A groan filled the ballroom in the Hilton Midtown hotel as the Knicks suffered another setback, this time in the NBA Draft Lottery. Instead of jumping up to No. 1 or staying second, the Knicks dropped two spots Tuesday night and will select fourth in the June 25 NBA Draft.

Team president Phil Jackson wasn't in the building. But general manager Steve Mills wore Dave DeBusschere's Basketball Hall of Fame ring for luck -- the one the Knicks legend wore in 1985 when the Knicks won the inaugural lottery and the right to draft Patrick Ewing.

It didn't work. Mills dropped his head after it was revealed the Knicks wouldn't be in position to draft Kentucky big man Karl-Anthony Towns or Duke center Jahlil Okafor.

"I was disappointed because we obviously wanted to get No. 1," Mills said. "But it was not a total disappointment because we knew we were going to get a good player wherever we ended up in our range in this draft."

The last-place Timberwolves ended up winning the lottery and own the No. 1 overall pick.

The Knicks finished a franchise-worst 17-65. They were at the bottom of the league for most of the season. But they won two of their remaining three games -- including one in Atlanta. Minnesota lost its final 12 and ended up 16-66, one game worse than the Knicks.

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The T-Wolves had a 25 percent chance of picking first and the Knicks 19.9. Minnesota's reward was it became the first last-place team since the 2004 Magic to win the lottery.

"The outcome of games -- players are going to go out and try to play hard and try to win games," Mills said. "That's what we asked them to do every night. That's just the way the pingpong balls turned out this time."

Another twist was the only two teams to move in the lottery were Jackson's current and former ones. The Lakers jumped up from fourth to second. The Sixers will pick third.

At No. 4, the Knicks could choose between Ohio State guard D'Angelo Russell or point guard Emmanuel Mudiay, who played in China last season. That is, if the Knicks keep the pick. Jackson alluded to them moving it if the Knicks dropped, and Mills didn't rule out that option with the Knicks needing veteran help. "I think we're going to be open to a lot of things," Mills said. "We know we can get a good player at this pick. We're also going to be open to talking to teams and looking at different options."

Russell and Mudiay both said they would love to play with Carmelo Anthony and to learn from Jackson. The Knicks also could look at Duke forward Justise Winslow or Kentucky center Willie Cauley-Stein. Mills wouldn't comment on some of the players, but he did on Mudiay.

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"Mudiay's potentially a very good player," Mills said. "We haven't worked him out yet. He's a guy that obviously would be in the mix. We're going to look at all of our options and we'll feel good about whoever we end up selecting."

Most of the Knicks' rebuilding work this summer would be done in free agency, where Detroit's Greg Monroe is expected to be a main target. Mills said free agency "will have a big impact" on what direction the Knicks take in the draft, and tried to put a positive spin on slipping.

"It's not a setback at all," he said. "We went into this knowing we can get a good player, anywhere from 1 to 5. Whatever player that is is complementary to where we're going. We're going to get a real good player. We're going to continue with our process. We're going to build this team the right way."

The Dolan family owns controlling interests in the Knicks, Madison Square Garden and Cablevision. Cablevision owns Newsday.