What the NBA can teach small biz
ABA team’s owners made deal of lifetime in merger
A bad deal for some is a great deal for others.
The NBA recently had its annual showcase. All-Star Weekend is a starstudded extravaganza of immense proportions with multiple events over three days and, of course, all of it televised. The NBA is so big and bright right now, so ubiquitous, that its stars are often known by one name.
LeBron. Shaq. Michael.
But it wasn’t always thus, boys and girls.
There was a time when the NBA’s marketing wizards weren’t wizards at all. Indeed, back in the ’70s, the sport was so riddled with problems, drugs, and indifference that the NBA Finals were tape-delayed and shown at 11:30 at night.
It was at this time and against this backdrop that the NBA negotiated the worst business deal of all time. No, not the second worst or the third worst. The. Worst. Deal. Ever.
One reason that the NBA had fallen on hard times was that a high-flying alternative league had snagged a lot of the basketball attention. The American Basketball Association, the ABA, had a red, white and blue ball, exciting players like Dr. J, and invented a radical new option, the 3-point shot. Stars had jumped to the league and TV execs loved showing their games. The NBA had a real problem on its hands.
The league finally decided that the best solution was to merge with the ABA, and so, in 1976, it did. The NBA absorbed four of the ABA’s teams – the New York (now Brooklyn) Nets, the Denver Nuggets, the Indiana Pacers, and the San Antonio Spurs– and paid off two other teams that weren’t part of the merger. While the owner of the Kentucky Colonels agreed to a $3 million one-time payout, the owners of the St. Louis Spirits did not, and that is when the NBA made its crucial mistake.
How big of a mistake? As Dr. Evil might say: “One billion dollars.”
Brothers Ozzie and Daniel Silna owned the Spirits. Rather than take the money and run, the brothers Silna negotiated this deal:
They would take $2.2 million up front but also receive 1/7th of all TV revenue in perpetuity for the four ABA teams that were joining the NBA. Given the unpopularity of the NBA at the time, and the minuscule television revenues it generated, the more established league thought this to be a fine deal.
Maybe you noticed those two words – “in perpetuity.” That’s a long time. And a lot of money, especially for a league that has since exploded in popularity. How much money? By 2014, the brothers had received more than $300 million, and were set to receive a lot more. Forever.
Needless to say, the NBA hated the infamous deal, but had little recourse but to abide by the terms of the agreement that paid the brothers $19 million in 2013 alone. Even worse for the NBA, the Silnas filed suit in 2013 to receive revenue from international broadcasts, as well as online streaming and other sources that were non-existent in 1976.
The NBA wanted out. Badly. And so they kept sweetening the pot. Finally, in 2014, tired of fighting with the league, the Silna brothers agreed to a settlement, ending the agreement. The NBA finally got its way, but it sure did cost them. How much?
$500 million, payable to two brothers of a long-gone business in a league that has been defunct for more than 40 years.
So yes, it’s the worst business deal ever, right? Maybe, unless of course, you root for small business – like the upstart St. Louis Spirits and the savvy Silna brothers. In that case, it can be said, this was ... the best deal ever.
Steve Strauss, @Steve Strauss on Twitter, is a lawyer specializing in small business and entrepreneurship. Email: sstrauss@mrallbiz.com.
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.
The Silna brothers would take $2.2M up front but also receive 1/7th of all TV revenue in perpetuity for the four ABA teams joining the NBA. Given the unpopularity of the NBA at the time, it seemed like a fine deal.