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.

Jeff Hornacek on Joakim Noah: “We’ve moved on. He’s ready to move on”

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Not that anyone actually thought Joakim Noah would be back with the Knicks this season — not after Noah and coach Jeff Hornacek got into an argument that ended with Noah shoving his coach.

But if anyone thought with Kristaps Porzingis out for the season with a torn ACL the Knicks might turn to Porzingis for a little boost, think again. Via Al Iannazzone at Newsday as the Knicks got back to post All-Star practice.

“There’s really nothing more to say about it, update it. We’ve moved on. He’s ready to move on and maybe have an opportunity somewhere else. That’s really our focus to go play Orlando. We have 23 games left. We’re trying to get our young guys to step it up. That’s kind of old story and all done with as far as I’m concerned.”

The Knicks would love to trade Noah, but he has the most untradable contract in the NBA — two years, $37.8 million left after this season. It would take the Knicks attaching a couple of first-round picks and taking back some dead salary to make it happen. The Knicks may eventually buy him out, but the more likely option is they keep him through the summer (in case he is needed as salary in a trade), and possibly into next season (depending upon how big a discount he would give the team to be bought out and move on).

Trail Blazers hope for another post-All-Star break revival

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PORTLAND, Ore. (AP) — The Trail Blazers have enjoyed post-All-Star break revivals the past two seasons.

Those late-season rallies will no doubt be an ongoing theme in the congested Western Conference playoff race once Portland resumes play on Friday in Utah.

“I mean, I think that’s in the back of our minds. We know that we’re usually a better team in the second half of the season,” Portland guard Damian Lillard said. “We can’t just go into it saying, `All right, we’re always good at this part of the season.’ I think mentally we have to understand how close of a race it is and that we’ve got to be sharp all the way through.”

Portland is 32-26 at the break, tied for sixth in the West, which is better off than it was last season at the same point.

But the Blazers are one of five teams in the West with 26 losses. The Warriors and Houston Rockets sit comfortably atop the standings with the next eight teams jostling for position.

The Blazers headed into the All-Star Game with a 123-117 victory over Golden State, snapping a seven-game losing streak to the Warriors. Lillard had 44 points, his third straight game with 39 or more and the best scoring stretch of his career. His 133 points over the last three games is the best such run in franchise history.

Afterward, Lillard sounded like he was taking it upon himself to improve the Blazers’ playoff position.

“Each season, it’s always a few teams that fall by the wayside and we’ve just got to make sure we’re not one of them,” he said. “As a leader, I’ve got to be the guy to lead that charge.”

In 2015-16, Portland was 27-27 at the All-Star break after winning eight of nine games going into it. The Blazers finished the regular season 44-38 and in fifth place in the West. They got past the Clippers in the first round of the playoffs before falling to the Warriors in the conference semifinals.

Last season, Portland lost three straight games to go into the break at 23-33. Shortly thereafter, an overtime loss at Detroit put them 11 games under .500.

But in March, Portland caught fire and went 13-3, best in the NBA. Lillard was named the conference’s Player of the Month, averaging 29.1 points, 4.4 rebounds, 6.0 assists and 1.4 steals in 16 games. Terry Stotts was named Coach of the Month.

Center Jusuf Nurkic, who came to Portland in a trade a handful of days before the All-Star break, went on to average 15.2 points, 10.4 rebounds and 1.9 blocks in 20 games with the Blazers. Portland was 14-5 with the 7-footer in the starting lineup.

Portland made the playoffs for the fourth straight season, but fell in the opening round to the Warriors.

This season, Portland is in the thick of the race. Lillard leads the team with 26.1 points per game, sixth in the league, while also averaging 6.6 assists. Backcourt teammate CJ McCollum is averaging 21.7 points, and Nurkic is at 14.1 points and 8.2 rebounds.

Stotts was asked just before the break whether he was happy with the team’s position.

“We’ve got a lot of work ahead of us. We’ve got a lot of teams out there fighting for playoff spots,” the coach said. “It’s not about where we are. It’s about where we’re headed.”

 

Karl Malone pranks Anthony Davis in new Redbull video

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Karl Malone still has a few moves left.

Not so much on the court, but the Hall of Famer and one of the greatest power forwards ever was disguised as “Sam the Maintenance Man” where he would disrupt a video shoot by New Orleans Pelicans All-Star Anthony Davis (who thought he was making a basketball video for redbull.com). Malone was decked out in a traditional janitor onesie, a wig of dreadlocks, glasses and extra padding around his gut, and he had fun in his role.

At the end of the clip, you see Malone asking the cameras to cut so he could talk shop with AD on the left block, where Malone was near unstoppable. Check it out.

 

Statement defending self by former Mavs employee makes things sound worse

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In the argument that owner Mark Cuban must have known about the “Animal House” style sexual predatory environment on the business side of the Dallas Mavericks, a statement from a former Mavericks’ employee defending himself is now the best evidence. And it’s pretty damning.

One of the people mentioned directly in the bombshell Sports Illustrated story is former Mavs.com writer Earl K. Sneed. He was involved in a domestic dispute where he beat his then-girlfriend his first season with the Mavericks, then a few months later was arrested — at the Mavericks facility — for assault. He pled guilty to that and went through court-mandated anger management classes. He reportedly had another dispute in 2014 hitting a female co-worker which led to more counseling (this ordered by the team), and as a result of the court issues, he legally was not able to follow the team when it went into Canada to play the Raptors.

Sneed issued this statement to the Dallas Morning News defending himself.

“While both instances described in the report are damning and language used is not accurate, the two relationships described in the report are not something I am proud to have been a part of. I underwent much counseling after both situations, under the direction of [Mavs vice president of human resources] Buddy Pittman, and I feel like I grew from that counseling. I also signed a contract stating that I would not have one-on-one contact or fraternize with female employees after the inaccurately described incident with my female co-worker, who was a live-in girlfriend. I abided by the details of that contract for four years, and received counseling during that period to avoid future instances. I thank Buddy Pittman for helping me to grow during that time, and I thank Mark Cuban for his willingness to help facilitate that growth.”

So let me get this right: Sneed was hauled out of the Mavericks facility in handcuffs, then signed a new contract to stay on employed by the team (for four more years) where he could not do his job if the team went to Canada, and could not “have one-on-one contact or fraternize with female employees” — and Cuban didn’t know about any of this? That strains belief. Sneed’s statement sparked outrage on social media, as it should.

That Sneed stayed employed by the team speaks to the issues in the Mavericks human resources department and the team culture. Both Sneed and the head of HR have been fired in the wake of these stories.

The report says there are no incidents with Cuban, nor any members of the Mavericks basketball team, behaving inappropriately toward women.

Dallas and Cuban have hired an independent investigator to look into the claims and the workplace environment with the Mavericks. When that is done, expect NBA Commissioner Adam Silver to come down hard on the franchise, both to send a message to other franchises (there are rumors the Mavs are not the only one facing issues) and because this all is a big blow to the image of a league that paints itself as progressive.