Sports Illustrated, Best Sports Deal Ever? How the Silnas Outsmarted the NBA:
There was no official death notice. The documents are sealed, there will be no autopsy. This will have to pass as the obituary. But after lingering on its deathbed, the great golden goose of the sports world was finally killed off last month. The cause of death: a complex and confidential settlement agreement. The chief survivors, brothers Ozzie and Daniel Silna, surely mourn, but they must take solace knowing that their $1 million investment in a sports team that went out of business nearly 40 years ago turned into more than $1 billion.
In 1974 the Silnas, East Coast garment magnates, bought an ABA franchise and moved it to St. Louis. The Spirits were a lovably dysfunctional collective that lasted only two seasons. ...
At the end of the 1975-76 campaign, ... [t] here were only seven teams left, and in the off-season four joined the NBA -- the Denver Nuggets, Indiana Pacers, New York Nets and San Antonio Spurs. The Virginia Squires simply folded. The owner of the Kentucky Colonels, John Y. Brown, accepted a $3.3 million payout to close up shop. (By decade's end Brown had become the Bluegrass State's governor.)
That left the Spirits. The franchise was unwanted by the NBA, but the aggrieved Silnas were unwilling to take a lump-sum payment to go away. With the help of their lawyer, Donald Schupak [Tax LL.M. 1970, NYU], the brothers cut a deal: The four ABA teams decamping to the NBA would make a one-time payment to the Silnas of $2.23 million, and they would pay the brothers one-seventh of their national broadcast revenues in perpetuity.
All first-year law students worth their highlighters know the danger of contracts without termination periods. The NBA's outside counsel -- including a young lawyer, David Stern -- saw this and tried to indemnify the league from disputes that might arise from the contract.
Schupak countered with a masterstroke: He inserted an intentionally broad definition of broadcast revenues, a clause that could one day make the contract applicable to distribution channels unimaginable in 1976. "I was blunt during these discussions," Schupak wrote in a 2012 legal declaration. "Rather than narrow the definition of TV revenues, I insisted instead that we add a new sentence [to] emphasize that this was a broad definition that could not be evaded or made obsolete."
Even so, the notion of significant NBA broadcast revenue was quixotic. The ABA never had a national television deal. And those were the days when the NBA Finals aired on tape delay after the local news at 11. There was no NBA League Pass or NBA.tv.
The surviving ABA teams signed the contract -- mostly to rid themselves of these nuisance brothers -- and the deal became the sports equivalent of Peter Minuit paying $24 for the island of Manhattan. ... After last season they had made more than $300 million cumulatively -- with no end in sight.
The Silnas' arrangement has been called the best sports deal of the century, but that may be an under-statement. ... The moral: Never give away the rights to something with an unknown future value.
In 2009 the Silnas brothers invoked Schupak's broad revenue definition and filed suit seeking more money, arguing that they were entitled to digital and international rights as well as U.S. TV revenues. (This was the same year that one of the Silnas' financial managers, Bernard Madoff, pleaded guilty to running a Ponzi scheme, depleting the brothers' fortune.) When the case went before U.S. district court judge Loretta Preska, she encouraged both sides to settle. This was fine by the four teams -- they had been trying for years to get out of the contract. And with another NBA television deal on the horizon with the expiration of the current one in 2016 -- "Could be close to $2 billion a year, if Adam [Silver] does his job," says one NBA executive -- the Silnas' windfall would swell to $36 million annually.
Why would Ozzie and Daniel, now ages 81 and 69, respectively, settle this year? Neither the brothers nor Schupak would comment beyond confirming an "amicable settlement," and the agreement is confidential. But according to a source familiar with the settlement finalized last month, "They didn't come cheap," confirming an amount first reported in The New York Times. Multiple sources told SI that they were paid in excess of $500 million and have a small stake in the revenue the former ABA teams will earn from the new TV contract. Perpetuity may have ended, but their total haul will exceed $1 billion.