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.

Brandon Clarke named Summer League MVP, leads Grizzlies to Vegas title

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Brandon Clarke made his mark in Las Vegas.

The No. 21 pick in June out of Gonzaga, he averaged 14.6 points, 8.6 rebounds, and 1.6 blocks per game in leading the Grizzlies to the championship game, and for that he was named the Las Vegas Summer League MVP.

(That award has been won by Damian Lillard, Blake Griffin and John Wall, but also Josh Shelby and Glen Rice Jr. Most winners of the award had good careers as role players — Randy Foye, Jerryd Bayless, whatever Lonzo Ball and Josh Hart become — but it’s a mistake to think it’s a precursor of NBA dominance.)

Clarke wasn’t done, he had 15 points and 16 rebounds in the championship game, leading the Grizzlies past the Timberwolves 95-92. Memphis is your 2019 NBA Summer League Champions.

Memphis raced out to a 15-point lead early in the title game.

In the end, it was a balanced attack that won Memphis the game. Grayson Allen led the way 17 points, but Clarke, Bruno Caboclo, and Dusty Hannah’s all had 15 points, while Tyler Harvey added a dozen.

Minnesota was led by Kelan Martin with 19 points.

Mavericks owner Mark Cuban fined $50,000; Rockets owner Tilman Fertitta $25,000

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The first rule of NBA ownership: Don’t talk about NBA ownership.

Or the business you do as an owner until it becomes official, even if by then everyone else has known for days and already moved on from the topic.

Monday was an expensive day for two of the NBA’s owners of teams in Texas. Mark Cuban was fined $50,000 for leaking information from the league’s Board of Governor’s meeting about the new coach’s challenge  — even though everybody knew what was going to happen — before the meeting officially ended. Tim MacMahon of ESPN reported this story and had maybe the best quote of the summer to go with it.

The NBA office fined Dallas Mavericks owner Mark Cuban $50,000 after he admitted to leaking information from last week’s Board of Governors meeting to a reporter, sources told ESPN…

“I appreciate the irony of your reporting on a fine that someone should, but won’t, get fined for leaking to you,” Cuban told ESPN.

Sources said Sacramento Kings owner Vivek Ranadive expressed concern that information about the vote to allow coaches’ challenges was being reported while the meeting was still in session. Cuban immediately admitted that he had leaked the information, sources said.

Well played, Cuban.

This is a letter of the law fine, but was it a big deal that this got out? The vote was all but assured, a formality, but Cuban gets fined for telling people? Thanks, Vivek.

From the same “is this really a big deal” file we have the fine Rockets owner Tilman Fertitta got on Monday, $25,000 for talking about the Russell Westbrook trade before it was official. Even though everybody was talking about it. From Mark Stein of the New York Times.

Here is the oh-so-damaging quote:

Again, I get Fertitta crossed the official line because the trade had not gone through yet, but does that line really need to exist in these cases? It feels like the silly hat thing at the NBA Draft.

Damaging or even interesting information was not divulged in either case. The fines were not steep because of it, but the NBA’s process of what is and is not allowed around trades and free agency — and the odd Board of Governors meeting — seems behind the times.

 

Report: Clippers, Rockets both still interested in Andre Iguodala, but both at stalemate

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The Memphis Grizzlies don’t want to just waive veteran Andre Iguodala, they want to get something back in return. That is just turning out to be challenging.

The Clippers and Rockets are still interested, but both teams are at a stalemate, something Shams Charania of The Athletic broke down in a new video.

The story in a nutshell:

• The Rockets are interested, but Iguodala’s $17.2 million would take the team deep into the luxury tax (Houston is currently just shy of the tax line). Charania says any deal likely would involve a sign-and-trade, which implies Iman Shumpert, probably with a draft pick attached.

• The only Clippers’ salary that lines up cleanly is Mo Harkless (with some other players), but Los Angeles doesn’t want to give him up.

Memphis can afford to be patient and say they will just bring Iguodala into training camp, that they are willing to start the season with him.

This may take some time to get done and could ultimately involve a third team. Maybe Dallas gets back in the conversation, or other teams look at their roster and decide they want the veteran wing. This also could be something that drags into training camp, there are no easy answers lined up or the deal would be done already.

Warriors GM on D’Angelo Russell: “We didn’t sign him with the intention of just trading him”

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From the moment the Warriors acquired D'Angelo Russell in a sign-and-trade deal that cleared the path for Kevin Durant to go to Brooklyn, speculation about fit and an eventual trade cropped up. Does Russell’s game really fit with Stephen Curry and, eventually, Klay Thompson‘s, in a three-guard lineup? If not, how fast will they trade him? February at the trade deadline? Next summer?

From the start the Warriors have shot down the idea that they just planned to trade Russell, and on Monday Warriors GM Bob Myers repeated the same thing.

The Warriors plan has been to play Russell and Curry next to each other — they got an All-Star guard to soak up the minutes until Thompson can return (likely sometime after the All-Star break, if at all next season). Maybe the fit works, maybe it doesn’t, but the Warriors aren’t putting limitations or preconceived notions on the possibilities.

If it doesn’t work out, the trade option will still be there.

The Warriors do not head into this season the same juggernaut to be feared, but sleep on them at your own risk. As Meyers said, they believe they have a team that can compete with anyone.