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.

Take that for data: NBA preps for expanded betting on games

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LAS VEGAS (AP) — Here’s a scenario: LeBron James is four assists and three rebounds shy of a triple-double after three quarters. A bettor, who is watching at home and utilizing a mobile app, decides to gamble that James will get those assists and rebounds in the final 12 minutes. The wager then gets made before play resumes.

The NBA wants that bettor to see the best possible data.

So the league is seeking to get stats out quicker than ever.

Fast isn’t fast enough for the NBA anymore, not when it comes to stats – especially now that the U.S. Supreme Court has opened the door for states to allow wagering on games. The league has upgraded its stat systems in the past year to try and get its data out as close to real-time as possible, even aiming to beat the typical lag of 7-15 seconds that it takes for television or streaming services to show whatever happened.

It’s about what the NBA calls official data. The league’s stance is that getting accurate stats to bettors is critical so the player knows what they’re betting on and the casinos will know when to pay out or not. But how much value that data has for casinos – and whether they will pay anything for it – remains unclear.

“My view is we should be compensated for our intellectual property, but we can do that directly, again, with commercial relationships with gaming establishments,” said NBA Commissioner Adam Silver, whose league had hoped this matter would be resolved with federal regulation instead of various policies getting worked on state by state by state.

Silver met with betting officials in Las Vegas earlier this month, and how data should be provided was one of the topics on the agenda. The NBA has said it is seeking a 1 percent “integrity fee” on wagers, which the league said would offset their additional security costs and compensate them for the data they can provide.

The casinos, however, are balking at legislative mandates insisting upon the use of official data. Joe Asher, the CEO of bookmaker William Hill USA, told The New York Times that such a mandate “sets up monopoly pricing power. This whole thing of official league data is like a smoke screen.”

It’s a major issue to work through, especially if in-game betting – people betting on various aspects of games after they’ve already started – catches on in the United States the same way that it has in the United Kingdom.

In-game betting, which is huge in Europe, is still relatively small in this country. Most Nevada bookmakers say in-game options make up no more than 5 percent of their sports-wagering business, although William Hill has said it accounted for nearly 25 percent of its sports business in the U.S. during 2017.

Only a handful of states have legalized sports betting since the Supreme Court decision in May, though several more states are expected to get operations up and running in the next year or so. Bettors now have been largely playing the basics – will Team X beat Team Y by more than six points, will the teams combine to score more than 210 points, that sort of thing.

“There’s a couple things about official data that make it advantageous for sports betting,” said Scott Kaufman-Ross, an NBA vice president who oversees fantasy sports and gaming. “Most is the speed. … That’s important for in-game betting.”

The NBA switched last year to software provided by Genius Sports, a London-based company that collects and distributes official data for dozens of sports federations around the globe and even recently completed a deal to work with the NCAA. The NBA data collected by Genius has been distributed globally by Sportradar, which sends it to media outlets, broadcasters and betting outlets outside the U.S.

Sportradar, the NBA said, is now working on obtaining the ability to send the data to U.S.-based betting entities.

NBA stat crews all generally work the same way: a primary caller uses a code to describe a play as it happens, a primary inputter uses a touch-screen tablet to punch in what he or she hears the caller say into the headsets that the crew share, a secondary inputter cleans up any mistakes, and a secondary caller is in contact with league offices in Secaucus, New Jersey, and reviews any plays that need additional study.

Those various crews, many members of which have received training during the summer league in Las Vegas, are the ones who decide who gets an assist or a rebound.

“The NBA has always been front and center on rapidly deploying statistics, first because of our television partners and then the Internet happened and that was good for the Internet,” said Steve Hellmuth, the NBA’s executive vice president for media operations and technology. “So it’s kind of always been in our DNA.”

Report: Stephen Curry also skipping Team USA minicamp

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In 2015, then-USA Basketball chairman Jerry Colangelo declared a minicamp mandatory for invited players who wanted a chance to join Team USA in the Olympics the following year. (Colangelo didn’t exactly stick with that.)

New USA Basketball chairman Martin Dempsey isn’t bothering to set such a hard line a year before another major competition – the 2019 World Cup.

LeBron James will miss next week’s minicamp, and so will Stephen Curry.

Chris Haynes of ESPN:

Golden State Warriors All-Star guard Stephen Curry will not be in attendance for Team USA’s minicamp next week in Las Vegas, league sources tell ESPN.

The two-time NBA MVP, according to sources, will be spending time with his family, including his newborn son.

