SILNA BROTHERS UPDATE

 

I originally wrote about the Silnas here, and this update is from the New York Times:

Author - Richard Sandomir

The N.B.A. has long hoped to be released from its financial obligation to Ozzie and Daniel Silna, brothers who owned the Spirits of St. Louis in the defunct American Basketball Association.

But it has never been easy. The Spirits were excluded from the 1976 merger of the two leagues. So the Silnas watched unhappily as the New York (now Brooklyn) Nets, the Denver Nuggets, the Indiana Pacers and the San Antonio Spurs were absorbed into the N.B.A. But the Silnas negotiated an astonishing benefit that was critical to the merger: an agreement to be paid one-seventh of the national television revenue that each of the four teams was to receive, as long as the league continued to exist. That amounted to being paid in perpetuity, and so far, the deal has provided the Silnas with about $300 million.

Their deal is as much a part of A.B.A. history as red, white and blue basketballs, the 3-point line and the big Afros of Julius Erving and Darnell Hillman. It is a lasting memory of how, through luck or prescience, the Silnas and their lawyer, Donald Schupak, capitalized on the league’s growing popularity.

The N.B.A. has tried to buy them out, including an effort before the financial crash in 2008. Negotiations have picked up in the last six to nine months.

On Tuesday, the Silnas, the league and the four former A.B.A. teams will announce a conditional deal that will end the Silnas’ golden annuity. Almost.

 

The Silnas are to receive a $500 million upfront payment, financed through a private placement of notes by JPMorgan Chase and Merrill Lynch, according to three people with direct knowledge of the agreement. The deal would end the enormous perpetual payments and settle a lawsuit filed in federal court by the Silnas that demanded additional compensation from sources of television revenue that did not exist in 1976, including NBA TV, foreign broadcasting of games and League Pass, the service that lets fans watch out-of-market games.

Still, the league is not getting rid of the Silnas altogether. They will continue to get some television revenue, some of it from the disputed sources named in their lawsuit, through a new partnership that is to be formed with the Nets, the Pacers, the Nuggets and the Spurs, according to the people with knowledge of the agreement. But at some point, the Silnas can be bought out of their interest in the partnership

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The Silnas, of course, did not have to settle. They could have continued to make money from the N.B.A., without ever having to invest in players or build an arena. Clearly, their old agreement would have to be honored as long as the N.B.A. continued to exist

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But there is a reluctance, more by Daniel, 69, than Ozzie, 80, to keep fighting the league, said one of the people who discussed the agreement. Although wealthy people often plan their estates, much of the Silnas’ riches from the N.B.A. is already in family trusts.

Bob Costas, the NBC sportscaster who called Spirits games, said in a telephone interview, “My guess is that for the N.B.A., the upside is that in the foreseeable future, there will come a time when they will not have to look at this and blanch and it will be in the past.”

League officials declined to comment because the settlement must be approved by the judge, Loretta A. Preska, who has presided over the case in United States District Court in Manhattan.

The Silnas’ deal resonates, at least in part, because it appears that they snookered the league, or, more accurately, the Nets, the Pacers, the Nuggets and the Spurs, who dealt directly with the brothers.

But Michael Goldberg, the A.B.A.’s former general counsel, recalled in a recent interview that the four teams were desperate to get into the N.B.A. and willing to satisfy the Silnas. 

“Schupak said they’d take TV rights in perpetuity as a kind of Hail Mary to get money down the road,” he said. “What was missing was someone saying, ‘Thirty years, 50 years, or until something happens, and it’s over.’ ”

The Spirits got a sweeter deal than the Kentucky Colonels, who were also not absorbed into the league. John Y. Brown, the Colonels’ owner, got $3 million to fold his team.

And while the Silnas, who were planning to move the franchise to Utah at the time of the merger, did not bring a roster that included Caldwell Jones and Marvin Barnes into the N.B.A., they got a $2.2 million payment — and all that television money. They never acquired another team and have attended to their investments (some of which went sour during the Bernard L. Madoff Ponzi scheme).

But their deal, widely called the greatest in sports history, if not in American business, lives on as a remnant of the marriage of the undercapitalized A.B.A. and the N.B.A. in its mid-1970s doldrums, before Magic Johnson, Larry Bird and Michael Jordan.

“The only way to appreciate this,” Goldberg said, “is to go back in a time capsule to the bidding wars between the leagues; the N.B.A. tiring of them, and saying, ‘Let’s take four teams, but not St. Louis and Kentucky, and we’ll move on.’ ”