The two brothers who took the NBA for billions by doing absolutely nothing
EDGAR looks at the crazy story of what was either the greatest or worst sports deal of all time.January 11, 2015
Once upon a time, Ozzie and Daniel Silna, former polyester moguls, made a simple deal that would earn them hundreds of millions of dollars. It is, depending on your perspective, perhaps either the best or worst business deal of all time, and only ended a year ago after the NBA paid off the brothers to the tune of $500 million (AED 1.8 billion).
To understand how it came about, we must travel back in time to the wild and woolly world of professional sports in the 1970s, when the National Basketball Association (NBA) boasted a fraction of its current size and scope and had very little of the glitz and glamour it does today. Not only that, but it had to contend with the American Basketball Association (ABA), a league featuring a fast-paced, fun style of play and some massive stars including Julius “Dr. J” Erving, George “The Iceman” Gervin, and Moses Malone.
The ABA, however, never really intended to rival the NBA; it simply hoped to grow big enough to force a merger with it.The NBA, meanwhile, realised that its best path to sustainable growth was through absorbing some of the ABA’s teams. And so, in 1976 both leagues agreed upon terms: the Denver Nuggets, the Indiana Pacers, the New York Nets, and the San Antonio Spurs would join the NBA.
This left two teams out of luck. The Kentucky Colonels who were owned by John Brown – the president and majority owner of Kentucky Fried Chicken – folded their franchise for a lump sum of $3.3 million (AED 12 million). The Spirits of St. Louis - owned by Ozzie and Daniel Silna - were a different story. They desperately wanted their franchise to move to the NBA, but when it became clear that it wasn’t to be, they settled for something that would become much more valuable. T
he Silnas signed a deal giving them one-seventh of future national television revenue earned by each of the former ABA teams. And included in the contract were two little words that would come to play a huge role: “in perpetuity" - in other words, forever. Forever is a long time. It’s long enough to make something that wasn’t worth much – say 57 per cent of a full share of the national television revenue earned by NBA teams in 1976 – into something extremely valuable indeed. At the time the deal was worth around $500,000 a year. Around this time, the NBA took its first steps towards becoming the behemoth as we know it today, with its stars and sponsorship rights bringing in big money. Cable television increased in popularly, too, as a growing number of Americans had disposable income and the barriers to technology decreased. Finally when Michael Jordan, his Airness himself, arrived on the scene in 1984, the NBA was headed in the right direction.
Realising this and, perhaps, recognizing the error of their “in perpetuity” ways, the ownership groups from the Nets, Nuggets, Pacers, and Spurs approached the Silna brothers about buying out their end of the deal. They were soundly rebuffed. Can you blame them? Ozzie and Daniel didn’t have to lift a finger, and they would rake in millions, quite literally forever. According to ESPN.com, the deal brought them $8 million (AED 29 million) in the 1980s, and another $40.8 million (AED 147 million) between 1990 and 1998. And the real money didn’t even start flowing until the late 1990s and into the 2000s.
The Silnas could count on more than $10 million (AED 37 million) per year, up to the $17.7 million (AED 65 million) annually. All told, the owners of the four NBA teams handed over somewhere around $300 million (AED 1.1 billion). And even more impressively, the Silnas earned a higher percentage than they otherwise should have as they correctly predicted the expansion of the league.
So why did they settle in January 2014? Why did the four former ABA franchises and the NBA wait 40 years, pay out nearly a third of a billion dollars, and then decide to cough up another $500 million to buy Ozzie, now 82 years old, and Dan, 69, out in 2014? There are a couple of reasons. For one, they have tried before. Not just in those early years but again in the late 1990s and possibly since then as well.
The Silnas couldn’t be bought then but seem to have been swayed by the sheer amount of money on the table this time. There are hints and rumors that their advancing age played a role as well. Furthermore, the long reign of NBA Commissioner David Stern came to an end with long-time deputy Adam Silver taking the reigns. It’s not difficult to see how the new man in charge would push a little harder to get a deal done, to sweeten the pot so the Silnas finally put pen to paper.
It’s an ugly blot, now expunged from the ledgers. Which brings us to the biggest reason for the deal: the NBA is a huge business, but it’s going to get a lot richer. In October last year it struck a nine-year, $24 billion media-rights deal with ESPN and Turner Sports, that will pay the league and its team around $2.7 billion per season, nearly tripling the previous deal. In many ways, everyone wins. Well, at least the rich all get richer. The Silnas will make another fortune and will keep collecting some smaller percentage of the revenue, although clauses exist that allow them to be bought out again.
The NBA teams rid themselves of one of the worst business deals of all-time while simultaneously eliminating the headache caused by a lawsuit the brothers filed that demanded revenue from NBA TV, foreign broadcasting of games, and the TV package League Pass, none of which existed in 1976. More to the point, the books are closed on a strange, costly asterisk in the league’s long history.
The NBA bills itself as the place where the amazing happens. You have to think the Silnas would certainly agree.