Curry and James will not be eliminated from consideration moving forward.

Curry and LeBron have both played all the way through the NBA Finals the last four years. I don’t blame them for taking time for themselves. They’re also good enough to still get onto Team USA in 2019 if they want to play. They have leverage other players might not.

If Kawhi Leonard is looking for attention-grabbing cover to attend the camp, he won’t get it from the NBA’s two biggest stars. If Leonard participates, he’ll be – by far – the biggest story there.

Are Raptors viable trade destination for Kawhi Leonard?

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The Lakers, Clippers, 76ers and Celtics have dominated Kawhi Leonard trade discussions for most of the summer.

But the Raptors have emerged as a trendy pick for the star’s destination. One betting site even gave Toronto even odds against the field – including the Spurs – as Leonard’s team to begin next season.

Are the Raptors actually a realistic landing spot for Leonard?

Brian Windhorst and Zach Lowe of ESPN discussed on The Lowe Post podcast.

Windhorst:

Toronto Raptors, I think they’re in the driver’s seat for Kawhi. Because I think the Lakers have given up. The Sixers have given up. And with the Nets, Bulls and Hawks spending their cap space, it makes it harder to assemble a multi-team trade. I think the Raptors are in the driver’s seat.

Lowe:

I’ve seen a lot of snark on Twitter that the Raptors stuff is a joke, that the odds went up because of something I said on my podcast and you said on TV. I’ve seen it being dismissed. It may not happen. Most NBA trades don’t happen. But if you think it’s a joke, you should probably recalibrate your expectations.

The Raptors can construct an offer built around:

Because DeRozan and Lowry earn more than Leonard, the Raptors could also take back a costly contract San Antonio wants to dump.

Such a deal would allow the Spurs to remain competitive now while gaining long-term assets under greater team control than Leonard, who can walk in unrestricted free agency next summer.

It’d also give the the Raptors a championship chance they wouldn’t have next season otherwise. The window might not remain open long considering Leonard’s health and contract status, but there’s something to be said for raising the ceiling when it can reach that level – even if it means lowering the floor. Plus, if Leonard left, Toronto could more easily transition into its next phase than if DeRozan and Lowry remained on the books.

This trade framework makes too much sense for the teams not to discuss it. But whether that’d result in an actual deal is another question.

Report: Kawhi Leonard considering participating in Gregg Popovich-led Team USA minicamp

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The Spurs want to repair their relationship with Kawhi Leonard and keep him long-term. Leonard wants to leave San Antonio. Potential trade partners want to know more about his health and mindset.

Something has to give.

Maybe it will next week.

Spurs president/coach Gregg Popovich, taking over Team USA, will direct a minicamp in Las Vegas. Leonard is invited and – in a surprising development after he missed the few months of the season due to a quad injury – might actually play.

Ramona Shelburne and Adrian Wojnarowski of ESPN:

San Antonio Spurs star Kawhi Leonard is seriously considering participation in the USA Basketball national team’s minicamp in Las Vegas next week, an event for the embattled All-NBA forward to showcase the status of his recovery to prospective trade partners, league sources told ESPN.

Among NBA teams and USA Basketball officials, there is a belief that Leonard wants to participate in the camp, but could be dissuaded based on ancillary concerns.

Leonard holds some enthusiasm for showcasing his revitalized health in the wake of the quad injury that has been at the center of discord between the Spurs and him, sources said. The question being debated, sources said, is whether participating in the Team USA camp will ignite trade talks that deliver him to his preferred destination — the Lakers — or give the Spurs more cause to hold on to Leonard and push him to report to training camp in September.

For what it’s worth, there is conflicting reporting about Leonard’s preferred destination. Some say it’s the Clippers.

This low-intensity camp won’t be a chance for Leonard to prove he’s fully healthy, but he can show enough to ignite trade interest. Maybe that helps propel him out of San Antonio – though if it’s not to Los Angeles, how much would that mean to Leonard?

The camp could also give Leonard and Popovich a chance to reconnect. Depending on whom you believe, maybe some in Leonard’s camp or even Leonard himself don’t want to give the Spurs boss that opportunity.

If Leonard goes to Las Vegas, it’d become a media circus. All his movements and interactions, especially with Popovich, would be closely scrutinized. At one point, I would have figured the reserved Leonard would want no part of that. But I now believe we incorrectly assumed too much about him just because he’s quiet.

So, I’m not entirely sure what he wants – or what direction participating in this camp would send him.

Leonard knows more about the former. It’s on him to evaluate the latter.