Tag: Sacramento


Future of NBA arena subsidies, market comparisons to decide Kings’ fate


As Sacramento Mayor Kevin Johnson has been advertising for the past month, we did indeed get confirmation of the identity of his ‘whales’ at his State of the City address on Thursday.

Reiterating parts of his four-part plan that included bringing together a local ownership group, finding big equity investors (whales), putting together a downtown arena deal, and demonstrating the value of the Sacramento marketplace – Johnson would announce that 24 Hour Fitness founder Mark Mastrov and billionaire Ron Burkle would put in a bid to keep the Kings in Sacramento.

“With all due respect to Seattle, I do hope they get a team someday, but let me be perfectly crystal clear, it is not going to be this team,” said Johnson.

Johnson also announced that former Kings great Mitch Richmond would join the local ownership group and that the city’s proposal would include an option to return WNBA basketball to Sacramento.

Sources close to the situation told PBT that the framework of the offer delivered to the NBA on Friday was very close to Seattle’s $341 million offer for a controlling 65 percent interest in the club. NBA spokesman Tim Frank confirmed delivery of the offer on Friday, the day of the deadline.

Over the next month Sacramento will continue to iron out the details on a public subsidy and arena deal locally with the Sacramento City Council, which will ultimately vote on a term sheet to be delivered to the Board of Governors in time for their April 18-19 meeting.

Sources tell PBT that the Sacramento offer will be conveyed by the group to the NBA’s joint committees in charge of reviewing the situation on or around April 1. It is expected that Seattle’s group will also meet with that committee around that time, though no meeting has been publicly acknowledged.

According to sources, the two issues that will drive the conversation is the league’s strategy for securing arena subsidies in the future, and the impact each market will have on team revenues and the league’s financial model as a whole. Also under consideration are timelines to deliver an arena, ownership groups, and the precedent the league could set by blocking an owner from selling to a group of their choosing.

The league blocked a sale of the Minnesota Timberwolves to a group headed by boxing promoter Bob Arum in 1994, but a well-placed source told PBT that the league views this transaction as “unprecedented,” citing that never before has the league relocated from a city that has supported its team both at the gate and with public subsidy dollars.

The Maloof ownership group reportedly has “little to no leverage” in NBA’s decision-making process. They also reportedly owe the NBA in excess of $100 million on a line of credit they’ve used throughout their ownership. If called in, the family’s financial woes could give the league an opening to use the ‘Best Interests of the League’ clause, similar to the way Major League Baseball removed Dodgers owner Frank McCourt.

Sources do not expect the Maloof family to push back on the league’s decision to back either Sacramento or Seattle, citing the prohibitive costs of an antitrust lawsuit, and the potential for the family to lose a chance to cash out in Sacramento or Seattle.

The issue of market comparisons between Sacramento and Seattle is cloudy, but sources expect Sacramento to be competitive in that area because it has one major sports team in their No. 20 TV market, while Seattle could have six major sports teams in its No. 12 TV market. We will cover this in a bit more detail later in the next few weeks.

While details about Sacramento’s ownership group are a bit hazy at this time, it has been expected that Mastrov would be the front man. The more private Burkle reportedly would focus on the development of the Downtown Plaza location. Sources indicate the duo will share in the ownership of a potential deal, though it’s unclear what those percentages will be. Both owners have been vetted by the NBA, and Mastrov finished second in the Golden State Warriors bid that recently went to the Joe Lacob group.

While Seattle’s Chris Hansen-Steve Ballmer group has enormous wealth, another well-placed source speaking to PBT under condition of anonymity said the league is happy with both ownership groups and not to expect a deal to hinge on any comparison between them.

If a showdown comes to the owners’ deciding vote, some sources hinted at a scenario in which the league tells the Hansen group that they’re going to choose Sacramento – allowing the Hansen group to bow out gracefully and avoid a divisive ownership vote.

Should the league favor Sacramento, sources say the work the city has done to fight for its team and the narrative it will give the league to sell to future cities in arena negotiations will have played a critical role in the NBA’s decision-making process.

