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.

Karl-Anthony Towns helped off court after non-contact calf injury

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Hopefully this is not as bad as it looks.

Timberwolves big man Karl-Anthony was trying to run back upcourt and went to the ground — without contact — grabbing his knee and calf. He had to be helped off the court.

The Timberwolves officially ruled Towns out for the rest of the night with a calf strain.

A right calf strain would be the best possible outcome, but an MRI will provide more details in the next 24 hours. This had the markings of something much worse, but ESPN’s Adrian Wojnarowski reports optimism that Towns avoided something serious.

Towns is averaging 214 points and 8.5 rebounds a game, and while his numbers are off this season — just 32.8% on 3-pointers, down from 39.3% for his career — as he tries to adjust to playing next to Rudy Gobert, he’s still one of the game’s elite big men.

The Wizards went on to beat the Timberwolves 142-127 behind 41 from Kristaps Porzingis.

Suns promote GM James Jones to to President of Basketball Operations

Phoenix Suns Open Practice
Barry Gossage / NBAE via Getty Images
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James Jones put together the roster that took the Suns to the Finals two seasons ago and had the best record in the NBA last season (64 wins). At 13-6, the Suns sit atop the Western Conference this season.

The Suns have rewarded Jones, giving him the title of President of Basketball Operations on top of GM.

“In the nearly 15 years I have known James, he has excelled in every role he performed, from player to NBPA Treasurer to his roles in our front office, most recently as general manager,” Suns interim Governor Sam Garvin said. “James has the unique ability to create and lead high-performing teams in basketball operations and his commitment to collaborating with our business side, including at the C-level with partners like PayPal and Verizon, is second to none. We are fortunate for his contributions across the organization and this promotion recognizes his commitment to excellence.”

Jones moved into the Suns’ front office in 2017 at the end of a 14-year playing career, then became GM in 2019. The move gives Jones a little more stability during the sale of the franchise. Not that the new owner would come in and fire a successful GM.

“I am grateful for the privilege to work with and support the players, staff and employees of the Phoenix Suns and Phoenix Mercury,” Jones said in a statement. “The collective efforts of our business and basketball operations have allowed us to provide an amazing atmosphere and best-in-class experience for our fans and community. I remain excited about and dedicated to driving success for our Teams on and off the court.”

Jones has made several moves that set the culture in Phoenix, including hiring Monty Williams as coach then, after an undefeated run in the bubble (that left Phoenix just out of the playoffs), he brought in Chris Paul to take charge at the point.

Report: Leaders in Lakers’ locker room think team ‘only a couple of players away’ from contending

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There’s a sense of optimism around the Lakers: They have won 5-of-6 and are expected to have both Anthony Davis and LeBron James healthy Monday night, plus Russell Westbrook has found a role and comfort level off the bench and other players are settling into roles. They may be 7-11, but it’s early enough there is a sense this could be turned around.

That is echoed by “locker room leaders” who think the team is just a couple of players away from being a contender in the West (where no team has pulled away), reports Dave McMenamin at ESPN.

There is belief shared by leaders in the Lakers’ locker room, sources said, that the team is only a couple of players away from turning this group into a legitimate contender. But acquiring the right players could take multiple trades.

Let’s unpack all of this.

• “Leaders in the Lakers’ locker room” means LeBron and Davis (both repped by Rich Paul). Let’s not pretend it’s anything else.

• If the Lakers don’t make a move to significantly upgrade the roster, how unhappy will those leaders become? How disruptive would that be?

• It is no coincidence that McMenamin’s report comes the day the Lakers face the Pacers, a team they went deep into conversations with this summer on a Myles Turner/Buddy Hield trade, but Los Angeles GM Rob Pelinka ultimately would not put both available Lakers’ first-round picks (2027 and 2029) in the deal and it fell apart. Turner said the Lakers should “take a hard look” at trading for him. The thing is, the Pacers are now 11-8, not tanking for Victor Wembanyama but instead thinking playoffs, so are they going to trade their elite rim protector and sharpshooter away? Not likely. At least not without an overwhelming offer, and the Lakers’ two picks may not get there anymore.

• While Westbrook has found a comfort level coming off the bench (and not sharing the court as much with LeBron), he is still a $47.1 million contract that no team is trading for without sweeteners. To use NBA parlance, he is still a negative value contract, even if it feels less negative than a month ago.

• Are the Lakers really a couple of players away from contending? While they have won 5-of-6, three of those five wins came against the tanking Spurs, the others were against the so-injured-they-might-as-well-be-tanking Pistons, and the Nets before Kyrie Irving returned. The Lakers did what they needed to do and thrived in a soft part of the schedule, but that schedule is about to turn and give the Lakers a reality check on where they really stand. After the Pacers, it’s the Trail Blazers (likely still without Damian Lillard), then an East Coast road trip that includes the Bucks, Cavaliers, Raptors and 76ers. The next couple of weeks will be a better marker for where the Lakers stand, and if they can build off of the past couple of weeks.

Dallas Mavericks near agreement to sign Kemba Walker

Oklahoma City Thunder v New York Knicks
Brian Babineau/NBAE via Getty Images
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Looking for help spacing the floor and with secondary shot creation behind Luka Doncic, the Dallas Mavericks are turning to Kemba Walker.

Marc Stein was first with the news the sides were close to a deal, but since then multiple reports — plus comments from team owner Mark Cuban — confirmed it is happening.

This will be a veteran minimum contract (all the over-the-cap Mavericks can offer). To create the roster spot, the Mavericks will waive Facundo Campazzo, who was signed a few weeks ago and has barely touched the court for the team.

Walker averaged 11.6 points and 3.5 assists a game playing solidly in stretches for the Knicks last season, but the concern was his staying on the court — he appeared in just 37 games due to ongoing knee problems. Walker spent the offseason working on getting past those, but the Knicks traded him to Detroit for picks, but the Pistons were stacked at the point guard spot (at least before the season and injuries hit Cade Cunningham), so they bought out his $9.2 million for this season.

Walker worked to convince teams he still had plenty in the tank, but it was always going to take a situation where a team reached a certain level of desperation. Enter the Mavericks.