One of two brothers who signed what is likely the greatest deal in sports history -- earning the two of them and their attorney $800-Million as team owners without their  having to pay a player or build and operate an arena -- died this past week, with relatively few people outside the industry recognizing his name. But, when you hear what he achieved, you will quickly realize the importance of knowing -- and learning from -- his story.

In 1974, Ozzie Silna and his younger brother, Daniel, bought the failing Carolina Cougars of the American Basketball Association for about $1 million, and moved the team to St. Louis. The Silnas were not truly interested in operating their ABA team (which they renamed the Spirits of St. Louis);  they bought the team because they believed that the National Basketball Association (NBA) would ultimately acquire (or merge with) the ABA, creating a golden opportunity for themselves.

They were right.

After the 1975-76 season, the NBA agreed to merge with the ABA. As part of the process, the NBA had to either bring each existing ABA team into the NBA or compensate its owners for not doing so. Four of the ABA's seven teams joined the NBA. Another team -- the Virginia Squires -- had failed as a business and was gone before the merger. The owners of the sixth team, the Kentucky Colonels, accepted a one-time payment of approximately $3-Million to walk away. The Silna brothers and their attorney, however, turned down such an offer, and negotiated a totally different type of deal.

The Silnas successfully convinced the NBA and the remaining ABA teams to agree to pay them one-seventh of the television broadcast revenue that each of the four remaining ABA teams that had joined the NBA would receive going forward, for as long as the league continued to exist. This deal was based on the argument that all seven remaining ABA franchise deserved an equal share of the TV revenue of the ABA teams that joined the NBA; such an argument made logical sense, and, as, at the time, basketball-related television viewership and revenue was tiny compared what it is today -- the NBA playoffs were not even broadcast live -- the parties agreed to the arrangement. Giving the Silnas annual payments of 4/7 of the television revenue that the other NBA franchises received did not seem like a heavy cost, even if translated to approximately 2% of the entire NBA's television revenue.

The brothers managed to negotiate other favorable terms that would exaggerate their income if the NBA was successful - for example, that their share of the television broadcast revenues could never drop below the percentage that would apply if the league had 28 teams; if the NBA grew to larger than 28 its television revenues would grow, but the brothers' percentage of those revenues would not decline.

At the start, the deal paid the brothers about $300,000 a year -- making the Colonels' deal seem sweet. But, the Silnas' investment in the success of the NBA paid off, to put it mildly. As we all now know, basketball became a mainstream of entertainment; by 2014, the Silnas had netted a total of nearly $300 million from the deal. The NBA had also grown to 30 teams - increasing the Silnas' profits to beyond 4/7 of what the other teams received. By 2014, the brothers and their lawyer were receiving a combined total of somewhere around $20-Million per year from the 1970s-era deal.

Eventually, the NBA and the other teams wanted to buy the brothers out of their contract -- and, in 2014, in a complex transaction created after the brothers filed suit demanding their share of international broadcast and other revenue streams that didn't even exist in the 1970s but were likely covered by the language in the original agreement, they reportedly effectively paid the brothers an additional $500-Million, plus a small fixed annual amount, to get out of the original agreement.

And that is how the late Ozzie Silna and his brother, Daniel, scored the best deal in professional sports history -- making $800-Million as if they were NBA team owners without ever having run an NBA team.

Ironically, the brothers were also in the news about another investment that didn't quite pan out the same way - they invested millions with Bernie Madoff.

There are many practical lessons that can we learn from the Silnas - here are four:

1. It is difficult, but critical, to understand the long term value of non-liquid assets, and how societal changes can dramatically alter the value of intellectual property, franchise rights, and other non-hard-goods.  The NBA failed to understand the value of its future television revenue stream; the Silnas recognized the golden opportunity.

2. Owning something that others with deep pockets need creates great opportunity. The Silnas recognized that acquiring an ABA team meant that NBA would need to negotiate a deal with them if it wanted to merge with the ABA; similar opportunities exist in real estate, IP investing, and other areas of business in which larger enterprises need specific assets belonging to a smaller entity

3. Sometimes turning down a cash offer for a long-term annuity with growth potential can pay off handsomely.

4. Even the best investors sometimes make mistakes. Don't be too hard on yourself if something fails, just keep up the good work.

Published on: May 3, 2016
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