Thirty-five years ago, what would become one of the greatest sports deals in history didn’t seem so remarkable.
Sports Illustrated made no note of it. Neither did the hometown St. Louis Post-Dispatch. Most people thought the issue had been decided a month before, in June 1976. That’s when the National Basketball Association owners settled an antitrust suit with its players and agreed to merge with the American Basketball Association.
All that was left, as a Sports Illustrated columnist wrote at the time, were a few loose ends and counter-signatures.
Two of those counter-signatures, however, were from Ozzie and Dan Silna, then the owners of the Spirits of St. Louis. They and their attorney, Donald Schupak, wanted more than the $3 million the NBA was offering.
So far, the contract they negotiated has netted the Silnas and Schupak, who was a part-owner of the team, upwards of $280 million, based on published reports of the TV contract values.
And because the agreement is in perpetuity, about the only thing to keep the Silnas from getting their next check is if the NBA stops playing basketball, which actually might happen this fall, since the league is in the second month of a lockout. The NBA and players, however, are due to resume negotiations today.
It’s just the latest twist in the saga of the Spirits’ contract, which has spawned lawsuits, countersuits and settlement offers, and even played a role in the largest Ponzi scheme of all time.
And the litigation isn’t over. If the newest lawsuit between the Silnas and the league goes for the brothers, one of the greatest contracts ever may get even more lucrative.
As with many complex negotiations, no one came away happy when the contract was signed in the summer of 1976.
Certainly the Silna brothers weren’t celebrating.
None of the principals who negotiated the Spirits’ deal have talked to the media about the Spirits deal since 2006, when the Los Angeles Times tracked down Ozzie Silna at his Malibu home and he insisted that at the time, at least, the brothers were stunned that they weren’t going to be NBA owners.
The Silnas made their millions off of the new, hot material of the day — polyester. When they sold their manufacturing business, they took some of their profits and bought an American Basketball Association team with the hope and expectation that the league would merge with the National Basketball Association.
They wanted to be NBA owners, but the NBA didn’t want the Spirits of St. Louis, which had a history of poor attendance. The league wanted four other teams and just wanted the Silnas to go away.
The owners of the Kentucky Colonels had already done so. They cashed their $3 million check and went home. But through attorney Schupak, the Silnas were pressing for more.
They had leverage. When the ABA had formed, each team signed onto the ABA constitution. Under its provisions, the New Jersey Nets, Indianapolis Pacers, San Antonio Spurs and Denver Nuggets could not defect from the ABA without forfeiting their arena leases and player contracts to the ABA. As the remaining representatives of the league, the Silnas would have to sign off on any changes to the constitution. And as noted in a later lawsuit, “without those leases and contracts, the expansion teams were valueless to the NBA.”
Needing to get a deal done and with the 1976-77 season approaching, the NBA agreed to the Silnas’ terms.
They got paid for the contracts of their players who were taken into the NBA. Accounting varies, but it made the Silnas’ lump sum between $2.3 million and $3 million. But they wanted more. Specifically, they wanted a one-seventh of the “visual broadcast” rights for the four former ABA teams.
In 1976, when the NBA finals weren’t even shown on prime time, such revenues didn’t amount to much, estimated at about $300,000 a year. But since the merger the league has grown in stature, and TV contract after TV contract has reaped more money.
That one-seventh share of one-seventh of the teams is now worth about $20 million a year to the Silnas, who have no payroll, no arena expenses, nothing but profit.
To understand how good the Silnas’ deal was, you have to know a bit about the financials of NBA teams, for which there are few hard numbers. Much of the ongoing dispute between the players and the league surrounds how much the teams are worth and how much they are or aren’t making each year.
A fairly neutral source, Forbes magazine, took a look and found that the four expansion teams are worth about $300 million each (San Antonio somewhat more, Indianapolis slightly less), and that each loses about $10 million a year (Indianapolis slightly more and San Antonio somewhat less).