Seattle’s deal contains a greater percentage of private funds due to local initiative-91 requiring public funds to return a guaranteed profit, which is a trend the league wants to avoid.  On the other hand, Sacramento’s deal fits the public-private model the league is selling to cities, with a larger public subsidy going toward a new state-of-the-art building in a downtown revitalization effort.

We will cover that issue in greater detail in the coming weeks.

In order to keep their team, Sacramento will need eight votes out of 29 other owners to block the transfer of ownership to Seattle’s Hansen/Ballmer group.

Lawsuits in Seattle give Sacramento head start in race to approve an arena

seattle arenas

The question of which city, Sacramento or Seattle, is ahead in the race to bring the NBA a brand new arena attached to a shiny new public subsidy is unclear at this time, but sources with intimate knowledge of the situation tell PBT that so long as Sacramento Mayor Kevin Johnson delivers on his promises that Sacramento will be ahead in that process.

A lot of that comes down where each city is legally within that process, and how that process is conducted in both Washington and California.

While some early media reports might have led folks to believe that Chris Hansen’s arena deal (and offer to buy the team) were a slam dunk, the documents laying out the framework of his arena proposal are under siege.

Specifically, the Memorandum of Understanding (MOU) and Interlocal Agreement (IA) he entered into with the city of Seattle and King County have been under intense scrutiny locally, as they are currently the target of two lawsuits.  The first of those lawsuits is potentially being decided today at 1:30 PT.

The first suit brought by the International Longshoreman’s Workers Union challenges the site selection process within Washington’s Environment Impact Review (EIR) process, saying that Hansen and the local government conducted a “sham” site review process that did not provide reasonable, actionable alternatives other than Hansen’s hand-picked site.

That site, located in Seattle’s SODO district, has been the battleground of competing arguments regarding traffic and how it might impact Port of Seattle’s operations, and otherwise cause gentrification, loss of business in the area, and impact a large number of family-wage jobs in exchange for temporary construction jobs and a smaller number of low-paying arena jobs.

Arena proponents point out that most of the events at the proposed SODO site would occur after the Port’s business hours. Arena opponents say that the cumulative impact of creating a third large-scale sports and entertainment facility within their maritime industrial area, with an L.A. Live-like experience of retail outlets and restaurants, will necessarily bring more traffic to the region regardless of hour and disrupt Port operations.

These kinds of lawsuits are standard fare in any large-scale development project nationally right now, but they can have impacts on developments. In this case, opponents of the current MOU and EIR process point out that it could take “hundreds of millions of dollars” to mitigate the traffic issues a new arena would face, according to head lawyer for the ILWU suit Peter Goldman.

Hansen has offered $40 million to address traffic mitigation concerns, but in reality the question of who pays what for additional mitigation has yet to be solved because the EIR has yet to address the issue. Should Hansen have to pay for additional mitigation, it could further strap him and his group as it relates to their overall offer for the Kings, but the fear for locals is that the money would have to come from the public coffers.

The ILWU’s suit alleges a number of concerns relating to the site selection process, and asks the court to force Hansen and the local government to declare the MOU and IA “null and void” because they are in violation of the State Environmental Policy Act (SEPA).

It is unclear whether or not this would impact Hansen and the local government’s warranties to the NBA about its current arena situation.

(UPDATE: The judge ruled in favor of Hansen, Seattle, and King county and dismissed the lawsuit.  Hansen and governmental officials argued they did not have an arena agreement in place and that they would look at other locations.)

Goldman said that this suit was “preliminary,” and cited the broad swath of industry that is opposing the arena proposal in its current form. He pointed out that there will be more times for lawsuits to be filed down the road, but that he and his client were concerned that the site selection process wasn’t being conducted according to current state laws.

The second lawsuit relates to Seattle’s in-force Initiative 91 and the contention by its co-author Mark Baerwaldt that the current MOU does not meet the law’s criteria.

Baerwaldt is careful to point out that the courts would decide the matter. His complaints focus on the financing mechanisms that Hansen and the local government are using to meet the statute’s definition of turning a profit on public subsidies for sports arenas. This lawsuit is awaiting response from Hansen, Seattle, and King County.

