FanPost

Why ROFO may actually now mean Kings ballgame

Kelley L Cox-USA TODAY Sports

ROFO

Is it a dirty acronym? Because it seems nobody really wants to discuss it anymore. Two months ago arguing about ROFO was all the rage.

A month and a half ago Stern casually acknowledged ROFO.

Then nobody spoke of it for weeks. Nobody, it seemed, could really tell at the time whether it would mean anything.

Then a few days ago ROFO became what may perhaps end up to be the most important aspect of the Sacramento/Seattle Kings battle.

What happened?

<><><><><><><><><><><><><><><><><><><>


ROFO stands for Right of First Opportunity and refers, in the case of the Sacramento Kings ownership at least, to the ability of one owner (Primary or Minority) to match the price of a sales agreement made between another partner and an outside party in order to keep the outside party from acquiring a share of the team, thereby buying that "for sale" share for themselves.

This isn't a one-of-a-kind type thing as far as NBA ownership contracts goes, either. Michael Jordan used a form of ROFO in order to block a sale of the Charlotte Bobcats interest.

There have been a few great write-ups on how this quirk in the Kings ownership documents was discovered and how verification of the validity of these rights was attempted, and I recommend you read them all. All of these were written around the end of January, early February, when nobody was quite sure what the real contracts contained.

The Sacramento Bee wrote how the Bob Cook Bankruptcy trustee wished to assert that the ROFO existed as it would raise the value of the 7% he was in charge of liquidating.

The Seattle Times wrote of how the trustee was arguing the point requesting sale documents from the Maloofs. The Times also sought the advice of Michael McCann, a sports law expert.

NBC writer Aaron Bruski obtained a copy of the Kings ownership documents and possible amendments, wrote an article in which he was able to finely detail the documents' contents and why he believed there was indeed several clauses that spoke directly to the rights of minority owners to match a sale of other owners' team interest.

Tom Ziller, right here on Sactown Royalty wrote that ROFO could be the way the league doesn't have to make a difficult decision all by itself.

Jonathan Santiago at Cowbell Kingdom also related the hurdles thrown up by ROFO rights according to James Ham and Aaron Bruski

All of these writers shared no further definitive followup to the question at that time, however, as to whether these ROFO rights actually existed, backed up by legal decision, and would be taken into account by David Stern and the Board of Governors when they make their final decisions.

<><><><><><><><><><><><><><><><><><><>

So after these articles were written, the next time David Stern was available for public comment, some reporters asked him about ROFO.

Now, everyone knows that David Stern is a master of saying exactly everything or nothing, depending on your point of view.

Before the NBA All-Star game, Seattle reporter Chris Daniels shared a few Tweets in which he said that he had asked David Stern about legal issues with the NBA Kings deal.

Stern's cryptic response was, "I have a sense the first refusal right will be accommodated in some shape or form.

I can’t speak about lawsuits against pending buildings or environmental reviews. I’m not expecting something bad from a legal perspective."

Some have taken his second statement to mean that he didn't expect there to be any teeth to a lawsuit which might come about over ROFO rights, basically dismissing ROFO as a pertinent issue at all.

I think it is pretty clear, however, that the first statement about accommodating ROFR stands by itself, and the second statement in which he said he expected nothing bad from a legal perspective only refers to the buildings and environmental reviews lawsuits he mentioned.

Here is why I think that.

A few days later, Jonathan Santiago of Cowbell Kingdom in Sacramento, during a formal press conference, asked Mr. Stern, "There has been a lot of talk about the minority owners in the Sacramento Kings and their possible right of first refusal. The other day I believe you said that would be accommodated. Could you elaborate more on that?"

David Stern replied, "If they have it I guess they’ll exercise it and deliver an offer to the owners that is good and if they don’t have it they won’t exercise it.

And some court will say yes or no, or they’ll be some negotiation.

I just don’t feel it as a defining issue here, that’s all."

This was a VERY telling statement by the Commissioner, for a number of reasons.

1. He made no attempt to discredit the possibility that there might indeed be an ROFO.

2. He made no mention that the NBA itself would legally challenge the ROFR, and in fact mentioned that the NBA would defer to a court's interpretation as to whether ROFO was valid in the Kings ownership contract.

3. He said that he didn't feel it was a defining issue here.

Let's look at that third point first.

That here is a very David Stern like distinction. Stern does not like to speculate on issues that are not immediately pertinent. For example, when reporters asked him to speculate on how he and the other owners might react if Sacramento did indeed send them a matching bid, Stern refused to make any comment because no bid had yet been submitted at that time.

So when David Stern said that it wasn't a defining issue here he meant it was not yet a defining issue now.

And why was it not a defining issue now?

We need to go back to the wording of the Kings ownership contract to answer that one.

Section 7.3 of the Ownership agreement states: 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.

I highlighted the area above because, as David Stern constantly emphasizes, these things are all about timing. Stern and the BOG need not comment or even worry about ROFO at this time because the question of the validity of a ROFO claim doesn't become pertinent until after a sale is concluded and the ROFO was not allowed. (EDIT: Thank you, Wallywagon for catching my previous screw up here)

And David Stern has made quite clear that the sale can't be concluded, by NBA policy, until after the BOG approves it.

So at that point, Stern needed to say nothing about ROFO because it perhaps was not yet pertinent to the discussion. Perhaps no mention had yet been made that ROFO might be invoked because the Sacramento team preferred not to use it if they didn't have to and the leaning of the BOG was not yet known.

But he did say something.... that it would be accommodated.

