Kings ownership documents reveal major potential stumbling blocks for Seattle

47 Comments

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.

Report: Kings’ front office, coach Dave Joerger disconnect could lead to his firing

Getty Images
1 Comment

The 8-7 Sacramento Kings are one of the best surprises of the young season. Sacramento has found an identity with point guard De'Aaron Fox pushing the pace — they are the second fastest team in the NBA at 106.3 possessions a game, with 20 percent of their trips down the court starting in transition (also second in the league). While the Kings are middle of the pack in both offense and defense ratings, that is a massive step up from where most predicted this young team to be this season.

So, of course, Sacramento is finding a way to screw that narrative up. Because… Kings.

A disconnect between the front office led by Vlade Divac and coach Dave Joerger could lead to the coach’s dismissal, reports Chris Haynes of Yahoo Sports.

Joerger’s handling of 2018 No. 2 overall pick Marvin Bagley III could eventually lead to the coach’s dismissal, league sources told Yahoo Sports.

Sources said the franchise is growing frustrated with how Joerger is distributing minutes and assigning roles to the team’s young prospects.

The front office views this season as a development year, sources said, but it was still confident that the team would be competitive and grow with Bagley, promising guard De’Aaron Fox, and forwards Harry Giles and Skal Labissiere getting meaningful minutes. Joerger, generally regarded as one of the best X’s and O’s coaches in the league, has favored playing veteran players over developing youth, especially in crunch time.

Vlade Divac, the general manager of the Sacramento Kings, quickly came out in a statement given to NBC Sports and said:

“Dave has our full support and confidence. We continue to work together to develop our young core and compete.”

All season long Jeorger has gone with Nemanja Bjelica over Bagley down the stretch (Bjelica also starts over Bagley). When Kosta Koufos was healthy, he also was a guy Joerger trusted in key moments. Two-way contract player Troy Williams has earned a lot of minutes from Joerger, more than Bagley at times. Joerger’s rotations are not consistent and the report says players don’t feel the coach is communicating clearly about their roles.

All NBA coaches are constantly dealing with the developing vs. winning balance (even the elite teams like the Warriors have young players they are trying to bring along). It’s an age-old problem to have the GM wanting the youth learning on the fly and the coach wanting to win now.

Instability for coaches has been a hallmark of the Kings under owner Vivek Ranadive, going back to before when the Kings pushed out Mike Malone — a DeMarcus Cousins favorite — for George Karl. Malone had taken over for Keith Smart, who coached a season and a half. Jeorger took over for Karl and is in his third season.

The constant coaching upheaval leads to system upheaval and a lack of continuity. It’s been an ongoing issue for the Kings, but as their young players start to develop and show potential — Buddy Hield and Willie Cauley-Stein are playing well.

Expect denials all around, but this sounds like about the most Kings thing ever.

Dwight Howard was heckled by arena clean up worker during postgame workout

Getty Images
1 Comment

Dwight Howard was a beast against the Brooklyn Nets Friday night, dropping 25 points and grabbing 17 rebounds against one of his former teams. Well, he was dominant in the first half, when he picked up a fourth foul relatively early in the third quarter Scott Brooks went away from Howard for too long, the Nets scored at will and pulled away for the win. Still, Friday was Howard’s best game of the season.

And yet he was 3-of-10 from the free throw line, so he went out after the arena closed and practiced his foul shots.

What that video didn’t show was Howard getting heckled during that workout by one of the people hired to clean up the arena. From Candace Buckner of the Washington Post.

…before hitting the showers, [Howard] returned to the main court to practice his free throws. He had missed 3 of 10 attempts during the game. So, while Howard got into a shooting rhythm, tuning out the background noise with music playing in his ear buds, a contract worker who was part of a team hired to clean around the 400 level tried to break his concentration.

“Brick!” the worker yelled, but as Howard’s shots swished through the net, he switched to: “’That’s right, Dwight! You better make them!”

While many fans would like to buy that worker a beer, it did not go over so well with the Wizards’ staff, and the man was removed from the arena.

The Wizards are 5-10 on the season with the third worst defense in the league. The Wizards’ defense is not better with Howard on the floor — he’s not the cause of their problems, but he’s not solving them either. His defense was part of the reason the Wizards thought he would be a fit.

Draymond Green to sit out Saturday, likely longer, with sprained toe

2 Comments

Before the drama around Draymond Green and Kevin Durant against the Clippers, Green had missed a couple of games due to a sprained toe. Against the Clippers, he was 3-of-9 shooting and did not move like he is capable of. Then, after a one-game suspension, Green came back against the Rockets and struggled again, shooting 0-of-3 and not looking like himself.

While some will want to tie this to the Durant incident, the fact is Green’s toe needs more time to heal and he is going to get it, starting with sitting out Saturday vs. the Spurs.

Green said this after his suspension game, via NBC Sports Bay Area.

“After playing 42 minutes against the Clippers, it was pretty sore that next day,” Green said of his injured toe, and he then joked, “Thank God I got suspended. I was sore, really sore, so I sat there and iced the whole day. Did some treatment at home. … Everything happens for a reason.”

Kerr said “We decided to give [Green] some time off. Don’t know how long it’ll be.” Which makes it sound like this will be more than one game.

The Warriors are -10.5 points per 100 possessions worse defensively when Green is off the court. Combine that with Stephen Curry still being out with a strained groin and the Warriors are battling through some injuries, and suffering some ugly losses because of it, early this season.

Just a reminder, Anthony Davis is very good at basketball, dropped 43 on Knicks

5 Comments

Anthony Davis went into this season wanting to be seen as the best player in basketball.

Part of that perception is team success, and while the Pelicans are a good-not-great 8-7 to start the season it’s not because of Anthony isn’t doing all he can. He dropped 43 points and 17 rebounds on the Knicks, helping spark the Pelicans comeback against the Knicks. Check out the video above.

Davis is averaging 26.5 points with a quality 56.4 true shooting percentage, plus 17.1 rebounds a game. His PER of 26.8 is sixth best in the NBA. When Davis gets some help, and the Pelicans play a little defense, this is the kind of team AD might want to stick with.