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.

J.R. Smith caught on video beating up man who allegedly vandalized his truck

J.R. Smith
David Liam Kyle/NBAE via Getty Images
Leave a comment

Sunday was a day of mostly peaceful protests in Los Angeles in the wake of the killing of George Floyd in Minnesota last week. However, some bad actors used the protests as camouflage to loot and vandalize businesses and property near the protests.

One of those people allegedly broke the window of former NBA player J.R. Smith’s truck — and Smith ran him down and beat him up for it. Video of the beating emerged first on TMZ. (Warning, NSFW language.)

Smith quickly posted a video on his Instagram story trying to get out in front of this, saying the guy broke his truck window in a residential street — and Smith was having none of it.

“I just want you all to know right now, before you all see this s*** somewhere else. One of these little motherf****** white boys didn’t know where he was going and broke my f****** window in my truck. Broke my s***. This was a residential area. No stores over here. None of that s***. Broke my window, I chased him down and whooped his ass.

“So when the footage comes out and you all see it, I chased him down and whooped his ass. He broke my window. This ain’t no hate crime. I ain’t got no problem with nobody and nobody got no problem with me. There’s a problem with the motherf****** system, that’s it. The motherf***** broke my window and I whooped his ass. He didn’t know who window he broke and he got his ass whooped.”

It’s unknown at this time if any other legal action will come out of this, the police and prosecutors have a lot on their plates right now.

Smith was out of the NBA this season, despite getting a couple of workouts with teams.

George Floyd’s death brings back painful memories for Rockets’ Thabo Sefolosha

Bill Baptist/NBAE via Getty Images
Leave a comment

ASSOCIATED PRESS — Thabo Sefolosha knows what it’s like to be a black man, on the ground, being beaten by police officers.

Such was the scenario when George Floyd died in Minneapolis last week.

And five years ago, Sefolosha found himself in a similarly frightening place.

“I was just horrified by what I saw,” Sefolosha said. “That could have been me.”

Time has not healed all wounds for Sefolosha, the NBA veteran who said he was attacked by a group of New York Police Department officers in April 2015 while they were arresting him outside a nightclub in the city’s Chelsea neighborhood. The leg that was broken in the fracas is fine now. The emotional pain roared back last week when he saw video of Floyd, a handcuffed black man who pleaded for air in the final moments of his life as a white police officer — subsequently charged with murder — pressed a knee on his neck.

Sefolosha has seen the video. He hasn’t watched much news since. His experience with police in New York has left him with a deep distrust of law enforcement, the pangs of angst flooding back even when he walks into NBA arenas and sees uniformed officers. And the latest example of police brutality left him even more upset.

“People talk about a few rotten apples,” Sefolosha said in an interview with The Associated Press. “But you know, in my experience and from what we’re seeing, I think it’s deeper than that as a culture that’s deeply rooted in it, to be honest. That’s just my honest opinion. I think it’s really … part of a culture where it’s deeper than just a few bad apples.”

The four officers who were involved in the incident where Floyd died were fired; the one who knelt on Floyd’s neck, Derek Chauvin, has been charged with third-degree murder and second-degree manslaughter. Massive protests have broken out in several cities in recent days, the country torn again over a black man dying at the hands of police.

Sefolosha — a black man of Swiss descent who plays for the Houston Rockets — considered but decided against joining protests in Atlanta, where he is waiting for the resumption of the NBA season that was shut down in March because of the coronavirus pandemic.

“I’m mad, for sure,” Sefolosha said. “That’s for sure. I mean, it’s 2020. Nobody should have to go through this in this time, especially after black people have given up so much for America. Black people have given up so much and done so much for this country. It’s hurtful to see it this way.”

Sefolosha’s perspective changed forever on April 8, 2015. Chris Copeland, an NBA player at the time, was among three people stabbed outside the club where Sefolosha was that night; police arrived and ordered everyone to leave the area. Sefolosha says he complied but began getting harassed by officers anyway.

Before long, he was on the ground.

