The Greatest Deal in Business History Coming to a Close

[nighthob]

The NBA, under pressure by the US Federal Courts' decision that all the communications revenue streams not covered by their 1976 deal with Ozzie and Daniel Silna (because they didn't exist) were part of it, is finally settling up with the brothers for $500 million. The best part? It's only a partial buyout, so they're still going to be collecting from the NBA.
 

 
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. 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.
 
Still, the league is not getting rid of the Silnas altogether. They 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, according to the people with knowledge of the agreement. But at some point, the Silnas can be bought out of their interest in the partnership.

 

[Jer]

"perpetuity" can be a powerful word.
 
It seems like we should be able to reverse engineer the value of NBA's projected future revenue streams with the information provided.

 

[OCST]

I can't believe these guys actually filed a suit to get MORE revenue from NBA TV, etc, which led to this settlement.  If it were me, I would have left well enough alone and kept cashing my (already substantial) checks (for doing nothing).
 
Greed, it's great.

 

[Was (Not Wasdin)]

Through the end of 2012, they had received north of $255MM in payments.  Not sure what the number was for 2013, but it probably put them close to $300MM. 

 

[nighthob]

I think the lawsuit was at least partially driven by their losses to Bernie Madoff. The younger brother was eager to settle, so I'm guessing he must have lost a bundle and was eager to make it up.

 

[Average Reds]

I can't believe these guys actually filed a suit to get MORE revenue from NBA TV, etc, which led to this settlement.  If it were me, I would have left well enough alone and kept cashing my (already substantial) checks (for doing nothing).
 
Greed, it's great.

 
Why is the NBA's lack of vision the legal responsibility of the Silnas?  It's not like the money would go to charity if the Silnas don't enforce their rights - it would go to the NBA.
 
The idea that the deal is "too one-sided" and therefore the NBA should be free to ignore it is ridiculous.  If it were me, I would have litigated until I was blue in the face on principle.

 

[The X Man Cometh]

 
Why is the NBA's lack of vision the legal responsibility of the Silnas?  It's not like the money would go to charity if the Silnas don't enforce their rights - it would go to the NBA.
 
The idea that the deal is "too one-sided" and therefore the NBA should be free to ignore it is ridiculous.  If it were me, I would have litigated until I was blue in the face on principle.

 
Yeah, is not like they're turning the screws on a single mother trying to keep the rent checks coming or something. Good on the Silnas brothers for getting what they are due.

 

[OCST]

 
Why is the NBA's lack of vision the legal responsibility of the Silnas?  It's not like the money would go to charity if the Silnas don't enforce their rights - it would go to the NBA.
 
The idea that the deal is "too one-sided" and therefore the NBA should be free to ignore it is ridiculous.  If it were me, I would have litigated until I was blue in the face on principle.

 
I'm not saying they didn't have the right to litigate.  They're free to litigate away.
 
I'm also not saying that the NBA is a pauper in need of protection.
 
I'm saying that they already had a fantastic revenue stream in exchange for doing precisely zero, and if I were them, I would have been content with it and not rattled the cage for more.  It ended up working out well  - the settlement is a great deal for them - but litigation is uncertain and it could have blown up in their faces.  I would have left well enough alone and just kept cashing the checks, as my personal choice, is all I'm saying.
 
I didn't know that they had lost a bunch of coin to the Madoffs.  Quelle surprise.

 

[nighthob]

I think my question would revolve around the status of the St. Louis market. Part of the merger agreement was that the Silnas maintained the rights to the market. So any team looking to move there would need hand them a buttload of money. I wonder if they got rid of that restriction for their half billion?

 

[Devizier]

Whoever negotiated that deal with the Silnas is arguably one of the biggest idiots in american business history. And there's some ferocious competition for that title, so they should wear it proudly.

 

[Average Reds]

 
I'm not saying they didn't have the right to litigate.  They're free to litigate away.
 
I'm also not saying that the NBA is a pauper in need of protection.
 
I'm saying that they already had a fantastic revenue stream in exchange for doing precisely zero, and if I were them, I would have been content with it and not rattled the cage for more.  It ended up working out well  - the settlement is a great deal for them - but litigation is uncertain and it could have blown up in their faces.  I would have left well enough alone and just kept cashing the checks, as my personal choice, is all I'm saying.

