ABA, Post-merger windfall

[David]

ABA owners did not distinguish themselves as sports businessmen, although many of them had been successful in other endeavors. The league was plagued by financial instability during its nine seasons, so it probably is fitting that the greatest deal made in ABA history – and probably the history of sports – was accidental.

In 1975-76, the ABA started the season with nine teams, but two quickly folded. By this time, the ABA had an extraordinary collection of talent, and there was a push for a merger with the NBA. If successful, ABA executives thought the NBA would take only six teams.

Ozzie and Dan Silna owned the Spirits of St. Louis and with attorney Donald Schupak worked out compensation for the team that would not join the NBA. In an interview with ESPN.com two years ago, Ozzie Silna said that he proposed that "the seventh team should receive a share of television money in perpetuity."

Silna's intent was fairness because he said he "had no intention of being that seventh team. I had put so much into the players that I thought that Virginia was definitely going to be the team that would be excluded."

As it turned out, the NBA accepted four teams. Virginia had folded after the season and Kentucky owners accepted a cash buyout. The Spirits were not invited to join the NBA, but they had the TV agreement.

That means that since the ABA folded in 1976, the Nets, Spurs, Pacers and Nuggets have paid a one-seventh share of their TV money every year to the Silnas and Schupak, who, by the end of the NBA's current six-year deal, will have collected almost $200 million. For doing nothing except being brilliant ex-ABA businessmen.

[Mandyahl]

wow that's weird. i didn't know that. i wish i had done something smart like that!

[Dooby]

This story pops up every few years. Two interesting modern parts of the story: (1) Rumor is that every top law firm and NY has spent thousands of hours trying to find a way for the former ABA teams to get out of the deal and that there is a room full of memos on the subject; all with the same result: the contract is valid and enforceable; (2) people are always trying to buy the contract from the former owners. The last offer was rumored to be at least ten figures.

[MavKikiNYC]

Yeah, here is an expanded version of the information originally posted, this time with proper attribution.

Or did you research that yourself, David?

Spirit of ABA deal lives on for Silna brothers

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By Darren Rovell
ESPN.com


If the deal that brought Babe Ruth from Boston to the Bronx for just $125,000 was among the best in sports, so too was the deal negotiated by the Silna brothers, whose arrangement with the NBA rivals the great bargains in sports history.


'Dr. J' played well against the Spirits of St. Louis when he was with the New York Nets, but former Spirits owners still cash in at the expense of four former ABA teams. Over the past 25 years, Ozzie and Dan Silna have collected approximately $100 million from the NBA, despite the fact that their former team -- the Spirits of St. Louis -- never played a single game in the league.

With the league's latest broadcast deal now finalized, the Silnas are anticipating the call from the league that comes twice every decade telling them how much they should expect -- in millions of dollars -- over the life of the NBA's national television contract.

"It's one of the most incredible deals in the history of the business world, and it has to be in the top 10, rivaling any deal that has taken place in Wall Street in the last 25 years," said Roy Boe, the New York Nets owner who was one of the principals of an agreement to the deal that allowed four ABA teams to join with the NBA in 1976. "These guys collect that kind of money from the NBA and all they have to do is sit there ..."

In the summer of 1976, ABA team owner Ozzie Silna and his attorney Donald Schupak sat in their hotel room in Hyannis, Mass., working late into the night. As the two framed up their mock legal document on 10 pages of yellow lined paper, they had no idea that the provisions of the document would enable them to profit more than most, if not all, NBA teams each season.

By the time daylight poked through the blinds the next morning, a slew of lawyers was milling around the lobby ready to negotiate the details of the merger. Since only four ABA teams were allowed into the NBA, the other two teams had to be compensated, per ABA bylaws.

For John Y. Brown, the Kentucky Fried Chicken owner who also owned the Kentucky Colonels, the negotiation was easy: He accepted a $3 million buyout, money that he later used to buy the Boston Celtics. But Silna reminded the others of the deal they had agreed to six months earlier.

In December 1975, 16 games into the season, the Utah Stars folded, leaving the ABA with seven teams, and the league's remaining owners called a meeting. That's when Ozzie stood up and told the other owners that no less than six teams should be taken in a possible merger and that the seventh team should be paid off in a proper manner.

"The seventh team, I said, should be fully compensated for its players, and they also should receive a share of television money in perpetuity," said Silna, who today has a lucrative embroidery business that is the main supplier of United States Armed Forces uniforms.

"Everybody was in favor of it, and it was written into the league bylaws at the time. I, of course, had no intention of being that seventh team," he said. "I had put so much into the players that I thought that Virginia (Squires) was definitely going to be the team that would be excluded."

The Silnas bought the Carolina Cougars in 1974 for about $1 million, moved them to a larger television market and invested in players like Marvin Barnes, Don Chaney and Moses Malone, with the hope of being accepted into the NBA.