Sefolosha’s leg was broken and some ligaments were torn in the fracas, and he was arrested on several charges that a jury needed about 45 minutes to determine were unfounded. He wound up suing for $50 million, alleging his civil rights were violated, settled for $4 million and gave much of that money to a public defenders’ organization working in marginalized communities.

“It changed me a lot, toward the way I see law enforcement in this country,” Sefolosha said. “And also toward the way I see the whole justice system. I went to court and I had to do all of this to prove my innocence. It really got me deep into the system and I’m really skeptical of the whole system.”

NBA players have used their platforms often in recent years to protest racial inequality. Sterling Brown of the Milwaukee Bucks filed a federal civil rights lawsuit after police used a stun gun on him and arrested him over a parking incident in 2018. On Saturday, Malcolm Brogdon of the Indiana Pacers and Jaylen Brown of the Boston Celtics were among those taking part in Atlanta protests.

“You see what happened in Minnesota where three human beings with a badge are watching another human being killing somebody,” said Sefolosha, who has played in the NBA since 2006 and intends to return to Switzerland when he retires. “And instead of saying, ‘OK, this is my duty as a human being,’ the duty was more toward not interfering with the other officer and saying, ‘We are clan, we stick together no matter what.’ It should be the other way around.”

The NBA is closing in on finalizing a plan to resume the season in July at the Disney complex near Orlando, Florida. Sefolosha and the Rockets figure to be contenders for a championship when play resumes.

For obvious reasons, Sefolosha’s mind isn’t there yet.

“I’ll be happy to be with my teammates and reunited with basketball in general,” Sefolosha said. “But you know, we’re human beings, and the fight has been going on for too long and the same protests have been going on for too long. I think it’s definitely time for change and that should be a priority for all of us.”

Michael Jordan releases statement: “I am deeply saddened, truly pained, and plain angry”

FRANCK FIFE/AFP via Getty Images
Leave a comment

Michael Jordan has been famously apolitical through his playing career and after, rarely commenting on social issues. While the “Republicans buy shoes, too” comment has always stuck to him, as Roland Lazenby points out in his biography “Michael Jordan: The Life,” Jordan’s “keep your head down and don’t draw attention” political outlook was passed down as a family demeanor used to survive in rural North Carolina.

However, in the wake of George Floyd’s death at the hands of a Minneapolis Police officer, and the eruptions of protests nationwide, Jordan felt compelled to speak and released this statement.

Jordan’s voice is a powerful one and carries a lot of weight, as do his actions.

How he uses that voice, and the actions he takes going forward, will be watched and can hold a lot of sway.

 

On this date in NBA history: J.R. Smith forgot the score

Lachlan Cunningham/Getty Images
Leave a comment

There comes a point in almost every NBA playoff series when one team knows it’s beat. That team threw its best punch and the other team took it and won anyway. While no NBA team would never go into the postgame press conference and say “we’re beat,” it shows up in their tone and body language.

In the 2018 NBA Finals, that moment came after Game 1.

Two years ago today, May 31, the Cavaliers went to Golden State and were on the verge of stealing Game 1 on the road. LeBron James had targeted Stephen Curry on switches to keep the Cavaliers ahead, LeBron thought he drew a charge on Kevin Durant but it was overturned on review and called a block, and a back-and-forth end of the game saw the Warriors go up one when Curry drew and and-1 foul on Kevin Love with 23.5 seconds left.

Of course, the Cavs put the ball in LeBron’s hands out top, the Cavaliers got the switch and had Curry trying to guard LeBron, when LeBron threw a bullet pass to a cutting George Hill. Klay Thompson hooked Hill, and Hill went to the ground. The foul was called and Hill went to the free-throw line.  He hit the first and tied the game 107-107.

Then came the moment.

“He thought we were up one,” Cleveland coach Tyronn Lue said after the game, although Smith was selling at the time he was trying to bring the ball out to get a better shot. The Warriors players thought he was trying to get the ball to LeBron, maybe.

Game 1 went to overtime, where the Warriors dominated (17-7) and got the win. After the game, you could feel it around the Cavaliers — this was their chance and they missed it. The series ended in a Golden State sweep.

It’s a legendary moment of the NBA Finals, even if it’s one Smith and Cavaliers fans would like to forget.