I-91’s other co-author, Chris Van Dyk, has also been at the center of this discussion, being cited by many Seattle media outlets as being supportive of Hansen and Seattle’s MOU. He addressed those reports exclusively with PBT, saying he “never said it was compliant” and that “if he’s the best cheerleader (Hansen and Seattle) can come up with then they’re in trouble.”

Van Dyk also offered that “he’s looking forward to hearing the expert testimony,” because he didn’t think “I-91 anticipated meeting the type of funding mechanism that Hansen has presented.”

Whether or not the Longshoreman’s suit goes in favor of the plaintiff or Hansen and Seattle, Goldman says to expect more legal resistance down the road.  If they win, Hansen and Seattle has to start over with their MOU and come to the table with alternative sites that they may not like.  Then the city would have to choose between the site that Hansen wants, and a potential site that presents better alternatives in terms of environmental concerns and traffic.

If they lose today, he says that there is a “significant appetite” not just by his clients but a broad swath of industry including the Port of Seattle to appeal the decision and fight the EIR process at every stage. All of the potential delays and injunctions were reflected when David Stern told Jonathan Feigen of the Houston Chronicle that the NBA had “no approved plan for an arena in Seattle.”

Therein lies the rub for the Seattle group. While they seek to convince the BOG that they have an actionable arena plan, they are arguing in court that their MOU and IA just lay out a process for reviewing and financing an arena proposal and do not constitute an ‘action’ under state EIR laws. Therefore, they contend that the Longshoreman’s suit is not “ripe” and are asking for it to be thrown out.

Sources with intimate knowledge of the situation tell PBT that this is a tightrope that the Seattle group can walk, and Scott Howard Cooper of NBA.com illustrated that point by saying the league isn’t overly concerned with legal issues in either Seattle or Sacramento, but the question goes back to points made by TNT’s David Aldridge about which city can get an arena deal done first.

Aldridge, who had previously reported Seattle had a “clear path” to obtaining the Kings, said on Saturday “there are questions about whether or not the Seattle deal is as airtight as they say it is.”

After Stern’s press conference on Saturday Aldridge elaborated, “We have very equal bids here. What it comes down to is the feel the owners have on ownership groups, and which arena can be built the fastest.”

The EIR process in Seattle is underway, but with two lawsuits pending and only the judges in both suits being capable of delivering an up-or-down answer to the litany of issues presented, the uncertainty over what type of delays Seattle could face and what type of mitigation will be needed to preserve other parties’ rights are huge question marks.

On the other side, it’s Johnson’s track record of delivering on promises to the NBA that has insiders optimistic about Sacramento’s chances of delivering that ‘fair and competitive’ offer that will include a significant public subsidy and downtown arena.

That effort has been underway for a while now, as the NBA negotiated the current arena deal that the Maloofs backed out of, a deal that Johnson and Sacramento have maintained is still on the table.

Additionally, proposed arena locations in Sacramento aren’t likely to have the same types of blowback being faced in Seattle, where their sizable maritime industrial economy feels threatened by Hansen’s proposal.

One source with intimate knowledge of the situation speaking to PBT under conditions of anonymity spoke about Sacramento’s pair of proposed locations:

“Both potential Sacramento sites are complimentary to the existing downtown commercial uses, and unlike the fight in Seattle the downtown proposals are being welcomed as a revitalization project. Both are efficient reuses of developed property, and both sites qualify under the expedited state AB 900 CEQA process, which limits the delay from any potential lawsuits. Having already approved a deal structure a year ago with no lawsuits filed, Sacramento has a big advantage to deliver a timely arena facility.”

That AB 900 CEQA process is an interesting wrinkle to Sacramento’s effort to keep their team, as the bill creating that process was recently signed into law and co-authored by Think Big Sacramento supporter and California Senate President pro Tem Dan Steinberg. According to law firm Stoel and Rives:

“The (bill provides) an incentive for applicants to move forward with their projects because any challenge to a leadership project Environmental Impact Report (“EIR”) under the California Environmental Quality Act (“CEQA”) will be venued immediately in the Court of Appeal. The court will then have a maximum of 175 days to issue its decision on the challenged EIR”

Incidentally, the bill was passed in part to help facilitate the potential Farmer’s Field deal to bring NFL football back to L.A. The company driving that proposal is AEG, who is supporting Sacramento’s bid and being pursued for purchase by Ron Burkle, who is one of the ‘whales’ that reportedly stands behind Sacramento’s offer.

