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.

Kyrie Irving, teammate of 12-year-veteran Al Horford: Celtics need 14- or 15-year veteran for leadership

Maddie Meyer/Getty Images
1 Comment

The Celtics just had a 1-4 road trip, the lone win coming in overtime against the lowly Suns. Most Boston players (except Marcus Morris and, lately, Kyrie Irving) look out of sorts offensively.

Irving, via Chris Forsberg of NBC Sports Boston:

Looking at this locker room, me being in my eighth year and being a ‘veteran’ as well as Al [Horford] and [Aron] Baynes. Right now I think it would be nice if we had someone that was a 15-year vet, a 14-year vet that could kind of help us race along the regular season and understand it’s a long marathon rather than just a full-on sprint, when you want to play, when you want to do what you want to do.

Al Horford is in his 12th season. His team, the Hawks then Celtics, have made the playoffs every season of his career.

I’m not sure Irving intended this as a slight of Horford. Irving certainly didn’t forget about Horford, whom Irving mentioned the sentence prior.

But I’d definitely understand if Horford felt slighted. He’s experienced enough to provide that veteran leadership. So is Irving for that matter.

Ultimately, these comments might prove benign, just more weird words from Irving. Still, they’re potentially significant enough to keep an eye on Boston’s leadership situation.

Timberwolves’ Karl-Anthony Towns: ‘I’m not one of the most important [players on the team]. I’m just a piece on this team’

Charley Gallay/Getty Images for Activision
3 Comments

Jimmy Butler made the Timberwolves his team. He willed himself into being their best player despite having teammates with more talent and physical skills. He took a leadership position by talking over everyone (for better or worse). He even asked for top-contract status with a renegotiation-and-extension that would have required gutting the rest of the roster.

With Butler traded to the 76ers, who takes up the mantle in Minnesota?

Karl-Anthony Towns is the logical candidate. He’s now the Timberwolves’ best player. He just signed a max contract extension that will hit super-max salaries if he makes an All-NBA team this season. He’s even already one of Minnesota’s longest-tenured players.

Kent Youngblood of the StarTribune:

Karl-Anthony Towns took issue with the idea that, with Butler gone, he had to become the team’s leader.

“First of all, I’m not one of the most important [players on the team],’’ he said. “I’m just a piece on this team. Everyone is just as important as the next. So if everyone’s doing their job and everyone is working hard, doing the little things, we make a great product.

Somewhere, Butler is cackling, assured his doubts about Towns were correct.

But leading isn’t for everyone. That doesn’t make non-leaders bad people. The world needs followers, too.

That said, things generally flow much more smoothly on teams where the best player is the main leader. It creates an orderly culture. If Towns doesn’t want that role, it’ll be something for the Timberwolves to overcome.

Maybe Towns, 22, will grow into it. There’s still plenty of time left for him to develop both as a player and person.

But Butler’s exit created a natural entrance for Towns into leadership. Towns could have seamlessly seized the reigns right here. That he isn’t shows how far he is as a leader.

Warriors: Stephen Curry to miss at least five more games

Jonathan Daniel/Getty Images
Leave a comment

As once-simmering issues between Draymond Green and Kevin Durant boil over, the Warriors could use a stabilizing force.

But Golden State’s best player and someone who has demonstrated his willingness to place team goals ahead of his personal agenda – Stephen Curry – continues to miss time with a groin injury.

Warriors release:

Warriors guard Stephen Curry, who has missed the team’s last three (3) games after suffering a mild to moderate strained left groin on November 8 vs. Milwaukee, continues to be monitored and evaluated by the team’s training and medical staff, as indicated initially last week. He will travel on the team’s upcoming three-game road trip to Texas—but will not play—and will be re-evaluated again in 10 days.

In the next 10 days, Golden State plays:

  • at Rockets
  • at Mavericks
  • at Spurs
  • vs. Thunder
  • vs. Trail Blazers

That’s not an easy stretch.

Remember, this latest Green-Durant feud started only because the Warriors were in a tight game against the Clippers. Green and Durant disliked the other’s strategy on the final play of regulation and argued about it. In a blowout win, that never would have happened.

Handling those high-pressure situations can be good for teams in the long run. But Golden State needs a break. This is already too much adversity all at once.

But the positive vibes that come with winning will be harder to attain with Curry out.

Report: Jimmy Butler won’t ‘coddle’ Markelle Fultz

Mitchell Leff/Getty Images
10 Comments

Jimmy Butler showed little patience for Andrew Wiggins and Karl-Anthony Towns with the Timberwolves. To Butler, Wiggins didn’t work hard enough and Towns was too soft. Butler wasn’t afraid to admonish his teammates for their shortcomings, either. I believe Butler intended good, lighting fires under Wiggins and Towns that would drive them to greatness with the same intensity he used to rise. But Butler actually just alienated them.

Now, Butler joins the 76ers, who have another former No. 1 pick not meeting expectations – Markelle Fultz. Butler already praised Fultz’s work ethic and noted how much he respects that.

But how will Butler actually treat Fultz?

Undisputed:

If this is someone who knows how Butler treated Towns and Wiggins and is just assuming how Butler will treat Fultz, this is worthless. Anyone who knows even a little about Butler could make that guess.

But if this is someone who spoke to Butler about Fultz specifically, this would carry massive significance.

Fultz is unique. He shot well in college then had his form completely fall apart before his rookie year. He doesn’t need tough love. He needs someone to help him assess the underlying trauma beneath his problems. He needs to be built up and develop confidence.

That wasn’t at all Butler’s approach with other teammates. Maybe Butler will adjust to Fultz’s atypical circumstances. I hope he does.

But the possibility of Butler worsening Fultz’s issues can’t be overlooked.