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The Spirits of St. Louis – NBA’s Most Profitable Team – Podcast #15

How would you like to get checks for millions of dollars each year in the mail and have no responsibilities related to it? You would have no expenses, no employees. No business and no work to do. You get millions of dollars for doing no work. All you would need to do is get the checks in the mail, cash them in, and pay the taxes.

That sounds like a great deal, doesn’t it? I think if someone walked up to me and offered me that kind of deal, I would probably go for it.

But there’s just one problem and that is you need to be able to figure out how to pull off a deal like the one I’m about to describe, one that’s related to the ABA, the American Basketball Association.

It’s one that many consider being among the best ever negotiated. That is, of course, unless you’re one of the unlucky ones that must write the checks each year to these people.

Let’s start a little bit of background to the story and this goes back to the late 1960s and early 1970s. Up until about the mid-1970s when there was an ABA – the American Basketball Association – here in the United States. There is a modern ABA, but that has no relationship to the former ABA that I’m referring to.

At the time, the ABA was competing with the NBA. What I remember most about the ABA were its red, white, and blue basketballs, but they were also known for their flashy style of offensive play and the now popular slam dunk.

If you’ve seen the Will Ferrell movie Semi-Pro, then you have a pretty good idea of what was going on near the end of the ABA’s exist. In the movie, his team, the fictional Flint Tropics, was a mishmash of actual happenings from the ABA. For example, in the movie, there were the bikini-clad Flint Tropics ball girls. In real life, they were the Miami Floridian ball girls.

Another example would be that in April 1975, when the Indiana Pacers had a halftime show with Victor the Wrestling Bear and you may have seen a similar scene to that in the movie.

On October 17th, 1973, the Denver Rockets had the first halter top night in Pro sports history. I should mention was also the last. Now all these odd promotions were designed to get more people to come to the games, but it didn’t work. The one problem that the ABA had was they had no television contract. They didn’t get much visibility on network TV.

By December 1975, when the Utah Stars folded, the league was left with seven teams. Number 7 is important to this story, so keep it in mind. With just seven teams remaining, it became very clear the ABA simply couldn’t survive. The owners figured that their best chance of not losing the shirts off their back was to merge with the more successful NBA.

Now you’re probably wondering why would the NBA be interested in seven teams that weren’t doing well?

It turns out that the ABA did have a bargaining chip. The teams weren’t worth much money themselves, but the talent that they owned did. During the years that the ABA existed, the league had been siphoning off some of the best talents from the NBA. The remaining team owners had a meeting and took a one-for-all, all-for-one, Three Musketeers type of approach. They concluded that the NBA would take six teams and leave one team out.

Since the Virginia Squires at that time had the lowest attendance and the least value, they assumed that the Virginia Squires would be the team that would be left out of any deal, with the remaining six teams absorbed into the NBA.

The owners of the Spirits of St. Louis team, one of the teams that they assumed would get absorbed into the NBA, were two guys named Ozzie and Dan Silna. Ozzie convinced the other owners to rewrite the bylaws of the ABA so that the seventh team would be properly compensated for their players and receive a one-seventh share of any television money earned by the remaining teams, in perpetuity.

But that’s not how it played out. The NBA agreed to take only four of the teams: the New York Nets, the Indiana Pacers, The Denver Nuggets, and the San Antonio Spurs. The Virginia Squires, which was assumed to be the seventh team, folded before the merger was negotiated and received absolutely no compensation.

John Brown, the owner of the Kentucky Colonels, which was not going to be part of the NBA, opted to take a lump sum of $3.3 million from the four teams that were to be made part of the NBA.

And this is where the story starts getting very interesting because the only team left to settle was the Spirits of St. Louis. They were now the seventh team and insisted on a $2.2 million cash payout and their one-seventh cut of the television profits, even though they had created that clause with these Squires team in mind.

Since this one-for-all approach had been agreed upon, unanimous approval was needed by all of the remaining teams in the ABA before the NBA merger could go through. The other teams had no choice but to agree to the Silnas’ demand. If they didn’t. They risked losing the entire deal with the NBA.

At the time, this didn’t seem like a big deal because television profits, even those for the NBA, were not much. No one foresaw what was going to happen in the 80s when the television ratings for the NBA games skyrocketed due to the drawing power of people like Magic Johnson, Larry Bird, Michael Jordan, and other superstars.

As the ratings went up, so did the Silnas’ profits. As the years went on, the Silna brothers, who were already rich from a successful textile business, became super-rich. The checks kept getting bigger and bigger and, to this day, they still get one-seventh of the television revenue from those four former ABA teams that were absorbed into the NBA.

In reality, The Silnas were doing better than their negotiated one-seventh cut because the math had been locked in at a time when the NBA had 28 teams. Today, there are 30 teams in the NBA, so the four teams must give up an even greater percentage of their television revenue than ever before.

If you think about it, each team gets 1/30 of the revenue, but the calculations of the Silnas’ percentage are based on the four teams getting 1/28 of the revenue. So those four teams must give up an even larger cut.

The lawyers have tried to get out of this deal many times, but the contract is ironclad. The closest they ever came was back in 1982 when the teams offered the Silnas $5 million over a period of eight years. But the Silnas said no. They wanted $8 million over 5 years, and the NBA balked. That would cost them dearly because the NBA revenue grew exponentially in size after.

It has been estimated the Silnas have earned over $150 million so far, and, based on current contracts, they will earn over $320 million by the end of the 2015-16 season when the current NBA contract expires with the networks.

Not a bad take for a basketball team that only averaged 3,800 fans in its final season and ceased to exist in 1976.

Of course, as the Silnas argue, if the team had been allowed to be made part of the NBA back in 1976, it could be worth at least $320 million on the auction block.

Useless? Useful. I’ll leave that for you to decide.

Update: Since this story was first written back in 2008, a settlement has been reached. From Wikipedia: “In January 2014, a conditional settlement agreement between the NBA, the former ABA clubs and the Silnas was announced. As part of the deal, the Silnas are reported to be receiving a $500 million upfront payment from the former ABA teams. In return, the former ABA teams will get majority stake in the Spirits of St. Louis Basketball Club, L.P., which will retain control of a portion of the TV revenue streams of the former ABA teams, with the option to purchase the remaining stake held by the Silnas in the future. Also, the Silnas will drop their litigation against the league seeking a share of additional media revenue streams, with the NBA agreeing to grant some of the disputed funds to the Spirits. The settlement was completed in April 2014.”

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