Category: NBA

$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.

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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.

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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.

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Sleepless in Seattle…

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I would not recommend David Stern spend much time in Seattle after he retires as the NBA commissioner in 2014. No Space Needle, no Pike Market Place, no Experience Music Project tours for you dear sir… After yesterday’s ownership representatives’ meeting in Dallas, in which the NBA blocked the sale of the Sacramento Kings to a Seattle consortium headlined by lead investor Chris Hansen, I am going to go with the notion that Seattle’s resident’s are counting down the days until Stern’s retirement. Ownership representatives from the league’s 30 teams met Wednesday and ultimately voted to reject the Kings’ proposed move to Seattle, thus backing last month’s unanimous recommendation from a relocation committee to keep the team in Sacramento. The vote to remain in Sacramento turned out to be 22-8. Stern, rather blandly, realized the all but certain toll this saga would steep both cities in, stated rather unconvincingly , “I would say it’s a victory for Sacramento, not a victory for the NBA.” Hmmm…someone is trying to walk the wobbly fence of non-commitment… The extreme nature of the saga was clearly seen by Seattle’s last ditch desperate attempt to return to the ranks of professional basketball.  In an attempt to sway owners to dismiss the recommendations from the league-appointed relocation committee, Hansen/Seattle increased the value of their offer for 65 percent of the Kings from $358 million to a record $409 million, pushing the overall valuation of the proposed transaction to $625 million. (NBA History lesson: The previous record for an NBA franchise sale, by comparison, is the $450 million paid by a Joe Lacob-led consortium in 2010 to purchase the Golden State Warriors.) And for an added cherry on top, Hansen/Seattle also offered each team a relocation fee payout of more than $4 million — for a total of $115 million — in hopes of securing the 16 votes Seattle needed for the original sale agreement to be ratified. But in the end the deal failed. Stern went on to say at a news conference afterward that the Maloof family that owns the Kings has “the right to retain ownership” of the team under league bylaws. However, Stern expressed his unabashed desire to have the franchise sold to the consortium assembled by Sacramento mayor Kevin Johnson and headed by Silicon Valley billionaire Vivek Ranadive. A move that would keep them in Sacramento.
“It is my expectation that we’ll be able to make a deal with the Maloofs and the Ranadive group to transfer title of the team in Sacramento,” Stern said. “It’s not a certainty, but we’re going to work [toward] that result.”
Two sources close to the process indicated Wednesday that it has been conveyed to the Maloofs that approval from fellow owners is unlikely at this point if they try to sell to a group other than Ranadive’s, given the considerable capital and commitment that the prospective ownership team Johnson pulled together has poured into its offer to match the considerable bid from Hansen’s side. In other words, the other owners liked the Ranadive/Sacramento offer more because it had even more money. So wait a minute…this was all an elaborate and expensive televised dating game, with Stern portraying the game show host Dr. Love? And once again Seattle is left the gilted lover. In a statement issued Wednesday night (imagine this in a reality television reunion show setting), Hansen said: “While we are obviously extremely disappointed with today’s relocation vote and truly believe we put forth both a significantly better offer and arena plan…I truly believe we did everything possible to put our best foot forward in this process and you all should be proud and hold your heads high today. Our day will come … and when it does it will just be that much sweeter for the struggle. I love you, Seattle!” The outcome of the vote understandably comes as a bitter blow to the basketball fans of Seattle, who will understandably bristle at Stern’s explanation that Sacramento prevailed as much because of “advantage incumbent” as anything. However, Seattle fans will only see the Stern dynasty as ruthlessly and inexplicably removing both opportunities it has had for professional basketball. ”This was not an anti-Seattle vote. This was a pro-Sacramento vote,” Stern has said. Be that as it may, and business may just be just that…business, I would still recommend that Stern stay away from the Emerald City for the time being. Hell hath no fury….

Discount Brokerage Firm Specializes in Defrauding Athletes

When it was announced that the financial industry’s self funded watchdog had filed a complaint against Success Trade Securities, Inc., it stood out from the usual brokerage issue because the complaint alleged the company’s customer base consisted of NFL and NBA players.  While the complaint did not name any of the players with accounts at the firm, the connection itself tells us a lot about the nature of the industry and athlete financial management.