The word accommodate, according to Merriam-Webster means: to make fit, reconcile, make room for or give consideration to. There is no way anybody can take this to mean ROFR will be ignored.

And why am I trying to bring this all back into the forefront of discussion again now?

Because that second point above just became VERY pertinent.

A few days ago we learned, as I had predicted, that Dave Lucchetti, a Kings minority owner who it is reported currently owns but 1% of the Sacramento Kings, would exercise his ROFO in order to match the $15 million that Chris Hansen had bid for Bob Cook's former 7% share of the team controlled by the bankruptcy trustee, to keep that portion in the control of the Sacramento group.

The same clauses in the Kings ownership contract that would allow Mr. Lucchetti to match Hansen's bid for the 7% are the clauses that would allow a minority owner to match, before the sale is concluded by the BOG, the sale price by Hansen on the 65% share controlled by the Maloof's. (Edit: James Ham in the comments section below clarifies why this may not be entirely the case in the Maloof's minds.)

So in essence, if Lucchetti is determined by a court to be legally allowed to match Hansen for the 7%, and nobody is successful in challenging that right, then precedence should be being set that similarly minority owners have the same right to match on the Maloof sale. And there seems to be no indication in the Kings ownership contract language that states that Mr. Lucchetti would have to use his own cash or could not use outside investors to help him come up with the money to match as Michael Jordan did when using his ROFO in Charlotte. Source here and here.

That, my friends, is what is called a big deal.

And make no mistake, though there has not been much talk about ROFR lately, the NBA at some point knows that it could be very pertinent one day. I contacted Michael McCann about this and his response was that there is no known/certain resolution on the impact of ROFO rights on the Maloofs-Hansen sale but the NBA clearly wants certainty on that. If Hansen challenges or refuses to challenge Lucchetti's match, I would guess that either way "certainty" will become much clearer.

So, if the Maloofs knew that they couldn't sell without allowing a minority owner to match, and Hansen also would have known this clause existed, why then did Hansen bid on the Kings at all? Seems a waste of time, right?

Well, the answer is quite simple. The Kings were the only team with no long term lease available. Hansen had to take the chance if he wanted a team. He may have hoped that no minority owner would care enough to match the hugely overvalued bid he placed on the team. The Maloofs may have even told him, as they have told reporters, that they didn't feel the ROFO would be an issue, maybe again because of that high amount. They seem to have been right as far as the Benvenuti family and John Kehriotis are concerned.

Perhaps it won't be an issue... because the BOG will deny the Hansen bid outright.

After all, whether the Sacramento group would get the Kings directly from the BOG's actions, or through a ROFO claim, the vetting process of the new Kings ownership and arena deal which is going on right now would still have to take place. This again emphasizes why Mr. Stern wouldn't feel they are wasting their time hearing about the new Sacramento owners now. And it is certain that KJ and his whales would much rather win approval from the BOG in a more conventional way and not have to deal with the messiness of figuring out how to finance a ROFO match by Mr. Lucchetti and the convoluted ownership tangles which would ensue.

But if they don't wish to directly deny the Hansen bid, I expect ROFO will become perhaps the biggest deal of all to the Sacramento group. And I am pretty certain that, if the Kings ownership contract language indeed legally makes ROFO a reality as it seems to be doing with the 7% in court judgements right now, the NBA will have no problem allowing its use by the Sacramento group as they did previously with Michael Jordan and his group if they feel it is valid.

It is certainly nice to have options. The exuberance of the Sacramento group after the meetings the other day exhibit the fact that KJ and the whales fully understand their options as well.

EDIT 4/5/2013 The above was written with a layman's understanding of what seemed to be going down. I am definitely not a lawyer. James Ham of Cowbell Kingdom has clarified a lot of stuff below in the comments as to how the Maloofs are trying to get around the ROFO language by using Affiliate status. Make sure to check out his update on it all below.

Disclosure: I am a Sacramento Kings fan foremost so if this seems slanted to you, it probably and unapologetically is so.

<><><><><><><><><><><><><><><><><><><>

Dave Lack was the longtime webmaster of the Bleacher Mob and Kingsfanclub websites way back when before real life became too hectic.

You can follow him on Twitter at @davelack

Other Fanposts by Dave Lack:

SAC or SEA, the choice that benefits ALL owners more

Sacramento Kings were making more money than the Seattle Sonics? Yup!

The Most Interesting Man in Sacramento...Suddenly

You think the NBA doesn't care about Sacramento? You are wrong!

"Vetting" the character of the potential Kings Owners

Sacramento Kings - Back to Yesterday Nostalgic Video

(This is a FanPost from a member of the Sactown Royalty community. The views expressed come from the member, and not Sactown Royalty staff.)

X
Log In Sign Up

forgot?
Log In Sign Up

Forgot password?

We'll email you a reset link.

If you signed up using a 3rd party account like Facebook or Twitter, please login with it instead.

Forgot password?

Try another email?

Almost done,

Join Sactown Royalty

You must be a member of Sactown Royalty to participate.

We have our own Community Guidelines at Sactown Royalty. You should read them.

Join Sactown Royalty

You must be a member of Sactown Royalty to participate.

We have our own Community Guidelines at Sactown Royalty. You should read them.

Spinner

Authenticating

Great!

Choose an available username to complete sign up.

In order to provide our users with a better overall experience, we ask for more information from Facebook when using it to login so that we can learn more about our audience and provide you with the best possible experience. We do not store specific user data and the sharing of it is not required to login with Facebook.

tracking_pixel_9347_tracker