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.

Report: Kyle Lowry dodging calls and texts from Raptors president Masai Ujiri and coach Nick Nurse

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DeMar DeRozan hasn’t hidden his disdain for Raptors president Masai Ujiri trading him.

How does Kyle Lowry, a close friend of DeRozan still left in Toronto, feel?

Lowry dodged DeRozan questions while at USA Basketball’s minicamp in July. At media day yesterday, Lowry repeatedly gave an iteration of the same answer about his relationship with the Raptors: He’s there to do his job and try to win, just as always.

Josh Lewenberg of TSN:

per league sources, Lowry had also been dodging calls and texts from team officials, including president Masai Ujiri and new head coach Nick Nurse, who Lowry said he only spoke with briefly right after Nurse was promoted in June.

This obviously isn’t the healthiest arrangement. Teams function best with open communication.

But the team president and point guard needn’t talk regularly, especially now. Lowry is locked up for two more seasons. The status quo is fairly locked in for the season.

Lowry and Nurse not speaking would be a pressing issue, but training camp just opened. It’s too soon to assess how Lowry will respond to Nurse.

Ultimately, what Kawhi Leonard said about how the Raptors can appeal to him also applies to Lowry – win. If Toronto wins this season, Lowry will likely get over his issues with the DeRozan trade.

A half-dozen players with especially intriguing contract-year seasons ahead

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After increasing 7%, 11%, 34% and 5% the previous four years, the NBA’s salary cap increased just 3% this year. Plus, teams were already overstocked with highly paid players signed during the 2016 – and, to an extent, 2015 – cap booms.

That meant many players signed one-year deals this offseason, allowing them to hit the market again next summer, when the cap is projected to rise 7% and many players signed in 2015 and 2016 come off the books.

The result is a deep 2019 free-agent class.

Some potential 2019 free agents, like Kevin Durant and Kyrie Irving, are assured max-contract offers. Even Kawhi Leonard, who missed nearly all of last season due to injury, is practically guaranteed of max offers.

But there are many more players with their future compensation in flux. Here are six players with a ton on the line next season:

DeMarcus Cousins

Cousins shocked the league by taking the Warriors’ taxpayer mid-level exception. It’s probably a one-year rental. The highest starting salary Golden State can offer him next summer through Non-Bird Rights is $6,404,400. This year will give him a chance to get healthy, show he can contribute positively to winning and expand his versatility. Cousins isn’t the perfect fit with the Warriors, and some teams are still scared off by his attitude. But, if all goes well this season, Cousins won’t be able to claim no offers next summer.

Isaiah Thomas

Thomas learned the hard way Brinks trucks typically carry an amount near his $2,029,463 minimum salary – not the nine-digit max contract he hoped for. That dream has probably passed, but Thomas can still land a lucrative contract next summer if he thrives with the Nuggets this season. First, that means getting healthy, as his hip injury still lingers. Then, the 5-foot-9 point guard must show he can still get separation and lift to get buckets. And it’d help if he meshes better with his teammates and coaches. It’s amazing how big of a hit Thomas’ value has taken in the last year, but he has proven his determination before. Will he do it again?

D'Angelo Russell

Russell entered last season as a potential franchise player for the Nets. Then, he got outplayed by Spencer Dinwiddie. Russell missed 34 games due to injury and stagnated in his growth while on the court. The shine is off the former No. 2 pick. But Russell is still just 22 and talented, and point guards tend to develop later. He could earn a huge payday, though it’ll require a major breakthrough. He and Brooklyn can technically sign an extension by Oct. 15, but that seems unlikely – especially with Dinwiddie, another pending 2019 free agent, also in the mix. Most likely, Russell becomes a restricted free agent next summer.

Tobias Harris

Harris reportedly rejected a four-year, $80 million extension from the Clippers this summer. That’s a lot of money to turn down, but the upside is there. Harris could be the Clippers’ focal point this season, especially in the starting lineup (which probably won’t include Lou Williams). Harris is just 26 and has the all-around skills and work ethic to cash in. The Clippers are aiming higher, so Harris might have to leave L.A. to get paid.

Trey Burke

The No. 9 pick in 2013, Burke gradually fell out of favor with the Jazz. He got a change of scenery with the Wizards and struggled even more in Washington than he had in Utah. Burke seemingly blamed everyone but himself. He fell out of the league until the Knicks called him up in the middle of last season. Burke flourished in New York, showing the offensive command everyone expected when he declared for the draft out of Michigan. Burke must fend off Frank Ntilikina and Emmanuel Mudiay – more recent and higher picks – at point guard, and the Knicks’ reported top target in 2019 free agency is point Kyrie Irving. But if Burke maintains his play with New York over a full season, he’ll have lucrative options somewhere.

Marcus Morris

Morris signed a four-year, $20 million extension with the Suns in 2014, taking a discount to play with his twin brother, Markieff Morris. Then, Phoenix traded Marcus to the Pistons. Marcus vowed never to let personal relationships get in the away of business again. Now with the Celtics, he’ll have his chance to maximize his earnings next summer. Marcus is a hard-nosed and skilled combo forward in a league where his versatility is increasingly valued. He’ll try to prove his worth on a stacked Boston team that has too many strong pieces to allow any individual to fully fly.

Report: Kings trying to get involved in Jimmy Butler trade by taking bad contracts

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The Timberwolves are reportedly seeking, among other things, “salary-cap relief” in a Jimmy Butler trade. But Butler is on a de facto expiring contract, and Minnesota is already below the luxury-tax line this season. There isn’t significant relief to be gained by dealing just him.

So, that likely means unloading Gorgui Dieng, who’s due $48,687,640 over the next three years, including $15,170,787 this season.

That’s a toxic contract that will be difficult to move. Some potential Butler trade partners don’t have viable expiring contracts to trade for Dieng, and some potential Butler trade partners will flat refuse.

Enter the Kings.

Adrian Wojnarowski of ESPN:

In recent days, Sacramento has been aggressive in courting Minnesota and several of Butler’s trade suitors — offering to use its space as a landing spot for bloated contracts.

The Kings have about $11 million in cap space (not counting Jamel Artis‘ unguaranteed deal). They also have a few ill-fitting veterans on expiring contracts that could facilitate a trade: Zach Randolph ($11,692,308), Iman Shumpert ($11,011,234) and Kosta Koufos ($8,739,500).

In return for taking bad contracts, Sacramento will seek draft picks and young players. This is the exact type of trade the rebuilding Kings should make. They just must hope Minnesota’s best offer involves them.

PBT Podcast: How do Victor Oladipo, Pacers take next step forward?

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Last season Victor Oladipo burst on the scene, making the leap from solid rotation player to All-NBA level star who could score and defend — and he dragged the Pacers up to being a solid playoff team with him.

The Pacers were the surprise of the NBA, which leads to the question: Can they do it again? More than that, how can they take a step forward? Kurt Helin of NBC Sports talks with J. Michael of the Indy Star about the Pacers and their key role players — Myles Turner, Tyreke Evans, Doug McDermott, Thaddeus Young and more — and what has to happen to move this team into the top three or four of the East.

The pair also discusses the East a little, including whether Toronto is for real, and how big a threat will Giannis Antetokounmpo and the Bucks be.

As always, you can check out the podcast below, listen and subscribe via iTunes at ApplePodcasts.com/PBTonNBC, subscribe via the fantastic Stitcher app, check us out on Google play, or check out the NBC Sports Podcast homepage and archive at Art19.