The Crazy, Horrible, Worst Business Deal Ever - Brought to You by the NBA

This isn’t quite your typical Notes, come-from-behind to-victory story, but it’s so improbable, so pro small business, I just had to share it!

The latest NBA season is in full swing now, and with it you know what you typically get, right? Shaq, Chuck, Kenny, and Ernie yucking it up (only now on ESPN), gigantic contracts, incredible athletes, and so much more.

Wit the NBA, nothing is left to chance. Only the best, right?

Yes, but it hasn’t always been so. Check out this CRAZY story:

A Different Era

If you rewind a few decades, the NBA’s story was vastly different; the 1970 in particular were a tumultuous era for professional basketball.

The league faced a litany of challenges, including drug scandals, waning public interest, and games that were tape-delayed until 11:30 p.m. for the few who bothered to watch. In those dark days, the notion of the NBA becoming the global powerhouse it is today seemed improbable, if not downright absurd.

And it was amid this turmoil that the NBA made what can arguably be called the worst business deal of all time. It’s a lesson for business owners and anyone signing a contract.

The Worst Business Deal of All Time

Back then, the NBA found itself in a precarious position, overshadowed by the rise of a brash and innovative rival–the American Basketball Association. With its red, white, and blue ball, high-flying stars like Dr. J, and the introduction of a revolutionary weapon - the three-point shot– - the ABA captured the imagination of basketball fans across the nation.

The NBA, in comparison, appeared staid and out-of-touch.

In a bid to quell the ABA’s rising influence, the NBA made a pivotal decision: To merge with the ABA and knock out its rival. And so, in 1976, four ABA teams - the New York (now Brooklyn) Nets, the Denver Nuggets, the Indiana Pacers, and the San Antonio Spurs–were welcomed into the NBA fold.

But the rub was that the ABA had more than four teams.

Those that were left, the ones that were not invited to merge, were compensated for their dissolution. These teams, including the now long-defunct St. Louis Spirits and their owners, the Silna brothers, were given two options:

1. Accept a one-time multimillion-dollar payout or

2. Take a long-term payout.

The Silna brothers were the only owners who negotiated a deal for the latter, a deal that most people thought ridiculous. They would receive $2.2 million upfront, and a “1/7th share of TV revenues in perpetuity for the merged teams.”

Those Fateful Two Words

Given that NBA ratings were so abysmal at the time, taking a share of the TV revenue seemed foolhardy, if not downright preposterous.

Except you might have noticed those two little words, those funny legal words: “In perpetuity.”

Forever.

No end in sight.

Ever.

Those words became two words that, little did it know, would become the bane of its existence.

The Cash Cow

As the NBA flourished and expanded into a global phenomenon, the Silna brothers quietly amassed a fortune, collecting some $300 million in TV revenue alone by 2014.

The NBA, shackled by the terms of the agreement, begrudgingly honored its end of the bargain, even as the Silna brothers sought additional streams of revenue from emerging platforms like international broadcasts and online streaming.

Desperate to extricate itself from the deal, the NBA embarked on a series of negotiations, sweetening the pot with increasingly exorbitant offers.

Finally, in 2014, the league settled with the Silna brothers, agreeing to pay a staggering $500 million to end the deal, once and for all, forever.

Or, as their lawyers might have put it, in perpetuity.

The Takeaway

Being the lawyer that I am, this story really resonates because it shows just how important contracts are. The Silna brothers were really just two small business people, and that they got one over on the bigger player is rare indeed.

But the real lesson and takeaway is - Know What You Are Signing! Hire a lawyer. Have them review the contract.

Steal This Strategy

📖 Book - The Complete Idiot’s Guide to the NBA (See, I don’t just write about business!)

🎥 Video - NBA 30 for 30 - the ABA’s Craziest Team

🌐 Website - 10 Hardball Negotiation Tactics to Be Wary of

🛠️ Tool - LegalZoom (Know your rights!)