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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.

GM David Griffin: Cavaliers have made J.R. Smith ‘incredibly competitive and aggressive offer’

CLEVELAND, OH - JUNE 22:  J.R. Smith #5 of the Cleveland Cavaliers acknowledges the crowd during the Cleveland Cavaliers 2016 NBA Championship victory parade and rally on June 22, 2016 in Cleveland, Ohio.  (Photo by Mike Lawrie/Getty Images)
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We’ve now reached the “negotiate through the media” stage of J.R. Smith‘s free agency.

Everyone expects Smith to re-sign with the Cavaliers, but training camp opened without a deal. Reportedly, discussions are somewhere between $10 million and $15 million annually with contract length a roadblock.

Cavs general manager David Griffin, via Chris Fedor of Cleveland.com:

“As we have stated and coach has previously stated, we think very highly of J.R. and we love him as a member of our team, as a member of our locker room,” General Manager David Griffin said. “He was essential to our success and for that reason we have made an incredibly competitive and aggressive offer in re-signing him.”

I bet Smith’s agent, Rich Paul, would say his contract demands are perfectly reasonable, too.

The Cavaliers want to maximize chemistry as the they defend their title, and that means getting Smith signed as quickly as possible. But they also want to avoid paying Smith a large salary – and taking a big luxury-tax hit – as he declines into his 30s.

Something will eventually give, but first, Griffin is telling the world ending the stalemate is in Smith’s court – though not revealing the exact offer(s) to be judged publicly. We’ll see how Smith and Paul respond.

Report: Derrick Rose more concerned about rape allegation than he’s publicly revealing

FILE - In this June 24, 2016, file photo, New York Knicks' Derrick Rose speaks during a news conference at Madison Square Garden in New York. Phil Jackson made a risky move when he traded for the injury-prone Rose in June, and now the Knicks face the possibility of their point guard's involvement in a rape trial in California during his first preseason with the team.  (AP Photo/Mary Altaffer, File)
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Phil Jackson said the Knicks aren’t concerned about the civil and potentially criminal rape allegations Derrick Rose is facing. Rose doesn’t sound concerned, either.

But is Rose just putting on a front?

Chris Mannix of Yahoo Sports:

For now, the Knicks wait – and hope. Hope that the civil suit is resolved quickly. Hope that Rose – who has been troubled by the uncertainty of his legal entanglements more than he is letting on, sources familiar with Rose told The Vertical – is able to block out the distractions and build on the progress he made last season.

Rose should be concerned. Whatever happened that night, the specter of criminal prosecution and/or civil judgment against him are daunting outcomes. He can try to put that aside and focus on basketball, but this is a major event in his life.

Jimmy Butler still begging Fred Hoiberg to coach him harder

CHICAGO, IL - JANUARY 20: Head coach Fred Hoiberg of the Chicago Bulls talks with Jimmy Butler during a game against the Golden State Warriors
at the United Center on January 20, 2016 in Chicago, Illinois. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and or using the photograph, User is consenting to the terms and conditions of the Getty Images License Agreement. (Photo by Jonathan Daniel/Getty Images)
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The Bulls reportedly has chemistry issues last season stemming from the Jimmy Butler-Fred Hoiberg relationship. Butler’s most public critique of Hoiberg came in December, when the wing said, “We probably have to be coached a lot harder at times.”

A reasonable criticism for the mild-mannered Hoiberg? Perhaps, especially for a team that responded so well to the hard-driving Tom Thibodeau for the better part of five years.

The best delivery? Probably not, considering Hoiberg was still trying to find his way in his first NBA season.

But Butler hasn’t changed his message.

Butler, via CSN Chicago:

“I told Fred, ‘As much as you can, use me as an example. I want you to really get on my tail about every little thing.’,” Butler said. “Because if Doug or Tony or whoever it may be is watching coach talk to me like that, it’s going to be like, ‘If he can talk to Jimmy like that, I know he’s going to come at me a certain way.’ That’s what I try to remind him every day. I think he’s ready for that. I’m a player. I’m coachable like everybody else. I want that. I need that.”

Tim Duncan was celebrated for years for taking the brunt of Gregg Popovich’s criticism in San Antonio, setting an example for younger Spurs. So much of what Butler has done lately has been spun into a negative, but it seems he’s really trying to sacrifice his pride to help teammates like Doug McDermott and Tony Snell.

If Hoiberg goes along, this could quiet complaints about Butler’s leadership and preferential treatment.

With Derrick Rose and Joakim Noah in New York, the Bulls are Butler’s team now. Dwyane Wade and Rajon Rondo have said as much.

It seems Butler is doing what he can to lead the Bulls – his way. The question: Does Hoiberg also think that’s the best way?

Jeremy Lin: My race made Linsanity bigger

Dallas Mavericks v New York Knicks
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Jeremy Lin might want to move past Linsanity, but  he’ll always be linked to that period in 2012. It was so enthralling for numerous reasons, including:

  • Lin played unsustainably great basketball, leading the Knicks to a 7-1 record while starting with Carmelo Anthony injured and averaging 25.0 points and 9.5 assists per game in that span.
  • Lin was excelling in New York, America’s biggest media market.
  • The Knicks were desperate for success, having not won a single playoff game in the last decade.
  • Lin was undrafted and relatively unknown before breaking out.
  • Lin played at Harvard, which is universally known for academics and barely known for basketball.
  • Lin is Asian-American, a rarity in high-level basketball.

Yes, that last factor mattered.

Lin, via Peter Botte of the New York Daily News:

“In some ways, Linsanity wouldn’t have been Linsanity if I was a different skin color, most likely, it wouldn’t have been as big of a deal, and that went to my advantage, too, but if you look prior to that, a lot of the obstacles to even get to that point where I could get to a position of getting on the floor, those were definitely obstacles that were very much stereotypes that I had to fight along the way. So I’ve always understood that there’s good and there’s bad and you have to take them together and just be thankful for it all.”

Linsanity was a culmination of all the elements listed above. Maybe it would’ve happened without one or two, but THE essential factor was Lin’s on-court production. Without that, he never would’ve become a national phenomenon.

Lin’s heritage – he was born in California to Taiwanese-born parents – accentuated his basketball skills, but the basketball skills were the base for his popularity.

And as Lin said, his race was a double-edged sword. It made him less likely to get the benefit of the doubt when rising through the basketball ranks. I believe that coaches, scouts and other players were less inclined to believe in his basketball ability because of his race.

But Lin overcame that and eventually reaped the awards of being an outlier.

Lin has long seemed to possess a keen understanding of himself and a willingness to discuss it. I think he’s spot-on here, and it leads to a better understanding of one of the biggest NBA stories in recent years.