Several months back we wrote an article titled "The Greatest Sports Business Deal Of All Time". The article tells the story of two of the luckiest (and smartest) people on earth: Daniel and Ozzie Silna. The Silna brothers used to own an American Basketball Association (ABA) team called The Spirits of St. Louis. Back when the ABA folded in 1976, the Silna brothers agreed to dissolve their team in exchange for what seemed like a meaningless concession involving a tiny percentage of future NBA broadcast revenues. At the time, no one ever could have ever imagined that this would accidentally turn out to be the greatest sports business deal of all time. A deal that the NBA woefully regrets every season to this day, and has made the Silna brothers, extraordinarily wealthy.
After making a fortune in the textile business, in the early 1970s Ozzie and Daniel Silna attempted to purchase the Detroit Pistons for $5 million, but their offer was rejected. After getting rejected by the NBA, the brothers went shopping for an ABA team. In 1973 they stuck a deal to purchase the ABA's struggling Carolina Cougars for $1 million. The Silnas then proceeded to move the team to St. Louis and poured $3 million of their own money into the newly named "Spirits of St. Louis".
In their first season, The Spirits of St. Louis made the playoffs. Unfortunately, a year later the American Basketball Association went belly up. As part of a dismantling agreement, the four most viable ABA teams became full fledged NBA franchises. Those four lucky teams were the Denver Nuggets, Indiana Pacers, San Antonio Spurs and New York Nets (today's Brooklyn Nets). Of the three remaining ABA teams, the Virginia Squires went bankrupt before any financial compensation agreement could be made with the NBA. That left the Kentucky Colonels and the Spirits of St. Louis. As part of the dismantling agreement, both teams needed to approve the merger for the deal to go through. The Kentucky Colonels' owner (who was the president and largest shareholder of Kentucky Fried Chicken) accepted a $3.3 million buyout offer and then went on to successfully run for Governor. Having just poured their hearts and souls into their beloved Spirits, the Silna brothers were much more reluctant to accept a quick buyout and disappear from basketball forever. They did eventually agree to accept a $2.2 million lump sum in exchange for their former players who were successfully drafted into the NBA. But that wasn't quite enough to make them satisfied.
At the time, NBA television viewership was barely a blip on the ratings radar. Even an NBA championship series would be shown on tape delay after the 11pm news. So, for NBA executives it seemed like a very meaningless and inconsequential concession to offer the Silnas a small percentage of "Visual Media" (television) revenues to make them go away. They didn't even offer a small percentage of all NBA revenues, their offer was 1/7 of any revenues earned by the four ABA teams that were being absorbed. In other words, the Silna's agreed to give up their ABA franchise in exchange for 1/7 of the television revenues generated by the Spurs, Nuggets, Nets and Pacers. And here's the kicker: The 1/7th ownership stake would last in perpetuity. In other words, forever. Or as long as the NBA exists in the world.
For the first years, between 1976 and 1978, the Silnas did not earn a dime from the NBA and the league looked like it had negotiated a brilliant deal. In 1979 however, the Silna's received their first royalty check in the amount of $200,000. For the 1980-81 season, the Silnas earned $521,749. Then, between 1980 and 1995, the NBA's popularity exploded thanks to players like Kareem Abdul-Jabbar, Larry Bird, Magic Johnson and later Michael Jordan, Charles Barkley and Shaquille O'Neal. And with that explosion in popularity came several very large television contracts.
The first mega contract that the NBA struck happened in 1997 when NBC and Turner agreed to pay $2.7 billion to broadcast games on television. Five years later, ABC/ESPN/TNT agreed to pay a combined $4.6 billion. In 2007, ABC/ESPN/TNT signed an eight year deal for $7.4 billion. Every time a new deal was stuck, the Silna brothers cashed in. During the 2010-2011 season, the Silna's earned a royalty of $17.45 million. For 2011-12, they earned $18.5 million. For the most recent NBA season, 2012-2013, the Silna brother's share of TV revenues was just over $19 million. In total, since that original 1976 agreement was stuck, Ozzie and Daniel Silna have earned a whopping $300 million in NBA television royalties. And if that's not crazy enough, they are expecting to receive an additional $95 million over the next five years! But wait, it gets better…
Because the language in their original contract covers all "visual media" revenues, last year the Silna's took the NBA to court over money earned from sources that were unimaginable back in 1976. For example, international broadcasts, internet rights and the NBA TV cable network. Recently, a Federal judge sided with the brothers and ruled that the NBA must pay them to cover incremental revenues from the last few years, and increase future royalties from now on! Oh, and by the way, in 1982 the NBA offered to buy the brothers out of their contract for $5 million paid over 5 years. The Silna's rejected that offer and countered with $8 million over 8 years. The NBA declined.
The Payoff
Over the years the NBA has attempted to extricate themselves from this embarrassing deal with the Silna brothers on a number of occasions without success. On January 7, 2014, the NBA announced that it had finally reached a tentative agreement with Ozzie and Daniel that will allow both parties to walk away once and for all and end years of bitter back and forth lawsuits. As part of the deal, the NBA will pay the Silna brothers a one time upfront payment of $500 million to finally go away. That will bring the total amount of money that the Silnas have earned off off the NBA to $800 million. $800 million from a random contract concession in 1976 that no one could have imagined would ever be worth a dime. $800 million that could have been settled in 1982 for 1/100th of the amount. Now you understand why this is truly the Greatest Sports Business Deal of all Time.
