Thiel: Bad week for everyone in NBA Kings saga

The saga of the Sacramento/Seattle Kings had its own special kind of March madness last week:

• The hedge fund Chris Hansen manages had its worst quarter since inception in 2008, news that made the front page of his hometown Seattle Times;

• The little software shop run by his partner in pursuit of the NBA franchise, Steve Ballmer, was fined $731 million by the European Union, news that made it only to A-8 of the Times;

• The counteroffer to the Hansen/Ballmer deal from Sacramento, choreographed by mayor Kevin Johnson, was politely but publicly rebuked in a press conference by NBA commissioner David Stern. That was a big deal everywhere in the sports world.

At first blush, it would seem that the “treasure” of this Kings deal is like the Ark of the Covenant in the Indiana Jones movie: Open the lid and people melt.

In fact, the Hansen/Ballmer setbacks affected their companies, not their personal wealth, which is what is in play with the Kings purchase. Hansen’s fund, Valiant Capital Partners in San Francisco, manages $2.8 billion in assets and lost 7.44 percent in the final quarter of 2012. Lower in the story is the fact that for the year, the fund reported a net return of 10.32 percent. Hey, even LeBron James has bad quarters.

Hansen wrote in a letter to fund investors that said his basketball pursuits had nothing to do with the under-performance of the final quarter. Those more qualified can pass judgment on the matter, but a flagrant foul it is not.

Over in Redmond, a fine of $731 million can be paid from Microsoft’s tip jar. It amounts to one percent of the company’s 2012 earnings. The EU said Microsoft again broke antitrust law by failing to keep its 2009 promise that it would give consumers a choice of browsers and not just the company’s Internet Explorer.

Perhaps more concerning is that the fine was the fourth time the EU has busted Microsoft in nine years. If the rules are the same over there as they are here, Ballmer gets two more before he fouls out of Europe.

But the business development even more more curious was Stern’s remarks Friday in Oakland, where he was attending a Warriors game. In saying the Sacramento counteroffer “was not quite there” and at “considerable variance” with the Seattle offer, Stern seemed to embarrass publicly Johnson and potential buyers Ron Burkle and Mark Mastrov.

But if I’m Hansen, I’m pissed.

Presuming that there are political and personal games being played backstage that are hard to know at the moment, the least that can be said of Stern’s remarks is that he’s publicly coaching one side to do better via his bully pulpit. I’m fairly certain that neither Burkle nor Mastrov were bothered by Stern’s words; the scare tactic was directed at any politician or bureaucrat in Sacramento who may oppose the arena deal, as well as any potential litigant.

Stern is leveraging the shaky-kneed in his audience by saying: You’re not that good. Get busy.

But the apparent back of the hand to Sactown also has the ripple effect of putting pressure on Hansen. Since we know so little of the deal’s details, this can only be speculated : If Sacramento gets close to the Seattle offer, and there’s something about the purchase from the Maloofs or the financial structure of the Seattle arena that Stern and the owners don’t like, they can pressure Hansen to change it or lose out.

Two remarks Stern made Friday lead to that observation:

• His disclosure that there is now  a preliminary meeting April 3 for the parties in New York to discuss their bids before the April 19 vote. That’s odd. Why would Hansen and possibly Mayor Mike McGinn be called before the Great and Powerful Oz to explain themselves when the memorandum of understanding and the purchase and sale agreement with the Maloofs have been long in the NBA’s hands? My guess: There’s something Stern doesn’t like. And by telling them April 3, they get two weeks to fix it. To avert potential litigation over unfair practices, the same circumstance would be delivered upon the heads of the Sactowners.

• “We’ve never had anything like this, at least in the last 36 years (his tenure in the league) that I’m aware of,” Stern said, referring to the unique situation of similar bids for the same team that involves no lease-breaking. Basically, the Kings are a free-agent franchise that provides the NBA with the rarest of opportunities to find out the open-market value of one of the least of its operations. Stern said NBA attorneys are scouring league by-laws for steps to take. What he didn’t say was they were also looking for opportunities to exploit by finding out which city is more desperate for NBA ball.

He can get away with this extortion because he is a monopoly operator with little fear of reprisal among the bidders. Also, the other owners want the highest sale price to help increase their franchise values. To that point, Stern said another thing Friday that was easy to overlook but important in understanding the NBA’s thinking.

“At the end of the day, it is for the board of governors to make the ultimate decision as to who the team will be sold to and where it will be located,” he said. “I’ve spent a fair of number of years to establish that power and prerogative within the board of governors. If an ownership group (the Maloofs) has decided to exit our league, it doesn’t retain the ultimate right to tell us where the team will be located. It is for the board of governors to decide.”

That means the normal business rules of a private transaction (Maloofs sale to Hansen) have been usurped via by-laws that vest final authority in the league. Stern wants both markets to have no choice but to jump through the highest possible flaming hoop. Because he can.

It may have been a bad week for others. For Stern the opportunist, he probably made his bosses a little more money.