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Success Trade Securities did business primarily as a discount online broker through the websites just2trade.com and lowtrades.com.  The firm was based in Washington, D.C. but did business across the fifty states via these websites.  That alone does not make the firm disreputable, but the lower entry bar to e-commerce makes the medium more susceptible to disreputable actors, and careful investors should have taken the time to review the firm’s background before relying on them to make trades. If potential customers had done a review of Success Trade Securities, they may have moved on to greener pastures.  Success Trade Securities has only been in business for a little over a decade, but in that time has managed to rack up a number of violations.  In 2012 the firm was sanctioned for illegally failing to maintain its customer accounts, and for keeping accounts which appeared to be fraudulent or unsupportable.  For this the corporation was fined $100,000.00 and agreed to implement a training program.  In 2009, the firm was sanctioned and fined for failing to maintain the required amount of available capital.  Either of these sanctions implies major issues with Success Trade Securities and their business practice. Over leveraged finance firms are famously dangerous, as seen in the disastrous crash of 2007.  And finance fraud is dangerously destabilizing to any firm.  Both together at best indicate Success Trade practiced sloppy book keeping and played fast and loose with the rules, a good reason for any investor to steer clear.  But none of these allegations measured up to the conduct alleged in the latest complaint:  fraudulent sales. The regulatory watchdog has accused Success Trade of selling securities without any backing, and failing to disclose existing debt to investors.  The only way Success Trade can meet its obligations, it is alleged, is by selling additional notes to more investors.  This type of investment scheme is known colloquially as a “Ponzi Scheme.”  The most infamous of these was Bernie Madoff’s billion dollar hedge fund, which famously evaporated and took with it the savings and finances of a number of blue chip firms.   In addition to these allegations, it has been claimed that majority owner of Success Trade, Fuad Ahmed, used the firm’s accounts as his own personal bank account.  Currently there is a stop order preventing Success Trade from conducting any further business. Success Trade’s sloppy and fraudulent practices are not new, and as long as there are firms conducting these types of business there will be unethical firms taking advantage of investors.  What is unusual, however, is to see so many professional athletes get caught up in the allegations.  It’s particularly unusual when the warning signs of bad business practice are all there.  Any industry professional should have been able to identify the red flags surrounding Success Trade and redirect these athletes to better businesses.  Certainly they have the resources to afford such advice. It’s hard to specifically identify what drew these athletes to the firm without knowing the individuals in question.  Perhaps they all went to the same poor source and invested off that advice, perhaps it was simply locker room “word of mouth” which led so many to Success Trade’s door.  Perhaps Fuad recruited athletes specifically because their deep pockets and relatively limited experience with finance appealed to him. But it is clear that they could have done much better in selecting their firm of choice.  The signs were there, waiting to be heeded.

White Gets Some Hang Time – Officially

Rookie Rocket Royce White  made headlines again Sunday: he’s been officially suspended from the team. Such a move may be an indication of a shift away from the kid-glove treatment White has received from Rockets management thus far; despite his month and a half long absence from playing White has continued to receive Rocket paychecks while the team attempted to coax him back onto the court.  Officially, GM Morey says that the Rockets “will continue to work with Royce to hopefully come to a resolution.”  Unofficially, it may be curtains for White’s NBA career. The last straw seems to have been White’s refusal to accept an assignment to the Rocket’s D-League team, the Rio Grande Valley Vipers.  The league CBA allows teams to assign players to the D-League at any point during their first two years of play.   When Morey announced White’s suspension, he listed “failure to provide services” as the reason– White’s contract requires him to accept the assignment. For his part, White continues to make vague allegations about team mismanagement and failure to provide adequate medical care as the reason for his self-imposed hiatus.  Via his Twitter account, White has consistently, if not coherently, suggested that the team is not listening to its medical staff when making personnel decisions.  More recently he has begun suggesting that the Rockets have violated the ADA (Americans with Disabilities Act):

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White’s shift towards an ADA claim suggests that he’s aware he is in breach of his contract with Houston– a losing position for him should this dispute end up in front of an arbitrator or a judge.  If White can demonstrate the Rockets failed to make proper accommodations for him under the ADA, it may give him some cover to defend his failure to perform on the contract.

Without specifics from either side it’s hard to understand the full nature of White’s grievances, but the latest move from the Rockets suggests he is unlikely to get what he wants from the exchange.  White seems to think he’s not being properly accommodated by the Rockets, but the team has already done a great deal to support their player.  White missed the first week of training camp while he worked out an agreement with the team where they provided him with an RV and driver to deal with his anxiety issues over traveling.  White has said that travel is not an issue at this juncture.  Until we hear more about the situation, it’s hard to say what health issue White may have, or what the Rockets could or should have done to accommodate him under Federal law.

Absent a seismic shift in White’s attitude, it seems increasingly unlikely that we will ever see him play again.  For such a talented young rookie, it seems a waste.  Hopefully Royce White can get the help he needs and find a path back to success.