One of the fun things about covering the NBA and having the opportunity to explore the studio space is that with each others' help, be they pros, bloggers, or commenters, we discover all these little tributaries of interest that we can explore. The best part is when they might actually have something to do with the larger issues at hand.
In our analysis of national TV and local TV revenue, specifically in how it impacts the New Jersey Nets, we were tipped to the fact that the revenue distribution is not uniform across the league. The Nets actually receive a little bit less than most other teams, which puts they and three other teams at an inherent disadvantage when it comes to earning their keep. You see, there are two brothers who were part of a league that has not existed in over three decades. Every year for 35 years, the Nets have to cut a multi-million dollar check to these two fellows, and these brothers don't have anything at all to do with the NBA or pro basketball in general.
Let's take a quick look at how this all transpired, examine the money that has steadily changed hands, and lastly, what it means for competitive balance. If you would like a more in-depth view of the story, you can go here:
- The players: Ozzie and Daniel Silna, two successful New Jersey businessmen who decided to get into the game of owning a professional basketball team. The brothers were joined in their endeavor by their lawyer, Donald Schupak. They purchased a pro franchise in 1974 and named it the Spirits of St. Louis.
- The teams: The Spirits of St. Louis, Virginia Squires, Kentucky Colonels (owned by KFC owner John Y. Brown), New York (later Jersey) Nets, Denver Nuggets, Indiana Pacers, and San Antonio Spurs.
- The league: the American Basketball Association (ABA), and then later the NBA
- The back-story: In 1976, the ABA, a rival professional basketball league that tried do do things a bit differently, was on the verge of folding. The league consisted of seven teams, and the better organized and more stable NBA wanted to merge the ABA into the NBA through team acquisition. One team immediately folded (Squires), two were left out of the purchase (Spirits, Colonels), and the NBA agreed to purchase the four remaining teams from the ABA - the Pacers, Nets, Spurs, and Nuggets. For the two remaining teams, the Colonels and Spirits, the NBA offered $3 million each for them to fold. The negotiation process that came out of this offer led to one of the most ridiculous deals in basketball and business history.
- A buyout of any Spirits player the NBA acquired, which led to about $2.2 million in the exchange.
- They would receive 1/7 (14.3%) of each of the four remaining ABA teams' NBA apportioned visual media rights each year. The reason why the ratio is 1/7 is because there were seven teams remaining in the ABA at the time, and they thought it would make sense that for any team that got left out of the NBA merger, they would still get a piece of the future revenue of the teams that did make it in.
- In a second bit of prescience, the Silnas mandated that the percentage that they would receive should be derived off of a 28 team league, in order to protect their investment from dilution.
- The duration of the deal: in perpetuity, or in other words, FOREVER
- The contract only applies to the league's TV rights, so we use the $930 million number and ignore local TV revenues.
- For the Silnas' purposes, to calculate each team's share of the TV revenue, divide that $930 million by 28 teams. Why not 30 teams? It is because of that clause in their contract that stipulates that their percentage assumes a 28 team league, regardless of how many teams there are. That calculations gives you a per-team share of about $33 million.
- For the Silnas' purposes, each of those four ABA teams received $33 million from the league, and now the Silna brothers are entitled to 1/7 of it from each of those four teams. So the Pacers, Nets, Spurs, and Nuggets all must pay the Silna brothers about $4.75 million, or in aggregate, around $19 million.
- Behold, the sweetest deal in sports business - the Silna brothers will receive this amount every year until 2016, which is when the NBA is set to sign a national TV extension. Which means in 2016, the Silna brothers will take in even more money than they do now. According to the Forbes article above, their total accumulation over the past three decades is around $237 million.
- This yearly payment will never cease.
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