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.

Chris Paul injures right hamstring, status unclear for Game 6 vs. Warriors

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Houston Rockets guard Chris Paul played the part of the hero for the home team on Thursday night as Houston beat the Golden State Warriors in Game 5 of the Western Conference Finals to take a 3-2 series lead.

Now, the question is whether Paul will be able to play in Game 6 on Saturday night.

After a game in which the Rockets were not particularly offensively impressive, Paul came up with some clutch baskets despite struggling overall. Paul got the better of the Golden State defense several times from beyond the arc, including one instance in which he gave a shoulder shimmy to Stephen Curry, allowing the Warriors guard a dose of his own medicine.

But Paul appeared to injure his right hamstring on a play with 51 seconds to go in fourth quarter as he was shooting a floater in the lane. After his shot, Paul remained on the ground and down at the Houston end of the floor as possession changed sides. Paul left the game some 30 seconds later, and was unable to finish the game.

The Rockets point guard had already been battling a right foot injury and had to get lots of treatment just to be able to play in Game 5. It’s not entirely surprising that Paul injured himself on his right side. A weakened link in the kinetic chain tends to force other muscles and joints to compensate for injured areas. When overused or improperly used, the chance for a new injury in another part of the kinetic chain — say, up the leg and into the hamstring — is entirely possible.

That seems like what happened to Paul on Thursday night, but we will have to wait for official word from the team before we know whether he will be playing on Saturday. Hamstring issues can the nagging and despite lots of treatment there is also the swelling that will occur when Paul has to fly to Oakland.

As expected, Chris Paul said he will be good to go (players are the worst at providing a timeline for their injuries).

Houston coach Mike D’Antoni says that Paul will be evaluated tomorrow and will be continuing to get treatment but he is not worried about someone being able to fill Paul’s shoes. That’s certainly the right thing to say for D’Antoni but we know how Game 6 might go if CP3 is unable to play.

Chris Paul plays the hero as Warriors devolve to iso ball in Game 5 loss

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I personally thought a Western Conference Finals game couldn’t get any uglier after I watched Game 4 between the Golden State Warriors and Houston Rockets.

Boy, was I wrong.

Thursday night’s Game 5 matchup between the Rockets and the Warriors two teams produced three heinous quarters of NBA playoff basketball, made even more unbearable by the fact that we know how good these two teams can be when they’re really humming.

Much as it was in Game 4 it was Houston’s defense that was on display, ironically forcing the Warriors to play much in the way the Rockets do when they lose. Golden State battled the shot clock with isolation ball much of the game, with Kevin Durant getting the ball at the top of the arc as some of the league’s top players — including a two-time MVP in Stephen Curry — widened the floor in a 1-4 flat set for the 7-foot wing.

To their credit, both Curry and Durant were in good shooting form through the first half but as the periods ground on they started to slow. Draymond Green was Draymond-y, scoring 12 points while grabbing a game-high 15 rebounds with four assists. Statistically, it’s hard to understand how the Warriors lost. Golden State shot better from the field, from the arc, and from the charity stripe. But their scoring was concentrated and their offense predictable at just the wrong moments.

Houston’s attack was nothing to shake a stick at, either. James Harden‘s scored just 19 points on 5-of-21 shooting, and as a unit the Rockets doled out 12 assists. Incessant switching and a tendency to hound the ball on defense allowed Houston to force a whopping 18 turnovers from Golden State. It was the most important statistic of the game for the Rockets, who scored 18 points on those turnovers despite being outpaced in 3-point shooting, points in the paint, and in fastbreak buckets.

Then, the fourth quarter happened. Everything changed, and as we are wont to do, the game felt much cleaner. Both teams had their energy up, they traded baskets, and the lead went back-and-forth.

Enter Chris Paul.

Houston’s point guard was the savior, scoring 20 points on a piddly 6-of-19 shooting performance. But Paul’s box score did not tell the tale of his impact on the game. Several times with the shot clock winding down, Paul came up with big beyond-the-arc buckets, at one point hitting one over Curry, giving him back a shoulder shimmy much the way the Warriors point guard did in Game 4.

Paul’s leadership pushed Houston forward, but his commitment during Game 5 might get overlooked after the Rockets point guard was forced to check out of the game after a play with 51 seconds remaining. On a floater in the lane, Paul appeared to hurt his right hamstring. Unable to play, Paul had to watch the final minute from the Houston bench, and his availability for Game 6 is currently up in the air.

It was ugly and it was gritty, but the Rockets beat Golden State on Thursday night, 98-94, to take Game 5 and a 3-2 series win as the Western Conference Finals heads back to Oakland.

Now, we look toward Game 6 in California on Saturday, May 26 at 6:00 PM PST.

Eric Gordon buckets, Draymond Green turnover seals game for Rockets

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For the second game in a row, the Houston Rockets were clutch in the fourth quarter and the defending champion Warriors clanked and fumbled their way to a loss.

Houston won Game 3 98-94 because down the stretch Eric Gordon made plays (and free throws) and Draymond Green fumbled away the Warriors chance.

It started with the Rockets up one with less than two minutes to go, when Eric Gordon — who led the Rockets with 24 points — drained a three that gave Houston some breathing room.

Six seconds later, Draymond Green answered with a three to keep it a one-point game.

With 10 seconds left in the game, a Trevor Ariza free throw made it a two-point game, giving the Warriors a chance to come down and tie or win. Then Green did this.

Gordon was fouled, hit two free throws, and it was ballgame.

The Rockets are now up 3-2 in the series and are one win away from the Finals.

Draymond Green thought Warriors might trade him after fight with Steve Kerr

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Draymond Green is the backbone of the Golden State Warriors, not just because he was the 2016-17 NBA Defensive Player of the Year. Green sort of does it all, including passing, scoring, rebounding, and myriad other scrap work that doesn’t show up on regular box scores.

But there was some doubt in Green’s mind in 2016 that he would stay with the team. Green was involved in an argument during a game against the Oklahoma City Thunder, and after things settled down the Warriors big man was concerned the team might trade him.

The thought of doing so is sort of ridiculous, but apparently that was something that flashed into Green’s mind given the tenseness of the situation between he and Kerr.

Via Bleacher Report:

But Green’s mood was still foul, and he left the arena that day believing his days as a Warrior were numbered. He feared the relationship had been fractured, that the Warriors would choose Kerr over him. That he’d be traded.

“One hundred percent,” Green tells B/R. “Especially with the success that he was having as a coach. Like, you just don’t get rid of that.”

The thing that makes Golden State great isn’t just the players, or the system, or Kerr. It’s the human resources management aspect of their organization that allows them to compete on the court in the way they do.

It’s not crazy to think that a player could be shipped out of town thanks to a disagreement with a coach, although the leverage players have these days likely has put a stop to that realistically happening. But that Kerr, Green, and management were able to get things back under control that season was to the benefit of everyone involved.