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.

Kemba Walker stops personal losing streak to LeBron James at 28, Celtics top Lakers

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BOSTON (AP) — Kemba Walker finally beat LeBron James, and he did it by helping the Boston Celtics send the Los Angeles Lakers to their biggest loss of the season.

Walker ended a career-long losing streak against James, scoring 20 points to beat him for the first time in 29 tries and lead the Celtics past the rival Lakers 139-107 on Monday night.

“I’m happy I got one at least, before he goes,” Walker said with a laugh after the Celtics snapped their three-game losing streak. “Who knows how long he can play, because he’s just incredible. But you know, it’s only one. One and 28.”

Jaylen Brown scored 20 points, drawing a taunting technical after dunking over James, and Enes Kanter had 18 points and 11 rebounds for Boston.

“I ain’t going to lie, that was pretty nice, pretty awesome,” Brown said. “LeBron, he’s gotten so many other guys. Just to be out there against one of the best players to ever play the game is an honor. I always like that matchup and it gives me a little extra boost.”

James said there was no shame in getting beaten — this time.

“Why would I take it personally? It’s part of basketball,” he said. “It’s not the first time I got dunked on. It might not be the last time I get dunked on. But Jaylen’s been playing exceptionally well this year. It was a good play.”

The Celtics gave up the first eight points of the game but turned things around when Anthony Davis, playing for the first time in almost two weeks, went to the bench with a pair of fouls 49 seconds apart early in the first quarter.

“The less he plays, the better for everybody else,” Celtics coach Brad Stevens said.

James had 15 points and 13 assists for the Lakers, who had won 10 of their previous 11 games. But the Celtics made 13 of their first 22 3-point attempts to open a 103-75 lead in the third quarter — the biggest against Los Angeles all season until Boston made it a 34-point game in the fourth.

“We were fortunate to put the ball in the basket quite a bit,” said Stevens, whose team shot 56% overall. “The ball going in masks some things.”

Walker’s 28 games without a win against James was second in NBA history only to Sherman Douglas’ 0-30 head-to-head record against Michael Jordan.

“If anybody: him. The guy I couldn’t beat, it’d be him. He’s such a great player, he’s done so much in this league,” said Walker, who spent the first eight years of his career in Charlotte. “He’s beaten a lot of guys. I bet you there’s a lot of people who don’t have a winning record against LeBron James.”

 

Lakers, 76ers reportedly interested in trade for Derrick Rose

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Derrick Rose‘s renaissance has come to the point this season he is in the running for Sixth Man of the Year, averaging 18.3 points, 5.9 assists, and 2.4 rebounds per game (before Monday’s game against the Wizards).

The Pistons are in the mix for a playoff spot in the East — three games back of the eighth-seed Nets, who are finally getting healthy — but with Blake Griffin out for the season they are expected to be sellers at the deadline. That means Rose, a guy who could help a number of contending teams.

The Lakers and 76ers are among those interested, according to Chris Haynes of Yahoo Sports.

The Los Angeles Lakers, Philadelphia 76ers and multiple teams with championship aspirations have expressed interest in trading for Detroit Pistons guard Derrick Rose, league sources told Yahoo Sports…

The Lakers and Sixers are in search of point guard assistance for the stretch run, sources said.

The Lakers need a second playmaker as their offense falls by 9.8 points per 100 possessions when LeBron James is off the court. To make the deal work, the Lakers would have to dangle Kyle Kuzma plus someone to fill the salary (Avery Bradley would work but that would cost Los Angeles another starter; DeMarcus Cousins and Quinn Cook works, too, but why would the Pistons want them?). The Lakers are limited in picks they can send out after the haul they sent to New Orleans in the Anthony Davis deal.

The 76ers need a playmaking point guard to go next to Ben Simmons at points, ideally one who can stretch the floor (Rose is shooting just 31.8 percent from three). The Sixers would likely dangle Zhaire Smith and maybe Mike Scott to make the salaries work.