"It was a disaster, business-wise," said Silna, who had a huge payroll and only averaged about 3,800 fans during the final season. "The St. Louis Blues owner promised us 5,000 season tickets, and we only had 600 people sign up."

But Silna became a better businessman without the team. Because the Squires folded at the end of that 1974-75 season and Brown took the buyout in merger negotiations a year later, Silna soon became the benefactor of his own idea. Unanimous support was needed by all ABA team owners for the merger to happen, Silna had representatives from the other four teams -- the Denver Nuggets, Indiana Pacers, New York Nets and San Antonio Spurs -- sign the yellow sheet that day, agreeing to share one-seventh of their national television revenues in perpetuity with the Silnas.

At the time, NBA television revenues were very small, but thanks to the marketability of Larry Bird, Magic Johnson and Michael Jordan during the 1980s and '90s, the size of the checks has grown considerably.

The Silnas made an estimated $8 million throughout the 1980s, and as broadcast rights fees swelled, so did the Silnas' wallets. They received checks annually totaling approximately $4.6 million from 1990-1994. It climbed to $5.6 million per year until 1998. The Silnas' share of the NBA's current four-year, $2.64 billion deal with NBC and Turner, which expires after this season, nets them $12.5 million a year. The new six-year deal with ABC/ESPN and AOL Time Warner could net them as much as $24 million annually.

"It's been a wonderful gamble," said Gary Hunter, former CEO of business operations for the Denver Nuggets during the mid-'90s. "If you tried to name one team owner in the NBA who was netting $13 million a year, you couldn't, because none of them do."

“ That type of money is nothing to sneeze at. In professional sports, the difference between being profitable or not hinges on a couple million dollars. ”
— Rod Thorn, New Jersey Nets GM and former Spirits head coach
If there's any frustration with the Silnas' deal, it comes from the former ABA teams that to this day have a chunk of their television revenue check missing. Each team's annual payment has been approximately $3.4 million over the past four years.

"That type of money is nothing to sneeze at," said Rod Thorn, the New Jersey Nets' president and general manager who was the Spirits' head coach during the first half of the team's final season. "In professional sports, the difference between being profitable or not hinges on a couple million dollars."

"The part that hurts is that this deal is forever," said Donny Walsh, who has been president of the Indiana Pacers for the past 16 years. "And 25 other teams get money that we don't get."

Attempts to buy out the Silnas have been numerous since the inception of the deal.

The closest the Silnas came to selling might have been in 1982. For the 1981-82 season, each team earned approximately $1 million in national television revenue. But as the former ABA owners saw an increase of approximately $300,000 per year coming into their pockets with the new four-year, $119 million contract, it was becoming apparent that the Silna deal was not good for their future.

The owners calculated that the Silnas would now make roughly $3.4 million over the next four years and offered a collective $5 million buyout to be paid over eight years. But the deal never happened. Ozzie Silna said he'd only do it for $8 million spread out over five years.

With $8 million from TV revenue already in the Silnas' pocket, another buyout proposal -- this one for $18 million -- was on the table a decade later. But the Silnas saw television rights fees skyrocketing across the board and determined it wouldn't be a good business deal.

"We tried extensively to buy our share out in 1995," Walsh said. "But the bottom line is that if you've got a deal this good, why would you want to change it?"

The four teams actually have been sharing more than one-seventh (14.2 percent) of their share of the NBA's TV contract since 1995, when the Toronto Raptors and the Vancouver Grizzlies joined the league. That's because Ozzie Silna and Schupak anticipated that expansion would threaten to dilute revenue and capped the split of their share at 28 teams. So when the checks go out, Silna said his share is based on a split among a maximum of 28 teams, not the full 29 teams that now comprise the NBA.

“ Every time a new ownership group came in, they'd say, 'Wait, what do you mean we have to pay these guys who don't have a team?' ” — Gary Hunter, former Denver Nuggets executive
Between the four teams, legal fees in attempts to get out of the deal have reportedly cost more than $250,000.

"We found out that three different law firms over a 10-year period of time had tried to find some way to get the teams out of it, and none of them could find a way," said Hunter, the former Nuggets executive who is now the commissioner of the Continental Basketball Association. "Every time a new ownership group came in, they'd say, 'Wait, what do you mean we have to pay these guys who don't have a team?' "

Silna still says that a part of him wishes his team joined the NBA in 1976 and justifies his financial windfall by saying that his St. Louis team could sell for more than $100 million today. Eighteen teams in the NBA are worth at least $200 million, and the least valuable team in the NBA is the Charlotte Hornets, worth $135 million, according to Forbes' most recent franchise evaluations.

As for hope of future financial relief for the four former ABA teams, it has been suggested that as the Silnas get older -- Ozzie is 68 and Dan is 57 -- a buyout could be necessary in order to put a value on their estate.

"The deal's forever," Walsh lamented.

[David]

I posted what was on the back page of today's DMN. I was at work and didn't take the time to give the proper credit. I had seen it before but had forgotton the particulars. It sounded like a smart move that looks smarter as time has gone by.