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.

Alex Abrines says Russell Westbrook stood by him through mental health issues

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Alex Abrines is a big fan of Russell Westbrook the person.

Westbrook takes some hits as a selfish teammate from some quarters of NBA fandom, but Abrines had to leave the Thunder due to personal, mental health issues and said Westbrook stood by him. This is from an interview with Basket en Movistar+, via Eurohoops.

“He’s a very nice guy. He helped me a lot especially in the first year. In most of our trips we did something together, watch a movie, have dinner. When I went through all this and did not travel with the team, he kept in touch. He asked me to meet him for dinner. He cared for the person beyond the player. He calmly told me what I should do noting that he would support me if I decided to leave.”

“Athletes are normal people, but are pressured above average. Medication helps, but at the end of the day you must seek professional aid, discuss with friends and family, move forward with their support” adds Abrines on his illness, “It is a different kind of pain. Physical pain is something you can see and feel. Mental pain can not be observed and can not be treated like an injured knee for example. If you don’t go through something similar, you can’t realize it. In the end of the day, money is not above everything. Until it happens, you don’t realize that you don’t give a shit about money.”

Abrines signed with FC Barcelona, but could not travel with the team to all its games last season. He’s still on his path to wellness, and hopefully he gets there.

We tend to think of professional athletes in two dimensions, focusing on how they entertain us or help our fantasy teams. However, as Abrines notes, they are ordinary people with families and challenges, including mental health issues. More and more players are willing to speak out about that, but having friends — not just teammates, but real supporters like Westbrook was here — is also a big help.

Andre Drummond focused on conditioning heading into contract season

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Andre Drummond can be a free agent next summer. That would mean walking away from a $28.8 million player option for that season, so he’s not going to do it unless he thinks he can land an even bigger payday (a max contract) or he decides he wants some security long term. Drummond has said he’s excited to be a free agent (then quickly tried to walk that back).

How Drummond plays this coming season will play a big role in what kind of offers he will get. What is Drummond doing to prepare for this contract year? Improving his conditioning, reports coach Dwane Casey to Pistons.com.

“One, his overall conditioning. He’s in the best shape since I’ve been around him, the year and a half that I’ve seen. His body is slim and trim, his body fat is down, he’s been in Vegas working with Coach Gerg (Tim Grgurich) and Sean Sweeney all summer religiously, two and three times a day. That in itself is going to pay great dividends. Watching him in pickup games, he’s running like a deer. His decision making, I think the 3-point shooting experiment, we kind of put that on hold in the second part of the year last year but still, catching the ball on pick and roll, making decisions, he’s doing a great job of that – a much better job than he did last year. That’s something he’s worked on this summer, making the right read, the right decision.”

This time of year, right before training camp, reports of players being in “the best shape of their life” is worth as much as tickets from the Fyre Festival. It’s good to hear this about Drummond, but we’ll want to see it before we believe it.

Can Drummond punish teams that go small against him? Can he find a way to get easy buckets in transition and space the floor a little more? Do that, with his rebounding, and he may get the payday he wants. But he’s going to have to show it all season long.

 

Report: Kawhi Leonard talked to Paul George — and PG asked for trade — before free agency opened

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This story is a perfect example of why small and middle-market owners were pissed off (to put it mildly) after this summer’s free agency. It’s why the league did an investigation. It’s why there are new rules, new talk of enforcement, and preaching a “culture of compliance” around tampering in the NBA.

None of that may have mattered in this case, either. The anti-tampering crackdown sounds good, but how much will it slow down how the real recruiting gets done: player-to-player? From Draymond Green texting Kevin Durant just after the Warriors 2016 Finals loss to this summer, it’s the game’s best players recruiting their peers that really bothers some teams.

ESPN’s Adrian Wojnarowski, on his latest podcast, talks about just that and uses Kawhi Leonard‘s recruitment of Paul George as an example — and in the process blows up Doc Rivers idea that Leonard made his choice in a meeting when presented with a list.

“The idea that Kawhi Leonard first introduced the idea of trading for Paul George in his meeting with the Clippers, from a list, we know that days before free agency started, well days before, Kawhi and Paul George were talking. Paul George’s agent went to Oklahoma City prior to the start of free agency and said Paul would like to be traded to the Clippers. He wants to play with Kawhi. But, at that point, Kawhi wasn’t allowed to be talking with the Clippers. They couldn’t officially have contact with him until after June 30, 6 p.m.

“But among small markets, the player-to-player [tampering] is the issue. As a GM said to me recently, the teams are often the last to know in these instances. The star player goes out and starts working a guy, then says ‘I want this guy.'”

If you don’t think that is true, think back to the Brooklyn Nets saying Kevin Durant chose them without there even being a pitch meeting. It may not have been a total shock to Brooklyn Durant was coming, but they were not in the loop on decision-making process (except via Nets point guard Spencer Dinwiddie, who was recruiting Irving).

The problem comes back to enforcement: How exactly is the league going to stop players who work out together in the summer, who go to dinner with each other, who may share agents (LeBron James and Anthony Davis, for example), from talking and recruiting each other? When Leonard spoke to George, he was about to be a free agent — he could talk to anyone he wanted. Leonard may have orchestrated all of this. How much the Clippers were in the loop is certainly up for debate, but this was Leonard’s power play.

Tampering may be less of an issue next summer with a soft free-agent class, but just wait for 2021 when potentially Kawhi and George, LeBron, Giannis Antetokounmpo, and more hit the market. Those players will be talking, the league will be hard-pressed to stop it, and it all could lead to impressive fireworks.

Klay Thompson: ‘That is the plan. I would love to be on the Olympic team.’

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Stephen Curry wants to go to Tokyo and play for Team USA next summer. So does Draymond Green.

How about three Warriors?

If Klay Thompson is healthy, he wants to play in the Olympics next summer he told Marcus Thompson II of The Athletic.

“I would love to play (for) Team USA,” Thompson said. “That is the plan. I would love to be on the Olympic team.”

The biggest question for Thompson’s candidacy will be health. He is expected to be out until at least after the All-Star break recovering from the ACL he tore during the Finals last season. He could miss all of next season. That said, if he is healthy he would be a perfect fit for the international game — he is a dangerous three-point shooter, can handle the ball when needed, and is an outstanding perimeter defender. Team USA could use guys like that.

It won’t just be the big-name Warriors players who will want to step up next summer.

After USA Basketball finished seventh at this summer’s World Cup in China — due mostly to numerous top players choosing not to play for their nation this summer — it was expected that a wave of elite players will sign up for the 2020 Tokyo Games.

Players are doing this less because revenge or re-establishing the USA’s basketball dominance — although expect that to be the narrative they pitch — and more about timing. FIBA, in its “infinite wisdom,” decided to move the World Cup from its usual spot, which would have been 2018, to 2019. Playing for USA Basketball is a 6-8 week summer commitment, and now the World Cup and Olympics are in back-to-back years. That left a lot of elite NBA players — and not just for Team USA — looking at the calendar and feeling they had to choose one or the other. And for American players, the Olympics will almost always win that fight.

USA Basketball president Jerry Colangelo said he is going to remember who was willing to make the sacrifice to come this summer when it comes time to choosing an Olympic team. That may happen with a couple of roster spots, but he’s not turning elite talent away, either.

And all three of those Warriors would be the kind of elite players Team USA will want in Tokyo. If Thompson is healthy enough to go, expect him to pack his bags for Tokyo.