“It’s time for big thinking and big projects that put Californians back to work,” said California Governor Brown. “Projects like Farmers Field can create thousands of jobs during a tough economic time, so it is imperative for the state to cut the red tape that could delay projects like this for years. These bills strike the right balance between protecting our environment and kick-starting jobs and investment in California.”

Sources say NBA owners will be weighing the totality of the arena timelines for both sides, and in Seattle’s case how many years a potential Sonics team will have to play at Key Arena, a facility deemed by the NBA to not meet its standards when the Sonics left for Oklahoma City in 2008.

Hansen’s current plan calls for a potential Sonics team to play in Key Arena (with modest improvements) for as little as two years, while arena opponents believe that timeframe could be extended to as many as four years if lawsuits hold up the process. While Sacramento could face similar lawsuits, they didn’t face any during the 2011 arena deal, and the expedited review process and potential for less environmental concerns at the city’s proposed sites have sources pointing at the issue as a point in favor of Kevin Johnson’s expected proposal.

While Seattle’s lawsuits aren’t likely to be the defining factor in this saga – Sacramento’s production of an actionable offer will be that factor –the fact that the Emerald City can’t say with certainly how long they’ll be locked up at Key Arena could be the starting point for their bid to take the Kings to unravel.

History of public subsidy support could be key issue in Sacramento Kings’ future

kj stern hugging

It’s no secret that public funds for arenas make the NBA world go round.

Seattle lost their Sonics because politicians did not want to play ball, right or wrong, and to top matters off they openly admonished David Stern and the NBA during the critical days and months that determined the Sonics’ fate.

The past behavior of Seattle politicians is not expected to be a defining factor in the league’s assessment of the two cities’ competing proposals.  However, an exchange between Stern and a Seattle reporter didn’t do much to quell any doubts.

When asked about whether or not he regretted the way the NBA left five years ago and if it would impact the league’s decision-making, Stern interrupted the reporter with visible irritation:

“Actually, no, it does not impact anything. This is being done by the book. I seem to remember, and correct me if I’m wrong, but there was $300 million-plus subsidy for the Mariners and $300 million-plus subsidy for the Seahawks. But there was legislation that precluded that for the Sonics. Speaker (of the House of Representatives Frank) Chopp said we should take the money from our players. Is there anything that I’m missing there? History is being rewritten in a way that your question gives me an opportunity to set the record straight.”

This strikes a stark contrast with the way Sacramento has worked with the NBA to secure public funds for an arena.  There is no doubt about the effort they made to get an arena deal done in 2011, working side by side with Stern and relocation committee head Clay Bennett to bring together $255 million in public funds for what league sources called a “model offer.”

When asked about Sacramento’s ability to extend their current offer of public funds from the last deal negotiated by the NBA, sources say Kevin Johnson’s strong support in the Sacramento city council last year is likely to continue this year.  The Sacramento City Council passed a 7-2 vote in favor of a symbolic resolution supporting the NBA on Tuesday.

Seattle and King County have also offered up to $120-145 million toward the creation of an NBA-only facility.

Stern has been careful to applaud Sacramento’s efforts in the public numerous times, most recently reminding reporters in Minnesota, “The mayor of Sacramento has advised that he will be back to us soon with a proposal from a group to buy the team in Sacramento and build a building in Sacramento with a substantial subsidy from the city of Sacramento.”

The league and its players have enjoyed over $3 billion in public funds for new arenas since 1990 and sources tell PBT on the condition of anonymity that the league is sensitive to what a move out of Sacramento could do to future subsidy collection efforts by the NBA.

