The $300 Million Slam Dunk
You may not have heard of Ozzie and Daniel Silna, brothers who made their fortune in the textile industry in New York in the 1960s and 70s, but this story of negotiation is a great one, and there are plenty of lessons to take from it.
By 2014 the Silna brothers had earned over $300,000,000 from the NBA despite never having played a game or indeed never having owned an NBA franchise. How they did it is a tale of planning, foresight and resilience to rival the very best commercial negotiations ever.
The deal struck by the Silnas and their lawyer is the stuff of legend within professional sport.
Let’s start at the beginning. The brothers took over their father’s modest textile business and sold it in the early 1960s. They then launched their own textile company, developing it into one of the USA’s biggest polyester manufacturers by the 70’s, just before disco took off. When the demand for the shiny fabric exploded- an early example of their eye for timing (or ‘luck’ as some would call it) – so did their wealth.
Being a basketball fan, Daniel Silna suggested that they put some of their new-found wealth into buying an NBA franchise. Their first attempts to do so proved unsuccessful, so they looked at other options. At the time, there were 2 professional leagues in US basketball, the powerful NBA, and the ABA, which had been set up in 1967 in an effort to break the monopoly of the former. The ABA had some success and introduced some innovations to the professional game and launched the careers of many future NBA stars, but its days were numbered. It was in the ABA though that the Silna’s saw their opportunity, and they ended up buying the Carolina Cougars in 1973 for $1,000,000.
At the time the ABA owners had instigated a wages war by offering larger salaries than their NBA rivals, and the ABA represented a threat to the NBA. The Silnas decided to move the franchise to St Louis, as the biggest city without a professional basketball team, and renamed it ‘The Spirits of St Louis’. They invested a further £3,000,000 in the team, and in their first full season (74-75) they reached the play-offs but lost out on the title to the eventual winners, the Kentucky Colonels (owned by the president and largest shareholder of KFC).
The following season things started to unravel: results got worse and attendances dropped, and by the end of 1976 the ABA itself failed. As part of the dismantling agreement, the 4 most viable ABA teams would be merged into the NBA, which did not include The Spirits. Of the 3 remaining, one went bust, leaving only the Colonels and The Spirits. These 2 teams had to agree the merger even though there was nothing in it for them, so they were offered a financial incentive by the NBA. The Colonels’ owner accepted the $3,300,000 on offer and went on to become Governor of Kentucky.
The Silnas, however, recognised they had some power here, and decided to say ‘no’. They did sell their best players for a combined £2,200,000 to various NBA clubs. In those days the NBA was not the TV phenomenon that it is now, and the best that fans could hope for was a highlights package after the 11pm news. So when the Silnas were offered 1/7th of the revenues that the 4 ex-ABA teams would receive from ‘visual media’, it seemed like a great deal for the NBA. Indeed, the Silnas received no revenues at all for the first 2 years.
But what they had actually agreed to was to give up their franchise in return for 14% of the ‘visual media’ revenue that the 4 ex-ABA teams (out of 30 NBA teams in total) would receive in perpetuity. The clause in the contract stated, ‘the right to receive such revenues shall continue for as long as the NBA or its successors continues in existence.’ And don’t forget that ‘visual media’ in the late 1970s meant TV – no-one could have envisaged what might fall into that definition in years to come. The lawyer who negotiated the deal on their behalf, Donald Schupak was to receive 10% of the Silna’s revenue from the deal.
After those 2 fist revenue-less years, they earned $200,000 in 1979, and in 1980-81 it rose to just over £500,000. Then things really started to get interesting. For the rest of the 1980s and 90s the NBA’s marketability went through the roof thanks to stars such as Kareem Abdul Jabbar, Larry Bird, Magic Johnson and then Shaquille O’Neil, Michael Jordan and others, and as with the Premier League in English soccer, the TV deals got bigger and bigger. In 1997, for example, NBC and Turner agreed to pay the NBA $2.7 billion for TV broadcasting rights. In 2002 it had risen to $4.6 billion from ABC/ESPN/TNT, and then to $7.4 billion for an eight year deal in 2007.
For the Silnas, this meant annual payments of £17.45 million in 2010-11, and $19 million for 2012-13. In total, between 1979 and 2014 the Silnas are thought to have earned over $300 million, and the current 5 year deal is said to be paying them another $95 million.
It doesn’t end there. Because the original deal covered ‘visual media’, the brothers sued the NBA for earnings form sources that were not anticipated in 1976: Internet rights; the NBA TV cable network, and international broadcasts. A federal judge sided with them and stated that they must be paid incremental rights and enhanced future royalties. The NBA have now attempted to get the Silnas out of their contract, and the latest deal includes the brothers dropping the future royalties claim and any other ongoing payments as well as granting the 4 ex-ABA clubs a majority stake in the Spirits of St Louis Basketball club L.P., in return for a one off $500 million payment to the Silnas.
Here’s the bit that really stings for the NBA. In 1982 when things were just starting to hot up, they realised their mistake and offered to buy the Silnas out of their contract for one-off $5,000,000. The brothers rejected it, but countered with $8,000,000 over 8 years.
The NBA turned it down.
So with foresight, planning and legendary levels of resilience, the Silnas managed to earn astronomical sums from the NBA despite never even owning an NBA franchise.