In 2006-2007, the disappointing play of the Kings had been coupled with the distraction of legal troubles. Coach Eric Musselman pleaded no contest to DUI charges early in the season, while star Ron Artest got in to trouble for neglect of his dogs, and was later arrested for domestic assault. The Kings dismissed Artest of basketball duties, pending more investigation in to the matter, and was later reinstated. The Kings finished the 2006-07 NBA season with an overall record of 33-49 (their worst in 9 years) in which they were 20-21 at ARCO Arena for the first time since 93-94 and 13-28 on the road; fifth place in the Pacific Division. This season record included a seven game losing-streak that started on January 4 and ended on January 19. Consequently, the Sacramento Kings went on to miss the 2007 NBA Playoffs, the first time in eight seasons. Coach Eric Musselman was fired on April 20, 2007. The Kings' future appears to rest on the shoulders of breakout star Kevin Martin, who was a leading candidate for 2007 NBA Most-Improved Player of the Year. The 2007 off season was a time of change for the Kings. Kings coach Eric Musselman was replaced by former Kings player, Reggie Theus for head coach. Fans and sports analysts were puzzled by the hire, especially with Larry Brown expressing great interest in coaching the team. On June 28, 2007, the Kings selected center Spencer Hawes as the 10th overall pick in the 2007 NBA Draft.

In addition to these changes, the Sacramento Kings acquired center-forward Mikki Moore from the New Jersey Nets. Kevin Martin signed a contract worth $55 million, extending his period with the team for five more years.

However, the Kings also lost some key players over the offseason, with backup point guard Ronnie Price leaving for the Utah Jazz, and Corliss Williamson retiring.

The team claimed fourth-year point guard Beno Udrih off waivers from Minnesota. Udrih quickly assumed the starting point guard job, as Bibby was injured.

It was announced on February 16th, 2008 that the Kings had traded longtime point guard Bibby to the Atlanta Hawks for Tyronn Lue, Anthony Johnson, Shelden Williams, Lorenzen Wright and a 2nd round draft pick. The move was done mostly to clear cap space for the future. Bibby was the last remaining original player that got the Kings to the Western Conference Finals back in 2002.

The Kings improved by 5 games and finished the 07-08 season with a 38-44 missing the playoffs by a much bigger margain (12 games) than the previous season (8 games). They went 26-15 at home and 12-29 on the road. After selling out every home game since 1999 the Kings only sold out the three home games (against the Celtics and Lakers) during the 07-08 season averaging 13,500 fans per home game, almost 4,000 below capacity.