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.

Paul George scores 28 as Thunder beat Raptors 116-109

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TORONTO (AP) — Paul George scored 28 points, Russell Westbrook had 18 points, 13 assists and 12 rebounds, and the Oklahoma City Thunder beat the Toronto Raptors 116-109 on Friday night.

Dennis Schroder came off the bench to score 26 points and Jerami Grant had 19 as the Thunder snapped a four-game losing streak and avenged Wednesday’s 123-114 home defeat to Toronto.

The Thunder made 20 of 43 shots from 3-point range. Oklahoma City made a season-high 22 3-pointers against the Lakers on Jan. 17.

Kawhi Leonard scored 37 points and Pascal Siakam had 25 for the Raptors, who played without All-Star point guard Kyle Lowry.

Lowry missed his second straight game because of a sprained right ankle. Coach Nick Nurse said there’s no structural damage to Lowry’s ankle, but soreness remains following a collision with New York’s Mitchell Robinson on Monday. Nurse said Lowry is expected to return next week.

Danny Green scored 19 points and Serge Ibaka had 11 but Toronto couldn’t hold a double-digit lead in the third quarter for the second straight game. The Raptors gave away a 20-point lead before recovering to win in overtime Wednesday, but weren’t able to match that on their home court.

Oklahoma City trailed by 10 points to start the second half, and was down 13 with 5:23 to go in the third before rallying. Westbrook gave the visitors the lead for the first time since early in the first quarter on a layup with 1:18 left in the period, putting them up 80-79. The Thunder closed the third with a 20-4 run to take an 83-80 lead into the fourth.

Leonard cut the gap to 93-91 on a free throw with 7:33 to play but George hit 3-pointers on either side of a fast-break layup by Grant, giving Oklahoma City a 101-91 edge with 6:21 left.

The Thunder missed eight of their first 10 shots of the game. Toronto was 5 of 6 from 3-point range in the first, with Green making all three of his attempts, and the Raptors led 29-22 after one.

Leonard scored nine points in the second and Green had six as Toronto led 58-48 at halftime.

 

James Harden ties career best with 61, Rockets beat Spurs 111-105

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HOUSTON (AP) — James Harden matched his career high with 61 points, including 27 in the first quarter, to lead the Houston Rockets to a 111-105 victory over the San Antonio Spurs on Friday night.

Harden hit three straight 3-pointers to give the Rockets a 103-100 lead and scored all of Houston’s points in a 13-2 run late in the fourth quarter.

Harden topped the 50-point mark for the eighth time this season, compared with 10 such performances from the rest of the league combined. He matched his career-best total set earlier this season against the Knicks at Madison Square Garden.

The NBA’s leading scorer surpassed the 30-point mark in the second quarter and the 40-point mark with 9 minutes remaining in the third.

Before Harden’s late surge, the Spurs led by six points with 4 minutes left in the game. The Spurs had overcome a 15-point halftime deficit to tie the game at 81 entering the fourth quarter.

Harden was 7 of 10 from the field in the first quarter, including 3 of 4 from the 3-point line, and also went 10 for 12 from the free throw line. His 27 points in the period were the second-most in franchise history, trailing only Vernon Maxwell’s 30 in 1991.

Harden finished 9 of 13 from 3, 19 of 34 from the field and 14 of 17 from the free throw line.

Houston has won 13 of its last 15 games and eight of its last nine at home.

Bryn Forbes led San Antonio with 20 points, while Derrick White added 18 and DeMar DeRozan had 16.

Houston led 36-24 at the end of the first quarter and 62-47 at halftime.

 

LeBron James’ playoff streak ends at 13 years

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The last time LeBron James missed the playoffs, YouTube hadn’t yet launched to the public.

LeBron had reached the postseason every year since 2005, when his Cavaliers went 42-40 and finished ninth in the East – another good marker. The last time LeBron missed the playoffs, it was so long ago, an Eastern Conference team could be that good and not qualify.

But his Lakers were officially eliminated from the playoff race Friday with a loss to the Nets.

That ends LeBron’s postseason streak at 13 years – tied for the 13th-longest of all-time. Karl Malone and John Stockton hold the record, each playing in 19 straight postseasons.

Here are the longest playoff streaks of all-time:

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Obviously, LeBron joining the Western Conference put his playoff streak in greater jeopardy. And the Lakers’ fate has been known for a while.

Still, it’ll be a little jarring to watch a postseason that doesn’t include a player who ruled half the bracket for so long.

That said, LeBron might not have the longest playoff streak snapped this year. Tony Parker, who reached the playoffs in all 17 of his seasons with the Spurs, could fall short in his first season with the Hornets.

If Charlotte misses the playoffs, 76ers guard J.J. Redick is in line to hold the longest active streak at 13 years.

Here are the players with the longest active streaks that could continue this season.

Players are listed with the teams they made the postseason with during their streaks. If they haven’t reached the playoffs in their stint with their current team, that team is listed in brackets.

Players whose teams are currently in playoff position are in teal. Players whose teams are currently outside playoff position but not yet eliminated are in purple. Free agents who’d be eligible for the playoffs if they sign before the end of the regular season are in white:

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There’s no reason to believe Manu Ginobili will come out of retirement. But he has played in every postseason since missing the entire 2009 playoffs due to injury. It’s technically possible for him to play in the 2019 playoffs and keep his streak alive.

Which is more than LeBron can say.

Knicks’ fans chant “Free IT” as Isaiah Thomas sits on Nuggets bench

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Well played, Knicks fans.

Denver went into Madison Square Garden Friday night to be the latest team to defeat the Knicks. Isaiah Thomas, out of the rotation in Denver, was the only dressed player not to play for the Nuggets. That did not sit well with Knicks fans.

Denver has better on court options than IT — Monte Morris should get Most Improved Player votes — but I hope he gets fully healthy and lands somewhere next season where he gets a chance to show what he can still do.