This is a perfect example of the ‘Art of Negotiations’.
In 2007, ABC/ESPN and TNT agreed to pay the National Basketball Association a combined $7.4 billion for the right to broadcast games on their television stations for eight years. Every month, the NBA takes this money and divvies it up by sending out 31 checks to team owners around the country (and one in Canada). But wait, there are only 30 NBA teams. Why is the NBA cutting 31 checks? That extra check goes to a pair of obscenely lucky brothers named Ozzie and Daniel Silna. Technically the brothers’ combined income was enough to make them the 7th highest paid people in the entire league last year. Together they earned roughly $2 million more in salary than superstars Kevin Durant, Dwyane Wade, Chris Bosh, Chris Paul and even LeBron James.
Daniel and Ozzie Silna
But there’s just one problem. Ozzie and Daniel Silna are not professional basketball players or current franchise owners. Neither of them have ever played a single minute in the NBA and, in fact, they are universally despised by executives at the NBA. So how are they earning so much money? Ozzie and Daniel Silna are the former owners of 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.
The NBA’s Big Regret
Ozzie and Daniel Silna were born in 1933 and 1944, respectively, to a pair of Latvian immigrants who had settled in New Jersey in the 1930s. Their father ran a small textile business which both brothers took over until the company was sold in the early 1960s. Soon after, Ozzie and Dan launched their own knitting business that eventually grew into one of the largest manufacturers of polyester just as disco fever swept the nation in the 1970s. Dan Silna, a lifelong basketball super fan, suggested that they use some of their newfound wealth to acquire an NBA franchise. They attempted to purchase the Detroit Pistons for $5 million, but their offer was rejected.
As strange as it sounds, at the time there were actually two professional basketball leagues operating in the United States, the National Basketball Association (NBA) and the American Basketball Association (ABA). The ABA was founded in 1967 as an attempt to chip away at the NBA’s monopoly on professional basketball. And there was absolutely a time when the ABA posed a significant challenge to the NBA’s dominance. ABA owners started an all-out salary war by offering young players much larger contracts than their NBA counterparts could afford. The ABA also introduced exciting new concepts like the three-point line and the All Star Game dunk contest. Future NBA legends Julius Erving, Moses Malone, Connie Hawkins and Larry Brown all got their start in the ABA.
Julius Erving ABA Game
When the Silna brothers’ attempt to purchase an NBA franchise came up short, they did the next best thing and went shopping for an ABA team. In 1973 they stuck a deal to purchase the ABA’s struggling Carolina Cougars for $1 million. Almost immediately, the brothers decided to move the team to St. Louis where they hoped to reach a larger contingent of basketball fans. They poured $3 million of their own money into the newly named “Spirits of St. Louis” signing hot young players and upgrading the team’s facilities. They also hired a young announcer fresh out of Syracuse broadcasting school by the name of Bob Costas to do the team’s play-by-play commentary.
The 1974 Spirits of St. Louis
In their first season, The Spirits of St. Louis made the playoffs where they defeated the ABA defending champion New York Nets before losing to the eventual winning team, the Kentucky Colonels. Unfortunately, that was the high point for the Spirits. A year later in 1976, the American Basketball Association went belly up. As part of a dismantling agreement, the four most viable ABA teams would become 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. Meaning, forever, or as long as the NBA exists as an viable entity. Specifically the contract reads “The right to receive such revenues shall continue for as long as the NBA or its successors continues in its existence.” Their attorney who negotiated the deal, would get a 10% cut of the Silna’s royalties.
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.
Magic and Jordan
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.
By: Brian Warner