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.

Dwyane Wade returns to Miami Heat after birth of child

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MIAMI (AP) — Dwyane Wade is back with the Miami Heat after missing nearly two weeks for the birth of his daughter.

Wade went through Miami’s gameday shootaround and will play Tuesday night against the Brooklyn Nets. He said his wife and their daughter are doing well, which allowed him to feel comfortable to resume his season.

“I’m going to obviously miss them,” Wade said. “It was tough leaving my little girl and my wife, but I’ve got to get back to work and I’ll see them again soon.”

Wade was away from the team for about two weeks because of the birth of his daughter. Wade and his wife Gabrielle Union-Wade welcomed Kaavia James Union Wade into the world on Nov. 7. Wade had been in Los Angeles with them since then, and flew back to Miami on Monday.

His return is most certainly welcome in Miami. The Heat went 2-5 in his time away, falling to 6-10 this season. They’ll play Tuesday without guards Goran Dragic (knee), Tyler Johnson (hamstring) and Dion Waiters (ankle recovery from last season).

“There’s a human element to this business and to the game and it is the most important thing,” Heat coach Erik Spoelstra said. “The connection, your spirit, your emotions, everybody getting on the same page, and just seeing Dwyane back here with the guys there was a tangible boost in the energy today in the shootaround.”

Wade is Miami’s third-leading scorer this season at 14.3 points per game. He was in his best stretch of the season when he got the call that his daughter was coming a few weeks earlier than planned.

He said he felt the frustration level his team was going through during their current slide, and he tried to keep in touch via texts and phone calls. Wade kept up conditioning while in Los Angeles, but knows it’ll take a little time to get back to the level of a few weeks ago.

“I was so excited for my daughter to come, but I was like, ‘Baby, you know, your dad was playing in a rhythm. You could have waited a little while,'” Wade said. “I was just getting my legs under me, but great things happened to make me miss time, and now I’m back.”

The baby was born via a surrogate, which is one of the reasons why Wade felt taking a brief paternity leave was necessary.

Parents of surrogate-carried babies are told the first few days after the birth are critical to forging deep bonds with their child. Lots of skin-to-skin contact and talking to the baby helps with the bonding.

So Wade needed time, and the Heat supported the plan.

“So much of this league is mood of the team and confidence,” Heat guard Josh Richardson said. “With him back, we’re definitely a lot more confident moving forward.”

Union-Wade – who revealed she had nine miscarriages in her 2017 book “We’re Going to Need More Wine” – has taken time off work to bond with the new arrival. She’s been filming an upcoming project in Los Angeles, and when she’s back on the set, Kaavia James will be close by.

“She was working right up until we got the call,” Wade said. “When she goes back, my daughter will be going back to the set with her. Her trailer is fit for everything, the baby’s safety, everything. So our baby will be there with her when she’s at work.”

Wade strongly considered retirement during the offseason because of the baby’s arrival, not making the decision to return until just before training camp in September. He questioned whether it was fair to his wife and their family to still be playing and traveling while raising a baby.

He also wondered if he could handle being away from his daughter for long stretches.

“We went through a lot to get here,” Wade said. “My family had to come first right now.”

 

Kevin Durant fined $25,000 for telling fan to “shut the f*** up”

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The percentage of players who would like to tell a courtside fan to “shut the f*** up” would be close to 100.

However, there are 25,000 reasons players don’t do that. Kevin Durant found out the hard way. During the Warriors loss in Dallas Monday, Durant was being heckled by fans along the baseline calling him “cupcake” (an old Russell Westbrook insult) and it got under KD’s skin enough that he told the fans to “watch the f****** game and shut the f*** up.”

The league office, it turns out, does not like it’s players talking to fans that way — at least when it’s caught on video — so Durant was fined $25,000 on Tuesday.

Fans taunting players with the hopes of catching a reaction on video is a growing trend in recent years around the NBA, and so far the league’s response to that has been to remind fans around the court they can be removed for what they are saying (with a postcard note on each seat).

Personally, if you choose to engage a player that way during a game, he has the right to fire back and say whatever he wants. If you want to get in the NBA trash talk game, you have to be able to take it, not just dish it. Those are not the ground rules, however, so KD gets a fine.

Only high schoolers who would’ve been consensus draft candidates to receive $125,000 minor-league offer

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The NBA’s minor league’s plan to offer players $125,000 salaries straight out of high school sparked two major questions:

  • Who will receive that offer?
  • Who will take it?

Former NBA player Rod Strickland and former WNBA player Allison Feaster will run the program, and they’re answering the first question.

Adrian Wojnarowski of ESPN:

The NBA is limiting eligibility for the professional path program to prep players who would be considered consensus candidates for the draft if there were no early entry rule to prohibit them. Feaster will work with a group that includes Strickland and the NBA’s basketball operations and player development staffs to evaluate the potential players.

“It will be elite prospects with a readiness for a professional league,” Feaster told ESPN. “We want to target players who would not be going to a university if it weren’t for the NBA eligibility rule. That’s more or less what’s going to dictate this.”

Feaster expects a “handful” of players to be part of the initial group in the professional path. Feaster and Strickland emphasized that the program will be judicious in choosing those eligible for the pro path opportunity.

For reference, 17 high schoolers were picked in the final two drafts (2004 and 2005) before the NBA implemented its one-and-done rule. So, that suggests about 8-9 players annually will get offered the $125,000 deal.

That still leaves the other question: Who will take it?

Kevin Durant said he wouldn’t have. Shoe companies are still spending the most money, and they’re heavily invested in the visibility of college basketball.

But every prospect’s situation is unique. With Strickland and Feaster in place, we’ll soon see how players receive this new path.

76ers sound caught off guard about Markelle Fultz stepping away

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Markelle Fultz has played in all 17 of the 76ers’ games this season, starting until they traded for Jimmy Butler. A couple weeks ago, Fultz called himself generally healthy.

Then, Fultz’s agent, Raymond Brothers, informed the 76ers the guard wouldn’t play or practice until visiting a specialist Monday. Fultz will miss at least three games – against the Pelicans, Cavaliers and Nets.

76ers coach Brett Brown:

It’s kind of the first real sort of red-flag-type news.

This news about his shoulder, it did catch me off guard. But if it’s that real that he needs to go seek further consultation, then we support him. In my eyes, it’s not complicated. If that’s what it is, then we’ll support him.

76ers general manager Elton Brand:

We thought it was the regular bumps and bruises.

There’s nothing that we saw medically that didn’t allow him to play.

This yet another odd turn in a saga that already included plenty of contentiousness, animosity, rumors and cringe-worthy moments. At this point, it’s hard to be shocked by anything with Fultz.

It’s also hard to take the 76ers seriously when they suggest it seemed like business as usual. Fultz’s shot is disturbingly broken. There is clearly a problem. Maybe letting Fultz play without fretting over the issue was the right course, but how surprised can Philadelphia be that he took a more drastic measure?

Hopefully, the specialist helps Fultz identify and fix this issue.