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.

Zion Williamson sitting out Pelicans-Wizards (rest)

Pelicans big Zion Williamson
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The Pelicans have been one of the NBA’s most disappointing teams in the bubble. New Orleans has gone 1-3 at Disney World and fallen to 13th in the Western Conference.

Still (barely) hanging in the race to make the play-in, the Pelicans must face the Wizards without Zion Williamson.

Pelicans:

The Pelicans are treating Williamson carefully – and they should. He’s their 20-year-old franchise player with major health concerns.

But New Orleans still has its highest ceiling now with Williamson on the floor. He’s an offensive force. His interior scoring and gravity create efficient looks for himself and teammates.

Williamson has been woeful defensively, and the Pelicans have bigs – Derrick Favors and Jaxson Hayes – to take Williamson’s minutes. New Orleans can go small, too.

The Pelicans should still beat Washington, even without Williamson. Ideally, this will have Williamson ready for a closing stretch against the Spurs, Kings and Magic without sacrificing today’s game.

Yet, this is really just proof New Orleans isn’t as ready to launch as it appears during Williamson’s most exciting moments. His availability remains murky. His team has run hot and cold. I wouldn’t assume a win over the Wizards – though it’s a game the Pelicans need to preserve their fading playoff hopes.

Rumor: Next NBA season could begin in March

Wizards guard Bradley Beal and 76ers center Joel Embiid
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The NBA could reportedly delay the start of next season – currently planned for Dec. 1 – if fan attendance becomes foreseeable.

How long would the league wait?

Joe Cowley of the Chicago Sun-Times:

one plan includes starting in March if the NBA feels they can get fans in the arena by then, as well as not lose personnel and viewership to the Summer Olympics.

I understand the temptation to delay. The coronavirus pandemic has made it more difficult for NBA teams to turn a profit.

But this plan would invite all sorts of complications:

  • What if there’s no vaccine, cure or comparable solution by March? Then, the league would have wasted months getting practically no revenue – rather than reduced revenue – without reaching a more favorable point. (However, maybe owners could also reduce costs with a lockout.)
  • Starting the season in March would radically alter the NBA’s calendar. Shifting back to an October – or even December – start date would mean even more upheaval, potentially for several years.
  • The Tokyo Olympics are scheduled for July and August 2021. The Olympics have been a powerful tool for the NBA and its players expanding their global reach.

These are unique and trying circumstances. Coronavirus is a massive and confounding variable. Everything should be on the table.

Do I predict next season will begin in March? No. But apparently the possibility is being considered, which is something.

Magic center Mo Bamba had coronavirus

Magic center Mo Bamba
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Mo Bamba has fallen behind Khem Birch as the Magic’s backup center (to Nikola Vucevic). At the NBA’ resumption at Disney World, Bamba has played in only two of Orlando’s four games, receiving just four and six minutes. Magic coach Steve Clifford cited the 22-year-old’s conditioning.

Bamba wants you to know the full story: He had coronavirus.

Josh Robbins of The Athletic:

Bamba received word of his positive test on June 11

The illness temporarily robbed him of his senses of smell and taste, made him unusually fatigued and caused muscle soreness.

“Part of me is reading the temperature of the room and just knowing that there are definitely going to be questions, and sometimes you’ve just got to address them with honesty,” Bamba said. “In this case, I think it’s best for them to have that context and have that understanding of what, exactly, is going on.

“I want people to know that I’m still working as hard as ever, if not even harder, and I’ll get through this.”

Bamba thought he had endured the worst by the time the Magic entered the NBA bubble on July 7. But the false positives required him to have an additional three-day in-room quarantine while his teammates practiced together on July 9, July 10 and July 11.

I appreciate Bamba being so forthcoming. It was easy for people to suspect he didn’t train properly during the hiatus. Though medical privacy should also be valued, transparency often alleviates the worst suspicions.

At least 54 NBA players have tested positive for coronavirus. Does that number already include Bamba? It’s unclear.

After going quiet during most of the shutdown, the league has announced the number of players who’ve tested positive since June 23. Maybe Bamba continued to test positive on June 23 or later. Or perhaps he’s an additional case from the quiet period. There definitely were some cases in that timeframe.

False positives are an issue – an unavoidable one. It’s unfair Bamba was stuck in his hotel room, not training, longer than necessary. But the NBA can’t risk allowing a potentially contagious player into the bubble. Better to err on the side of safety.

