$500 Million New Years Resolution

The National Basketball Association’s (“NBA”) 2014 New Year resolution: Get out from underneath the worst sports contract in the history of sports (well, maybe with the exception of the 1st Century Roman Gladiators).   Meet Ozzie and Daniel Silna – Brothers who once owned the Spirits of St. Louis in the defunct American Basketball Association (“ABA”). It all began with the Spirits exclusion from the 1976 merger of the NBA and the ABA. 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 NBA, while they were left on the sidelines – scheming. And successfully scheme they did. The Silnas and their attorney, Donald Schupak, slyly 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 NBA continued to exist.  Yes that is right – That amounted to be paid in perpetuity- forever. To date the deal has provided the Silnas with approximately $300 million.

 aba_display_image

The NBA has repeatedly been reminded of  its haste and folly in structuring the deal and has repeatedly tried to buy the Silnas out.  However, the gold nest egg of the Silnas’ has remained elusive in light of ever growing popularity of the NBA. Finally, earlier this month, the Silnas, the NBA and the four former ABA teams announced a conditional deal that will end the Silnas’ access to the gold pot at the end of the rainbow. Well sort of. 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 sources familiar with the proposed 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.

 spiritstlouis

The “sort of” part of the deal is that the Silnas’ 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. Albeit, the Silnas can be bought out of their interest in the partnership in the future. Bob Costas, the NBC sportscaster who formerly called Spirits games, commented:
My guess is that for the NBA, 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.

 D7964CCFEEB44265A8C00C0B6E88A22E.ashx

In the NBA’s defense, Michael Goldberg, the ABA’s former general counsel, recalled that the four teams were so desperate to get into the NBA that they were willing to do most anything to satisfy the Silnas. The Silnas’ attorney offered to take TV rights in perpetuity – as a kind of Hail Mary to get money down the road, Schupak said. “What was missing was someone on the NBA’s side saying, ‘Thirty years, 50 years, or until something happens, and it’s over.’ ”   The moral of the story: While despised and ridiculed (many times justifiably) for their rancor and over-the-top antics, an attorney who has the ability to read/analyze the fine print of a deal and warn its clients of the dangers of items, such as open ended commitments/obligations and desperation to get a deal down, is priceless. Well maybe not priceless – $800 million and counting….