Expect the Pistons to listen to offers up to the deadline, playing teams off each other to get the best possible deal. But Rose may well be on the move before Feb. 6.

Chris Paul scores 28, leads Thunder rally to hand Rockets fourth straight loss

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HOUSTON (AP) — Chris Paul scored 28 points and Danilo Gallinari added 25 as the Oklahoma City Thunder rallied from a 15-point fourth-quarter deficit to beat cold-shooting James Harden and the Houston Rockets 112-107 on Monday.

Paul scored 27 of his 28 points in the first half against his former team. Gallinari and Dennis Schroder, who scored 17 of his 23 points after halftime, carried the Thunder after the break.

Former Thunder player Russell Westbrook had 32 points, 12 assists and 11 rebounds for Houston. Harden had 29 points but was astonishingly inefficient, making 1 of 17 3-point attempts, as the Rockets’ losing streak stretched to a season-high four games.

Oklahoma City used a 6-0 run, highlighted by a dunk from Shai Gilgeous-Alexander after he stole the ball from Harden, to put the Thunder up 108-105 with about a minute left.

Harden made a layup for Houston to cut the lead to one, but Schroder made a jump shot with 28 seconds remaining to make it 110-107. Russell Westbrook missed a 3-pointer on the other end and Gilgeous-Alexander added two free throws to secure the victory.

Houston had a 15-point lead before the Thunder scored 13 straight points to get within 100-98 with 4 1/2 minutes to go. Gallinari led the way for Oklahoma City in that stretch, making two 3-pointers and adding three free throws after being fouled on a 3-point attempt.

Harden made one of two free throws after that but Gallinari struck again seconds later with another 3 that tied it at 101-all. Gilgeous-Alexander then made one of two free throws to give the Thunder their first lead since the first quarter.

Westbrook made Houston’s first field goal in more than four minutes with a layup with just more than three minutes left. He then added another layup after a steal seconds later to give the Rockets a 105-102 lead with about two minutes to go.

The Thunder trailed by 16 points after three quarters, but a 9-2 run, with five points from Schroder, got them within 91-82 with about 9 1/2 minutes left.

Houston trailed by as many as 10 in the first half but led by seven at halftime and used a 9-3 run to open the third quarter and push it to 73-60. P.J. Tucker had a 3-pointer in that stretch and Westbrook added four points.

Houston scored the last four points in a third quarter where Oklahoma City scored just 14 points to make it 87-71 entering the fourth.

 

J.J. Redick: Players more concerned with Instagram than winning

J.J. Redick
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J.J. Redick transformed himself from bust to NBA success.

He changed his habits and outlook. He worked hard and learned how to optimize his fit. That partially explains why the Pelicans signed the veteran last summer.

Why aren’t more players so diligent in their work?

Redick on “The JJ Redick Podcast With Tommy Alter“:

There’s just too much stuff going on. There’s too many people in your ear. There’s not enough time in the day, probably, for some guys. They’ve got Fortnite to go to. They’ve got to worry about getting a fit off for pregame. This is an issue. I really believe this. I think there’s more guys concerned with getting a pregame fit on Instagram than they are worrying about the win and loss of a basketball game. I stand by that statement.

Maybe some players are more concerned with Instagram than winning. That’s tough to evaluate from afar. I’m not sure Redick – who’s obviously not in anyone’s mind but his own – is close enough to make that evaluation, though he obviously has more access to see how NBA players act.

But players have always held interests outside basketball. They always will. Redick doesn’t need to look far to consider that. This quote comes from his podcast.

That Redick gripes about this modern technology – Fortnite, Instagram – makes him sound like an old grump. Why not rail against players who party too much? There are surely players who indulge in that classic distraction.

Not every player is obsessed primarily with winning. Yet, I’m unconvinced that’s any more or less true now than with a prior generation.