The No. 6 pick in the 2018 NBA draft, Bamba improved steadily from an underwhelming rookie season. He still needs more work to become a quality NBA player. This is a setback, and one that makes him unlikely to contribute much the rest of this season. Hopefully, he’ll be able to pick up next season where he left off when this season got suspended.

Three Things to Know: What’s next for 76ers without Ben Simmons?

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Every day in the NBA there is a lot to unpack — especially with games spread out every day in the bubble — so every weekday during the NBA restart we are here to help you break it all down. Here are three things you need to know from yesterday in the NBA.

1) What’s next for 76ers without Ben Simmons?

“This one stings, for sure.”

That was 76ers coach Brett Brown, who has had to deal with a lot of injuries to players during his tenure in Philadelphia. But this one hurts a little more because of the timing. The Sixers will be without Ben Simmons for a while after he suffered a subluxation of the left patella — his kneecap essentially dislocated then popped back into place — against Washington.

The 76ers were adjusting to playing Simmons at power forward during the restart in Orlando. Now there are just questions.

How long will Simmons be out? That’s the big one and the answer is nobody knows for sure. The Sixers are evaluating treatment options. As Jeff Stotts of In Street Clothes notes, Allen Crabbe had the same injury earlier this year and missed 11 days (three games), but he had no damage to the ligaments or rest of the knee. That’s the most common outcome for this injury and it would have Simmons back around the start of the playoffs. However, if there is any ligament damage, Simmons could be out much longer. (The early reports were the MRI came back clean, but that doesn’t tell us much about the real level of damage other than it wasn’t severe.) Philadelphia has always been cautious when it comes to bringing its stars back from injury.

Who starts for Philadelphia while Simmons is out? That’s one Brown has to decide by today (Friday) and the game against Orlando. He could plug Al Horford back into the starting lineup — the Sixers were +1.4 points per 100 possessions this season with Embiid and Horford on the court together without Simmons (it was -0.7 with all three and the floor spacing was a mess). Or, Brown could keep Horford on the bench and go with another wing such as Matisse Thybulle or Furkan Korkmaz.

Philadelphia seems locked into the six seed in the East (they are one game back of five seed Indiana with four to play, but the Pacers beat the Sixers last Friday and have the tiebreaker, so it is in practice a two-game lead).

Philadelphia is 6-5 this season without Simmons, and while they can plug other players into the four they will not have Simmons’ elite defense, nor his passing skills, and the new player will not be the same threat in transition. Philadelphia is just not the same threat in the East without Simmons.

2) Portland is in control of ninth seed in West after win, New Orleans loss

There is going to be a play-in series in the West — and Portland is going to be in it.

That much seems obvious after Thursday’s action, where Jusuf Nurkic was dunking on Bol Bol and Portland was picking up a 125-115 win over Denver.

That win has Portland half a game back of  Memphis for the eighth seed in the West — and the 0-4 Grizzlies face a tough game against the Thunder Friday. The West could be tied by Saturday morning.

Portland looks to be a lock for the play-in.

Can anyone else crash that party? Sacramento earned it’s first win in the bubble on Thursday, knocking off Zion Williamson and New Orleans, meaning now both the Kings and Pelicans sit 2.5 games back of the Grizzlies with four to play. Both need to win out and hope Memphis continues losing to have a chance to get into a play-in with Portland.

The undefeated-in-the-bubble Suns and the Spurs both sit two games back of the Grizzlies and with a chance to make a play-in. Just as with the Kings/Pels, the Suns and Spurs essentially need to win out and count on the Grizzlies continued stumbles to have a chance.

Memphis controls its own destiny. But without Jaren Jackson Jr., and with Ja Morant struggling from three, a sharp turnaround is needed.

3) Milwaukee wraps up No. 1 seed in East

This was expected, but the Bucks made it dramatic. Miami led this game by 23 points in the first half, but both Giannis Antetokounmpo and Khris Middleton turned it on — both finished with 33 points each — and Milwaukee came back to get 130-116 win. With that, the Bucks officially wrapped up the No. 1 seed in the East.

While this is good for the Bucks — who now get an easy first-round playoff matchup against Brooklyn or Orlando — they know they will be judged on the playoffs. This is a Finals-or-bust team. And Milwaukee fans don’t want to think about the options for bust.

Milwaukee has eased into games in the NBA restart, not worrying about wins now and rather being healthy and firing on all cylinders when the games matter. They have that luxury with the lead they built up in the East, but they need to flip the switch eventually. As they did coming back on the Heat.