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NBA to Pay $500 Million to ABA’s St. Louis Spirits

January 9th, 2014 at 8:00 AM
By Matt Agne

Some people know how to make money. That's something that can definitely be said of the owners of the St. Louis Spirits of the ABA. When the ABA merged with the NBA, Ozzie and Daniel Silna had the chance to take a payoff for not joining the league. However, they took a chance and took less up front for the chance to make more later. Their gamble paid off and it's about to pay off even more after the NBA pays them $500 million to end their agreement.

'St. Louis Arch' photo (c) 2013, Ted Duboise - license: http://creativecommons.org/licenses/by-sa/2.0/

Most current NBA fans know of the ABA but know very little about the league. The closes most got to seeing what the ABA was like was when Will Farrell starred in the 2008 comedy Semi-Pro. The movie was a very loose depiction of the league in typical Farrell style.

While there were plenty of ridiculous scenes in that movie there was one when the team owners had a meeting and found out the league would be ending and that some of the teams would join the NBA. Imagine the excitement. Well, unfortunately not every team was merging with the National Basketball Association.

The two teams being dissolved were given settlement agreements. However, it was the agreement made by the owners of the St. Louis Spirits that proved to be most lucrative between the two. That agreement will net the Silna family nearly a billion dollars once they and the NBA reach a final settlement.

In 2012, Richard Sandomir of the New York Times reported details of the deal the Silnas made.

The owners of the Spirits of St. Louis agreed to be paid a small fraction of the N.B.A.’s television money to comfort them for being cut out of joining the older league.

Their piece amounted to a sliver of the modest amount that CBS was paying the N.B.A. in those days. But if the share was small then, one particular term of the arrangement was attractive: the owners, Ozzie and Daniel Silna, would be paid the money every year in perpetuity, or as long as the N.B.A. existed.

The Spirits became a distant memory, even for people in St. Louis. But the N.B.A. has continued to exist quite nicely, meaning the Silnas’ haul has been substantial: $255 million and counting. But as sweet as the deal has been, the Silnas want more, and they have gone to court to get it.

Barry Petchesky of DEADSPIN reports more about the agreement the St. Louis Spirits owners made with the NBA.

Ozzie and Daniel Silna owned the ABA's Spirits of St. Louis, but when the NBA merged with the ABA in 1976, the Spirits were one of two teams the owners didn't want to join. The owner of the other team, the Kentucky Colonels, took a $3 million payment. But the Silnas negotiated something a little different. They took just $2.2 million, plus one-seventh of all future TV revenue for the four ABA teams joining the NBA. Basketball blew up not long after, and that small fraction of TV royalties has netted the Silnas $300 million so far, with payments set to continue on forever.

The NBA has long tried to get out of the infamous arrangement, which paid out a reported $19 million last season alone. In recent years, it has threatened to become even more onerous—the Silnas filed suit for a share of revenue streams that didn't exist in 1976, like international TV deals and online streaming.

The first thing that needs to be said is the Silnas made a great deal with the NBA. A great deal! They took $800,000 less than the Kentucky Colonels owner did and basically set their family up forever.

Clearly the Silnas could sit back and enjoy the deal they have in place. However, they're now looking to make money on media outlets the NBA simply didn't have when the agreement was made. Quite frankly, it's hard to blame them.

Their argument is that since the NBA's media coverage has expanded they should be entitled to a percentage of the new revenue. It's hard to argue with them making a money grab. Even if the online streaming is deemed separate than television coverage you'd have to think international deals should have rolled into the Silna's deal.

Recently, Richard Sandomir of the New York Times followed his previous coverage of this story with details of a possible settlement.

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.

Clearly the Silnas could hold out and make more over the length of the NBA's existence. However, they could do worse than to take this settlement. If this agreement is indeed agreed upon the Silnas would have made about $800 million off the NBA. Not bad for owners who never had a team in the league.

$800 million total or $3 million in 1976? It seems quite clear the Silnas made the right deal and that the St. Louis Spirits were one of the major winners of the ABA-NBA merger.

This is a clear loss for the NBA but in the long run it's a sign they've won big. Clearly their original deal with the Silna family was shortsighted. It will end up costing the NBA nearly a billion dollars. However, the mere fact that the league is in a position to make such a payout shows just how large it's become.

The NBA is extremely popular. Despite labor disputes that have led to lockouts, basketball fans have been very loyal and enjoy everything NBA related. The league's current contracts with ABC/ESPN and TNT are worth $7.4 billion. Business is good. However, for the NBA to enjoy the full benefits of their riches they'll first have to settle with the Silna family.

'Money Everywhere' photo (c) 2013, OTA Photos - license: http://creativecommons.org/licenses/by-sa/2.0/

Tags: ABA, Basketball, Kentucky Colonels, NBA, New York, New York Knicks, St. Louis Spirits

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