television ratings for Warriors games on Comcast Sportsnet Bay Area have spiked 120 percent since last season, according to data compiled by the Sports Business Journal. An estimated 209,000 people tune in to CSN Bay Area for the games (plus the numbers of subscribers streaming Warriors’ games through CSNBayArea.com also has spiked this season).

It’s all part of an overall upward trend in ratings for the league, although about half the league’s markets have seen ratings fall.

Overall, as the NBA enters its All-Star break this weekend, the league’s local telecasts are up 6 percent year over year, according to Nielsen. Eleven teams have seen gains in their local ratings this season, while 15 have dropped. Denver Nuggets games on Altitude are flat with last year….

Golden State’s average rating is high enough to rank third in the NBA, an impressive achievement for a big-market team. Three of the top four teams as measured by ratings play in small markets: Cleveland, San Antonio and Oklahoma City. Additionally, with a league-best 209,000 households on average watching Warriors games locally this season, Golden State is far outpacing the New York Knicks for their games on MSG (160,000 households) and the Cleveland Cavaliers for their games on FS Ohio (141,000).

Interestingly, ratings for the Lakers are down 16 percent year-over-year, despite this being Kobe Bryant‘s final season, according to the report. That impacts the Lakers in that their massive cable television deal with Time Warner does have ratings ties — the Lakers could get a little less out of this deal than anticipated. Still, the average Lakers’ broadcast draws 92,000 viewers, fifth largest in the league.

LeBron has Cavaliers ratings up 36 percent over a year ago. The three biggest drops in ratings percentage wise are Atlanta (33 percent), New Orleans (33 percent), and Washington (34 percent). The average Pelicans game draws 7,000 viewers, according to the report.

That discrepancy in local television viewership — and the money that affords teams in local television deals — you can be sure is something the owners will fight about more in the upcoming Collective Bargaining Agreement discussions. There already is some sharing of that revenue, but as the gap grows you can expect a push from smaller markets to grow that sharing model (the only time rich owners suddenly want socialism in their lives). Expect the players’ union to bring it up as well when the owners cry poverty.

 

Love returns to Cavaliers’ lineup after missing 1 game

Cleveland Cavaliers' Kevin Love, right, drives past Phoenix Suns’ P.J. Tucker during the second half of an NBA basketball game Wednesday, Jan. 27, 2016, in Cleveland. The Cavaliers won 115-93. (AP Photo/Tony Dejak)
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CLEVELAND (AP) — Cleveland Cavaliers forward Kevin Love will return to the lineup Monday after missing a game because of a bruised left thigh.

Cleveland hosts Sacramento on Monday night.

Love sat out for the first time this season on Saturday in a win over New Orleans. He was injured in the third quarter of Friday’s loss to Boston and didn’t return.

He is averaging 15.9 points and 10.5 rebounds.

Love participated in Monday’s shootaround. He is nearing a pair of career milestones, needing three points to reach 9,000 and three field goals to hit 3,000.

Report: Luke Walton not leaving Warriors before their season ends

CLEVELAND, OH - JANUARY 18: Interim Head coach Luke Walton of the Golden State Warriors during the first half against the Cleveland Cavaliers at Quicken Loans Arena on January 18, 2016 in Cleveland, Ohio. 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. (Photo by Jason Miller/Getty Images)
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Luke Walton is going to have his pick of coaching jobs this summer. The Knicks are reportedly interested, as are the Phoenix Suns. The Lakers allegedly would fire Byron Scott mid-season to get Walton. This doesn’t even get into current or expected openings such as Brooklyn, Sacramento, and Houston. Walton will have options.

But he’s not doing anything until the Warrior’s season ends, reports Marc Stein of ESPN.

This shouldn’t be a surprise, and it is the right thing to do for Walton — shows of loyalty to your current employer and players should raise his stock in the eyes of those trying to hire him.

We may ultimately see with Walton what we saw with Alvin Gentry a year ago; he took the job with New Orleans while the Warriors were still on their championship run, but continued to coach the team through the Finals.

It’s fair to ask if Walton is being over-hyped. He did a fantastic job with the Warriors to start this season, but that was an already built team playing the same system with mostly the same players as the season before. He just had to not fall off the horse, it was going to run plenty fast. Coaching up the kinds of troubled teams we see on that list above is a different challenge entirely. Walton may be up for it, he’s certainly earned the chance, but it’s fair to ask if he’s ready for that step.

PBT Podcast: Derek Fisher fired, plus your trade questions from Twitter

Derek Fisher
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Derek Fisher is out as coach of the New York Knicks.

In this latest podcast, NBC Sports’ Kurt Helin and Dan Feldman discuss the odd timing of that move — we expect another shoe to drop as to why. It’s not that Fisher was a great coach, but replacing him with Kurt Rambis mid-season is not an upgrade. And Luke Walton isn’t available until this summer.

After struggling to figure out what the Knicks are thinking, Helin and Feldman answer questions off Twitter from readers/listeners on the coming trade deadline including discussions of Blake Griffin, Jeff Teague, the Pistons, the Jazz, the Knicks, and more.

As always, you can listen to the podcast below, or listen and subscribe via iTunesdownload it directly here, or you can check out our new PBT Podcast homepage, which has the most recent episodes available. If you have the Stitcher app, you can listen there as well.