The “Greatest Sports Business Deal Of All Time” Coming to an End?

The NBA, and more specifically, four of its teams, were on the wrong side of an historic windfall.  And now, they’re looking to get out of it.

When the ABA merged with the NBA in 1976, the plan was to keep four of the league’s seven teams: the Denver Nuggets, San Antonio Spurs, New York (later New Jersey and now Brooklyn) Nets and Indiana Pacers. The Virginia Squires were folded by the ABA before the end of the season due to financial problems.  The Kentucky Colonels and Spirits of St. Louis were folded as part of the merger, with compensation for the team owners.  Ozzie and Daniel Silna, the owners of the Spirits, wanted to be part of the teams going to the NBA, but were frozen out.  It is not hard to understand why: ticket sales were miniscule, and the team was the worst of the six, possessing only one player believed to be an NBA quality talent.

In their negotiations with the remaining ABA franchises and the NBA, the Silna brothers hit on what has been called the greatest sports business deal of all time.  In return for folding their failing franchise, they would receive a partial share of the NBA’s annual TV revenue in perpetuity. The Silnas would get a 1/7 share of each of the four former ABA teams’ NBA “visual media” rights, meaning that they received a 4/7 share of TV revenue. The Silnas originally came up with this idea as a means of being fair to the owner of the Virginia Squires, as it was assumed the NBA would take the other six teams and fold the Virginia franchise. When the NBA took four teams instead of the surviving six, they applied that reasoning for themselves.

In 1976, that revenue was worth about $300,000 per year, for the entire league.  For the 2012-13 season, the Silnas received $19 million.  All told, the Silnas have pocketed $300 million, and counting, from the arrangement.  The most recent NBA TV deal, with ESPN and TNT, was worth $7.4 billion over eight years, of which the Silnas are entitled to approximately 2 percent. Moreover, a judge’s ruling recently added internet revenue.

By comparison, John Y. Brown, the owner of the Colonels, pocketed a $3.3 million one-time payment in return for folding his franchise.  Before lamenting Brown’s negotiating acumen, or lack thereof, it should be noted that he eventually parlayed that payment into ownership of the Boston Celtics.  As Ozzie Silna notes, “had we been admitted into the league, what is the value of those teams today?”  Herb Simon, owner of the Indiana Pacers, who have to share TV revenues with the Silnas, says that “something went wrong somewhere…the intent of the deal was not to have it in perpetuity.  It was just to compensate them for the loss of their franchise.  It’s just an egregious situation now.”

The NBA has attempted numerous times over the years to buy its way out of the agreement, to no avail.  For example, in the early 90s, the league offered $5 million over eight years and the Silnas wanted $8 million over five.  However, negotiations have begun once again and there may be an added impetus this time: longtime NBA commissioner David Stern is retiring on February 1.  While Stern was not commissioner at the time of the merger, he handled the merger negotiations for the league and this agreement has been a thorn in the NBA’s side throughout his tenure.

One assumes it will cost the NBA slightly more than the aforementioned $8 million now.  Since Ozzie Silna is 80 years old and Daniel Silna is 69, they may want to wrap up this deal in their lifetimes. But given the tremendous growth the NBA has experienced, the (theoretically) infinite duration of the agreement, and the business savvy of the brothers, any settlement will surely be in the hundreds of millions of dollars.

Not a bad return for a basketball team that hasn’t existed in almost 40 years.

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