A new NBA season starts tonight which always reminds me of what I believe is the best business deal ever. The Spirits of St. Louis basketball squad made a fortune … by shutting down.
I first became aware of this story in early 2004 when I invested some money for Beneficial Life into a company that owned a basketball team that hadn’t played in almost thirty years. Despite not having a team, or even any tangible assets or employees, the company generated over $10 Million per year with over 99% profit margins (somebody has to file the tax return, etc). Those numbers would grow substantially in the years to come.
In 1976 the ABA was on the verge of financial ruin, and negotiated a merger with the NBA. However, the NBA only wanted 4 of the 6 ABA teams. The Kentucky Colonels agreed to go away for $3.3 Million. The Spirits of St. Louis agreed to go away for $2.2 Million PLUS an ongoing revenue stream. The owners of the team, Ozzie and Dan Silna, negotiated a deal where they would receive 1/7 of the media rights revenue from the four ABA teams that would go into the NBA. Importantly, this revenue stream would continue to be paid in perpetuity. Also, it was to remain intact beyond a certain level of expansion and couldn’t be diluted away. Finally, media rights was broadly and ambiguously defined so the Silna brothers would benefit as new media revenue streams were developed by the NBA.
By 2004, the Silna brothers were receiving over $10 Million a year and had successfully defended their arrangement from multiple lawsuits filed by the NBA. In January of that year, the Silna brothers borrowed $155 Million and agreed to use the NBA’s media rights revenue stream to gradually repay the borrowed money. We invested because we received a better return than we would have by investing in Time Warner or Disney bonds (the payers of the large NBA television contracts). I thought the Silna brothers had the deal of a lifetime.
In 2014, the NBA announced an agreement with the Silna brothers to buyout their revenue stream in exchange for a lump sum payment of $500 Million. It was time to declare victory.
I smile every time I think of the Spirits of St. Louis basketball team, and I tip my cap to the Silna brothers and their attorney, Donald Schupak, on their incredible deal.