 
The bolded portion is a misrepresentation of the situation.
 
My understanding is that the NBA adopted an aggressive (and indefensible) interpretation of the contract in an effort to either significantly reduce their payouts or force a settlement on their terms.  In essence, the NBA ignored the plain language of the contract and dared the Silnas to sue.  It's hardly surprising that they sued.
 
I also disagree with your characterization of the risks here.  If the Silnas had done nothing, the NBA would have accelerated their efforts to exclude as much revenue as possible from the deal.  In this sense, the lawsuit had no downside, because the status quo was the worst-case scenario.
 
 

 
I didn't know that they had lost a bunch of coin to the Madoffs.  Quelle surprise.

 
To the extent this is relevant at all (and it really isn't) it would work in the NBA's favor.  So I'm not sure what you are driving at.

 

[nighthob]

It did work in the NBA's favor, if you take a moment. The courts already ruled that every stream of communications revenue was covered by the 1976 deal (even though it specified the national TV money). They could have just cased checks in perpetuity as could their children, grandchildren, and great children. Now the NBA is out of it, almost, for half a billion. A quarter century ago this would have cost them $30 million but they balked at the total.

 

[Average Reds]

It did work in the NBA's favor, if you take a moment. The courts already ruled that every stream of communications revenue was covered by the 1976 deal (even though it specified the national TV money). They could have just cased checks in perpetuity as could their children, grandchildren, and great children. Now the NBA is out of it, almost, for half a billion. A quarter century ago this would have cost them $30 million but they balked at the total.

 
Well, this is my point.  What I was questioning was the implication from OCST that this was somehow evidence to support the notion that the Silnas were less than virtuous in litigating.
 
Look, I have no trouble believing that the Silnas are/were greedy bastards.  That doesn't mean they weren't right to sue.

 

[Nick Kaufman]

It did work in the NBA's favor, if you take a moment. The courts already ruled that every stream of communications revenue was covered by the 1976 deal (even though it specified the national TV money). They could have just cased checks in perpetuity as could their children, grandchildren, and great children. Now the NBA is out of it, almost, for half a billion. A quarter century ago this would have cost them $30 million but they balked at the total.

 
 
A quarter of a century ago 30 million dollars would have far higher value in present day dollars. Which is my next point. In today's dollars, they ve actually made more than 300 million.

But this is an absurdly unfair deal. It's so unfair, you expect someone to step in and say "alright, you fleeced them enough, move along now"

 

[OCST]

 
The bolded portion is a misrepresentation of the situation.
 
My understanding is that the NBA adopted an aggressive (and indefensible) interpretation of the contract in an effort to either significantly reduce their payouts or force a settlement on their terms.  In essence, the NBA ignored the plain language of the contract and dared the Silnas to sue.  It's hardly surprising that they sued.
 
I also disagree with your characterization of the risks here.  If the Silnas had done nothing, the NBA would have accelerated their efforts to exclude as much revenue as possible from the deal.  In this sense, the lawsuit had no downside, because the status quo was the worst-case scenario.
 
 
 
To the extent this is relevant at all (and it really isn't) it would work in the NBA's favor.  So I'm not sure what you are driving at.

 
If the bolded is true, then I would agree with you.  I was going off the article linked to in the OP, which says nothing about the factors you mention.  It only mentions that the NBA tried to buy them out, which is not the scenario in your post.

 

[Spacemans Bong]

I just watched the 30 for 30 on the Spirits of St. Louis, which the Silnas owned, and they originally thought the TV deal would be good leverage to force their way into the league, as they were pretty sore over not being one of the franchises selected to merge with the NBA. I think once the league grew to where they wouldn't have the capital, but also where TV rights grew that they were on to one of the greatest deals in the history of business, they stepped back and let the money roll in.

 

[nighthob]

My understanding is that the NBA adopted an aggressive (and indefensible) interpretation of the contract in an effort to either significantly reduce their payouts or force a settlement on their terms.  In essence, the NBA ignored the plain language of the contract and dared the Silnas to sue.  It's hardly surprising that they sued.

The contract spelled out a 1/7th share of the national tv revenues disbursed by the NBA to the surviving ABAteams. The Silnas' lawyers wanted that expanded to include all communications revenue streams, domestic and foreign. I can see why the NBA balked at an interpretation of "national tv revenues" that included NBA Internet and international revenues.