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NBA Edition: Silna Family "Fortune" And The Draft

Thursday, 28 Jun 2007 | 10:30 AM ET
The Spirits of St. Louis
The Spirits of St. Louis

Let's just say there was probably some champagne passed around in the Silna family yesterday. That's because the Silna brothers, Ozzie and Dan, learned that they'll be paid some $ 136 million over the next eight years. The checks will be coming from the Denver Nuggets, the San Antonio Spurs, the New Jersey Nets and the Indiana Pacers.

If you haven't heard the story, it's a classic and is probably the best business deal of all-time.

In 1976, the NBA allowed four ABA teams to pay a $3.2 million expansion fee to be let into the NBA. Two teams, the Kentucky Colonels and the Spirits of St. Louis, were denied entry. Since the NBA required that the ABA to settle everything up, the ABA owners were forced to negotiate with Colonels owner John Y. Brown Jr. and the Spirits of St. Louis owners--Ozzie and Dan Silna. Brown took a lump sum of $3.3 million. The Silnas took $2.2 million and 1/7 th of the television revenue of the four teams going in: the Nuggets, the Spurs, the Nets and the Pacers, in perpetuity.

That's right. They forever get a piece. So let's show you the math on this thing. Yesterday,

the NBA announced its new TV deal yesterday with ABC/ESPN and TNT. It's an eight-year deal that starts in the 2008-09 season. Under the deal, the league will be paid an average of $930 million per annum, as first reported by The Sports Business Daily.

That means for each of the next eight years, 26 NBA teams will make $31 million. The four former ABA teams will make $26.8 million. The Silnas will pick up $17 million and their attorney, who helped negotiate the deal, Donald Schupak collects $1.9 million.

The Nuggets, Spurs, Nets and Pacers, by the way, are actually giving more than 14.2 percent (1/7th) of their revenue to the Silnas and Schupak. This is because the math for the deal is locked in at 28 teams. So those four teams are actually giving up a greater percentage. Each of the Silna brothers gets 45 percent each and Schupak gets 10 percent of the total payday.

I've figured that since 1976, the Silna brothers have earned about $180 million, so they're total take through the 2015-16 season will be $320 million. Many people point out that if the Silnas did have the right to get into the league and still had their team, they would have paid $3.2 million for a team now worth some $320 million. What you have to remember though is that isn’t pure profit, like it is now.

I worked very hard of the last couple weeks to get the Silna Brothers and Don Schupak to talk, but I was unsuccessful. I did however (see video below) get some great storytellers--Carl Scheer, the former general manager of the Denver Nuggets and John Y. Brown Jr., the Colonels owner who took the $3.3 million payday instead:

What was the environment that led to the deal?
Scheer
: We were in suicide mode. There was really no choice. We had no other negotiating power. We had no leverage with the NBA and we had to take care of our ABA partners.
Brown:Everyone was losing money and there wasn’t much hope for a future without a merger. Hopefully, we can get that video up. I left a space for it.

What was the outlook on the NBA TV business at the time?
Scheer: NBA television was modest at best. In fact, the Finals were delayed and were not shown live in the late 70s. There were those who understood what the future might bring for the NBA, but most so-called experts thought that pro basketball had a very modest future.

John, how did it come about - the $3.3 million for you?
Brown: They asked me, ‘What do you want?’ And I said, ‘Well, what do you think is fair?’ And they said, ‘Would you take two million dollars?’ And I said I would. Four hours later, after the Silnas went into the room, it became $3.3 million.

How did the Silnas pull this thing off?
Scheer:
They had one thing going for them. They had the leverage in the sense that they were the kamikaze. They were going to go for it. If we didn’t agree to that, I was convinced they would take us all down.
Brown:They were a couple of rogues that were new to the league and they held them up for all they could get…As they say, there’s the truth and then there’s the real truth. The truth of the matter is, it’s about the biggest hold-up I’ve ever seen in business. It was highly unethical.

An Investment Slam Dunk
The story of two men who don't own a team but still get a nice cut of the dough, with CNBC's Darren Rovell

At left is the video clip of my report from this morning on "Squawk Box."

What Will They Make?
It’s true that NBA rookie salaries are slotted, but they make 20 percent above the value in the Collective Bargaining Agreement. Here’s what everyone will make for their first three years in the NBA (it’s all guaranteed) (correction from earlier post: should read the first two years are guaranteed) if they are drafted in these slots tonight. As you can see, being a first-round draft pick doesn’t necessarily mean you’ve won the jackpot.

Pick Salary
1 $15,034,920
2 13,452,120
5 9,862,800
10 6,542,160
20 3,979,080
30 2,982,960

Kevin Durant
AP
Kevin Durant

Durant Shoe Deal Will Wait
It looked like Kevin Durant was about to sign a shoe deal about a month ago. There were false rumors that he had signed a letter of intent with adidas. But here we are, draft day, and Durant doesn’t have a deal. We’re told all the offers are in and they like won’t change from Nike and adidas. Durant is guaranteed to get the highest rookie shoe deal aside from LeBron ($13 million a year) in NBA history and it will come in at more than six times Oden’s shoe deal with Nike -- $1.2 million a year. In an ESPN.com SportsNation poll, that tallied more than 113,000 votes, 76.8 percent of fans thought Durant was more marketable.

I talked with shoe czar Sonny Vaccaro about why Durant is so valuable:
“Kevin came into a tremendous situation. Rick Barnes at Texas allowed him to be the great player that he was. He turned into America’s poster child for brilliance and athleticism. He commanded highlight shows when Greg Oden got wins. The industry needs someone who comes through because everyone has screwed up by overpaying since LeBron’s deal. The money spent from LeBron to Kevin can never be made up now, but what Nike and adidas can do now is try to save themselves.”

Questions? Comments? SportsBiz@cnbc.com

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NKE
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