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.

Another report Spurs will not trade Kawhi Leonard within West

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The people around Kawhi Leonard made it clear (through leaks to the media, not by talking to the Spurs at first): Leonard wants out of San Antonio, and he wants to go to Los Angeles. Specifically, the Lakers.

Almost as quickly, the Spurs leaked that they were not going to trade Leonard to the Lakers or any team in the West.

Sam Amick of the USA Today echoed that sentiment in his discussion of LeBron James‘ offseason options on Saturday.

But in the days that followed, the Spurs wasted no time in sending this message all around the NBA: The only Western Conference team he might be playing for is theirs.

Fellow West teams have been told, in essence, to get lost – none moreso than the Lakers, according to ESPN. As it stands, the Spurs are determined to either fix the situation or trade Leonard to an Eastern Conference team.

Leonard has leverage here: He can tell teams he will not re-sign with them and will leave as a free agent. That will scare off most teams who don’t want to put in

Would it scare off Boston or Philadelphia? The rumor is no. Those teams have real interest in Leonard, and both have the assets to get a deal done and make the bet that a year in their cultures, with their coaches and top players, a year contending, and with their fans and city would win Leonard over. Just like Oklahoma City made that bet with Paul George. Also, whoever trades for Leonard will be able to offer a five-year, $188 million contract, while as a free agent the max will be four years, $137 million. For a guy who just missed almost an entire season with an injury, that guarantee can matter.

Boston could go all in on an offer — Jaylen Brown, Marcus Morris, the Kings first-round pick next season (top one protected) and the Clippers first round pick next year (lottery protected). Philadelphia could put together an offer of Markelle Fultz, Robert Covington, and Miami’s unprotected 2021 pick (the first year high schoolers likely re-enter the NBA draft, making it a deep one).

The question is would those team put in all those assets on a bet they would win Leonard over?

The other big looming question, when the offers start to come in will a rational Spurs front office reconsider and look at a trade from the Lakes of Brandon Ingram, Kyle Kuzma, a future first, and the contract of Luol Deng to balance out the numbers. Would they consider it superior because they like Ingram? (That trade may require a third team to take on Deng’s contract, and the Lakers might need to throw in Lonzo Ball or some other sweetener to get a team to take on Deng’s $36 million remaining.)

Expect the Spurs to take their time with this, try to win Leonard back over, then consider all their options. They are in no rush, in fact, they’d love to create a bidding war for Leonard. Any offer from Boston and Philadelphia on the table in July will be on the table in September when training camps open. The Lakers, however, may be in a very different space.

It’s going to be a very interesting next few weeks.

After full season in Europe, Luka Doncic not expected to play in Summer League

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Deandre Ayton played 35 games for Arizona last season. Marvin Bagley III played 33 games last season for Duke. Jarnen Jackson Jr. played 35 for Michigan State. None of them played past March.

Luka Doncic played 61 games for Real Madrid — at a higher level than NCAA basketball — and the season ended two days before the NBA Draft. Plus in Europe, the practices are often far more strenuous than the games (many teams keep doing two-a-days through the season).

Not surprisingly after that long a season Dallas is not going to ask Doncic to play in the Las Vegas Summer League, reports Tim MacMahon of ESPN.

This was expected in most quarters no matter who drafted Doncic. Rest and recovery matter more than getting him into the glorified pickup games of Summer League.

Doncic will be ready to go when the season starts, and he will be one of the favorites to win Rookie of the Year.

Former Spur Bruce Bowen rips Kawhi Leonard for asking out after injury

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For years, players have bought into “the Spurs way” not just on the court but off — it was always about what’s best for the team first. That meant Tim Duncan, Tony Parker and others taking discounts from the max salary they could have earned at points to help the team keep the roster to do that. Sacrifice was part of the game.

So it shouldn’t be a shock that former Spurs are closing ranks around Gregg Popovich and the franchise in the wake of Kawhi Leonard pushing his way out the door following missing most of last season with a leg injury.  It was the treatment of that leg injury — Leonard did not trust the Spurs’ doctors and got a second opinion that saw things differently — which started the rift, although the advice from Leonard’s uncle/advisor and agent also play a role in widening the gap.

On SiriusXM NBA Radio this week (h/t ESPN) former Spur Bruce Bowen ripped into Leonard for complaining about his treatment.

“First, it was, ‘Well I was misdiagnosed.’ Look here: You got $18 million this year, and you think that they’re trying to rush you? You didn’t play for the most part a full season this year. And you’re the go-to guy, you’re the franchise and you want to say that they didn’t have your best interest at heart? Are you kidding me?…

“I think he’s getting bad advice,” Bowen said. “I think what you’re starting to see now is an individual given a certain amount of advice, and it’s not the right advice. Here it is: You were protected in San Antonio. You were able to come up during a time where you still could lean on Tim [Duncan] Tony [Parker] and Manu [Ginobili]…

“As a player, if I’m a leader of a team, my team goes on the road in the playoffs, I’m with my guys,” he said. “Because that’s what it’s all about. It’s about camaraderie. It’s about fellowship. It’s a brotherhood. When that didn’t happen, it’s all kinds of sirens and alarm signals that says to me, ‘Is this person fully vested?’ … I don’t want to take on a player who’s not willing to support his guys during the course of their time needing him.”

Bowen added, “there’s nothing but excuses going on.”

The backlash to Leonard is to be expected, particularly from those in San Antonio (not so much from people in Los Angeles, where Leonard is trying to force himself to). The injury treatment started the rift, but Leonard is putting his desires in front of those of the team and franchise — and that’s his right, he’s far from the first player to do that. It’s just not something we have seen from San Antonio. The Spurs have long sought out not only guys who could play on the court but guys who fit a mold personality wise and would put the team first. On the court Leonard had done that, going back to when he won Finals MVP. Now, off it, he has had a change of heart, for whatever reason (or reasons).

Bowen is more outspoken than most, but this will be the sentiment out of San Antonio if Leonard leaves.

That is not going to change the reality on the ground, however.

Michael Porter Jr.’s status for Summer League, next season unclear

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Blake Griffin. Joel Embiid. Ben Simmons. Most recently, Harry Giles.

NBA teams are not afraid to sit an injured player throughout his rookie year, not if they think there’s a payoff on the other side.

Thursday night during the NBA Draft concerns about Michael Porter Jr.’s surgically repaired back (among other things) had the guy considered a potential top pick a year ago sliding down the board to Denver at No. 14. That’s potentially a steal for the Nuggets, but even at the press conference immediately after the pick Nuggets’ president of basketball operations Tim Connelly sounded very cautious.

A day later, speaking to Marc Spears of The Undefeated at ESPN, both Porter Jr. and the Nuggets’ owner/president were suggesting he is out for Summer League and could have a redshirt year next season.

Porter Jr. said the day before the draft that it was possible he could miss summer league action through injury…

Nuggets president Josh Kroenke told The Undefeated he was uncertain about whether Porter Jr. would play in summer league or during the 2018-19 season.

According to reports, Porter Jr. was showing a slight limp at his introductory press conference with the Nuggets Friday.

The Nuggets are right to be cautious here and think long-term. It would be a shock to see Porter Jr. at Summer League in July. Could he lace up his shoes and play at some point next season? Maybe. Depends on his rehab and how he progresses, but the Nuggets have zero fear of letting him sit out a season. This is a team that just missed the playoffs last season and is expected to take a step forward this time around without Porter — they don’t need him to be good, they have Nikola Jokic, Jamal Murray, Gary Harris and the rest.

Porter needs to get healthy, and that very well may mean sitting out a season. Then when he does play accept a role and go from there.