Any additional ammunition given to public subsidy opponents could impact the league’s bottom line much more than what owners would proportionately receive in a relocation fee, which some have guessed to be in the $30-45 million dollar range.  The fee can be anything the league wants, and can be as high as the most recent franchise fee or franchise sale amount according to legal scholars at Loyola Marymount.

Sources tell PBT that a prohibitive relocation fee would only be sought by the league if it wanted to exert financial pressure against the Seattle deal, and that there has been zero talk of doing that at this time.

Should Sacramento produce the ‘fair and competitive offer’ sources expect before March 1, the league will be facing an unprecedented decision.  Never before has an NBA city shown strong support for a team, provided a “model offer” of public funds for a new arena and then lost their team.

With opposition of public subsidies for sports facilities growing every day, sources say the league wants to avoid a situation in which Sacramento provides a “model offer” only to have their team taken away.  This would send a message to future cities that their long-term investments in the NBA are not safe, even if the city does everything reasonably expected of them.

So even though the league probably won’t hold Seattle’s history against them, the fact that Sacramento has done everything that could ever be expected of them will be a point in their favor.

David Stern sets the stage for final leg of the Sacramento Kings saga

NBA Commissioner David Stern listens at a news conference before the All Star slam dunk competition during the NBA basketball All-Star weekend in Houston

There is a lot to understand when it comes to the potential sale of Sacramento Kings.  As NBA commissioner David Stern laid out Saturday, the 29 owners deciding the Kings’ future home face a complex story involving a great ownership group in Seattle and a compelling story out of Sacramento.

Seattle’s ownership group already has executed a contract to buy the Kings from the Maloof family. If Sacramento mayor Kevin Johnson produces a “fair and competitive” offer – including a significant public subsidy for a new arena – it would potentially give the owners two viable options.

A sale agreement would need to be approved by a three-quarters vote of NBA owners. A relocation approval must pass with a majority vote. Both issues are intertwined, as Stern has combined both relocation and finance committees to review the matter with a vote likely occurring at the Board of Governors meeting in mid-April.

The Maloofs have already filed for relocation to Seattle, and despite reports out of Seattle that the deal has already been vetted Stern said on Saturday that the committees are still reviewing the sale and relocation bid.

Early reports mirrored the efforts of the Seattle group to portray an NBA decision to allow the Kings to move to Seattle as a done deal.  Sources have told PBT that Sacramento would be given a real chance to produce a ‘fair and competitive’ offer to keep the team in California’s capitol.

Stern’s comments have echoed that sentiment leading up to this week, and on Saturday he said it was “plausible” that the Kings remain in Sacramento, and that a decision would be made on a number of criteria but that “economics” would not be the lone factor. Stern’s comments are rooted in the multitude of issues that will play a role in the BOG’s decision-making that aren’t tied to franchise price, but overlook the “economics” factor.

“I don’t think it’s a bidding war….” Stern said last week. “There’s a series of issues that are defined by our constitution that have to be considered. One of the things that our board is mandated to consider is the support for the team in the prior city. So there are real issues for the board to consider, about the buildings, about the likelihood they will be built, about the support from the cities.”

Stern also addressed the idea of expansion on Saturday, an idea that would give the league a potential out to keep both cities and potential ownership groups happy.

“I don’t see any scenario where both cities are happy….” Stern said. “There’s a large group of owners who believe that expansion as an economic matter; is a neutral thing. At least the way we’ve done it to date, you get a lot of money in and in return for that you cut the new team in for a large and growing source of revenue from national TV, national licensing, and all things international and digital. And then it doesn’t really seem to make that much additional sense as the increased revenue that demands to the gross (basketball-related income) and increased each player costs and the like.

“So it has to be parsed and analyzed but right now given that we’ve just come through an intriguing collective bargaining negotiation and coupled it with specific revenue sharing, over $200 million, I think the sentiment is to let it all settle and assess how we are doing and what the projections are for how we’ll do.”

Multiple sources told PBT that even if expansion were a possibility that it would be extremely unlikely for the league to express support for it.

This will continue as a two-city race for one team to be decided by the Board of Governors in the coming months.

Kings ownership documents reveal major potential stumbling blocks for Seattle


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.