NBA Settles ‘Perpetuity’ Deal With Former Owners Of ABA Spirits

One of the quirkiest deals in pro sports history neared an end this week when the NBA, the former owners of the St. Louis Spirits of the old American Basketball Association and the four ABA franchises that joined the NBA in 1976 announced Tuesday the conditional settlement of a lawsuit pending in federal district court in Manhattan.

The effect of the conditional settlement, which the parties expect to result in the dismissal of the lawsuit, will be to turn off a serious spigot of NBA television revenue that has flowed to Spirits owners Ozzie and Daniel Silna since their franchise agreed not to be among those absorbed into the NBA prior to the 1976-77 season. While the Kentucky Colonels accepted a $3 million buyout, the Silnas negotiated a $2.2 million lump sum plus, in perpetuity, a share of the TV money that would be going to the four ABA teams that survived (Nets, Nuggets, Pacers and Spurs).

The explosive growth in the value of professional sports’ broadcast rights fees in the 38 years since turned that stream of payments to the Silnas into more than $300 million so far. And with that bit of business, the Silnas achieved a measure of NBA immortality themselves, famous for arguably cutting the best deal in U.S. sports history.

Here is more background from the New York Times Richard Sandomir:

Their deal is as much a part of A.B.A. history as red, white and blue basketballs, the 3-point line and the big Afros of Julius Erving and Darnell Hillman. It is a lasting memory of how, through luck or prescience, the Silnas and their lawyer, Donald Schupak, capitalized on the league’s growing popularity.

The N.B.A. has tried to buy them out, including an effort before the financial crash in 2008. Negotiations have picked up in the last six to nine months.

On Tuesday, the Silnas, the league and the four former A.B.A. teams will announce a conditional deal that will end the Silnas’ golden annuity. Almost.

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.

The idea that the NBA would be spending a half billion dollars on top of what the Silnas have collected through the years might seem as outrageous as the original deal. After all, $500 million would be enough to bid on 19 of the league’s 30 franchises, according to Forbes’ 2013 evaluations of team values.

Another way to look at it, though, is that it will allow all involved to move on. And for a little perspective, it will be money better spent than on some other famous, regrettable deals in NBA history. Pluck a half dozen or so from the all-time “Oops!” bin – for instance, Gilbert Arenas ($111 million, 2008), Rashard Lewis ($118 million, 2007), Larry Hughes ($70 million, 2005), Jerome James ($30 million, 2005), Allan Houston ($100 million, 2001) and Vin Baker ($86 million, 2000) – and the tab quickly runs past $500 million.

Those deals at least were finite and now, for the most part via the conditional settlement, this one with the Silnas will be, too. Remember, that “in perpetuity” stuff cuts both ways.

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