St. Louis, if it had been taken into the league, would have joined the ranks of the fairly small-market teams, which on average do worse financially. So, the Silnas, instead of pocketing $280 million, would have faced multimillion-dollar annual losses for the past 35 years that would offset nearly all the current worth of the team.
Marquette University law professor and sports law historian Joseph Hylton agrees with this analysis.
“My hunch is that the Silnas would have fallen into the same camp as the Nets and Pacers and that their early years in the NBA would have been financially very difficult,” he wrote in an email. “It is hard to know if the brothers would have stuck it out until good times arrived at the end of the 1980s. It is hard to believe that they could have done better than they did with the TV deal.”
But as Ozzie Silna told the Associated Press on the 30th anniversary of the deal, when you’re a billionaire, money isn’t everything.
“I got into basketball not to make the money,” Silna said. “I got into basketball for the thrill of owning the team, and to make money at the same time.”
Still, does the deal rank among the greatest in sports history?
University of Toledo law professor and economist Geoffrey Rapp thinks so.
“It’s the shrewdest deal ever struck,” Rapp said. “In terms of input-output, it’s pretty good.”
Hylton agrees the deal is among the most lucrative, but he has another vote for best ever.
“I think the best sports contract in history was the deal that allowed George Steinbrenner to buy the New York Yankees from CBS in 1973 for $8.8 million,” he said. “However, the Silnas’ deal ranks right up there along with the multimillion-dollar contracts signed by various first-round draft picks which turned out to be total busts.”
In hindsight everyone agrees that the NBA got taken to the cleaners in the summer of 1976, but was this an example of an unforeseeable consequence or poor negotiation?
Rapp said “good contract lawyers are trying to think one step ahead,” but the Silnas appear to have been the beneficiaries of “transactional giddiness” on the part of the owners, who wanted to complete the long-sought merger.
“That and the fact the propensity for people to be overly optimistic of how their own view of the contract is going to turn out,” Rapp said.
So when Schupak added language that made the contract terms irrevocable and unconditional, the owners didn’t object. Nor did they strike the clause that the “revenues shall continue for as long as the NBA or its successors continues in its existence.”
The result: When the league has tried to challenge the contract in court, they’ve failed every time.
Today, Rapp said, lawyers are more attuned to the issues that yielded the Silnas such a windfall.
“Lawyers today are thinking one or two technologies ahead. Then, no one thought TV revenues would be so important,” he said.
Hylton agrees with Rapp that more attention would be paid today to broadcast rights but says the NBA lawyers should have been more careful.
“The Silnas’ contract was poorly thought out, even for the time,” he said. “Because broadcasting rights and revenue have become so important in the modern sports world, such rights are not loosely thrown around and any contract today involving the assignment of broadcasting rights or revenue is very carefully scrutinized. Basically it was a case of bad lawyering in the early 1970s.”
Believe it or not, the Silnas’ deal may be about to get sweeter.
In 2009, the brothers sued the league in New York state court over failure to pay European and some domestic cable television revenues. After kicking around in the courts over issues of forum selection, a federal court in New York is going to decide whether to award the Silnas additional “millions of dollars.”
And in a high-profile twist, a new spate of lawsuits has been filed over how the Silnas invested their NBA money.
Like many big shots with millions to invest in the early 2000s, the Silnas turned to the hottest investor of the day — Bernie Madoff. When Madoff was arrested, accused of the largest Ponzi scheme in history, his client list included the Silnas as individuals and the Spirits of St. Louis LLC.
Seeing the names, many in the media blogged about how the Silnas — who had taken the NBA for millions — had been taken themselves. But that may not quite be the story. The court-appointed trustee for the Madoff finances has sued the Silnas to recoup $24 million in profits he says the brothers took in from the Madoff investments.
The brothers have countersued, challenging the accounting and saying they actually lost money.
If so, it was one of the few times.