The Silna Brothers: Makers of the Greatest Sports Deal of All Time – My Column, Nashua Telegraph, November 20, 2013

            Last week one of my colleagues emailed me an amazing article from www.celebritynetworth.com, of all places. The article was written by a gentleman named Brian Warner, and was titled “The Greatest Sports Business Deal of All Time.” Since then the story has popped up on other sports outlets, and I have not stopped thinking about it since I first read it.

            The article recounted the tale of brothers Daniel and Ozzie Silna. The Silna brothers’ saga reads like the classic American success story. Children of immigrants, they took over their parents’ textile business and parlayed that into enough money to buy their way into the professional basketball industry in the late 1960’s. When their bid to acquire an NBA franchise failed, they purchased the St. Louis Spirit, a franchise in the upstart American Basketball Association.

The ABA ultimately failed, and was dismantled in a deal with the NBA in the mid-1970’s. As part of that deal, a handful of franchises were admitted to the NBA. Others were to disband. The Spirit was one of these franchises, and had to be liquidated as part of the transaction. It was in the negotiations between them and the NBA that the Silnas worked their negotiation magic. In hindsight, those negotiations were a complete mismatch.

Clearly, the Silna brothers knew their way around the negotiating table. While other ABA owners settled for relatively small cash amounts in exchange for their teams, the Silnas held out for more. They took a small amount of cash, plus a tiny percentage of future NBA television broadcast revenues. How long did their right to receive these payments last? It never ends. As long as the NBA remains in business, the Silnas will continue to get paid.

As one might imagine, this revenue stream that was small potatoes in 1976 is anything but that now. In 2012 the Silna’s combined royalty payments totaled $18.5 million. That income was enough to place them 7th among the highest earning people in the entire National Basketball Association. Not a bad annual take for two guys who were neither players nor owners. Amazingly, their lawyer made out in the deal too. He opted to take 10% of the Silna’s annual royalty payment annually in lieu of a cash fee. My guess is he’s no longer practicing law. When all is said and done, I have to agree with Mr. Warner. This is the greatest sports deal of all time.

I wish there was more information about the Silna’s negotiating strategy, but they have been notoriously tight-lipped about the whole thing. No need to brag, I suppose, when you go toe to toe with the NBA and walk away the beneficiaries of the greatest sports deal ever. Clearly, someone on their side of the table had a lot of faith in the future of the NBA. Someone had the vision to foresee the impact television would have on the league and its potential for revenue generation. The NBA negotiators, on the other hand, probably figured they sold the Silva boys a pig in a poke. After all, NBA television revenue in 1976 was nothing to brag about.

In addition, to being sports television visionaries, the Sinla brothers’ strategy evidences the value of taking the right risks in negotiations. They overcame their inherent risk aversion. Risk aversion, put most simply, is our innate tendency to prefer a bargain with a more certain outcome than one that is more uncertain, even if the more uncertain outcome is potentially a better one for us. Risk aversion is why some people prefer to invest their money in a savings account, rather than in the stock market. Risk aversion is part of the reason why the other ABA owners took cash instead of the future revenue stream.

Clearly, the Silna brothers were not risk averse. If they had been, they would have done what their fellow ABA owners did: pocket the cash on the table. There is no doubt their personal wealth provided them with the ability to turn down cash and take on more risk. But while the Silna’s had wealth, so did the other ABA owners. Why did none of them make the same sort of deal?

It is quite possible that what permitted the Silva’s bargaining strategy to take a different path from the other owners was their heritage and life story. They were children of Latvian immigrants. Their parents risked all to come to a new country, learn a new language, and start a business. Risk-taking was in the Silna’s blood. This may have given them a negotiating advantage when dealing with NBA executives.

Studies have shown that all of us, to some degree, are risk averse. Our risk aversion probably stems from a survival instinct acquired thousands of years ago. Consider the saying: “A bird in the hand is worth two in the bush.” When you analyze it, the statement is nonsensical. In reality we have no idea what the two birds in the bush might be worth. They could be rare birds, worth thousands of times more than the bird in the hand.  But they could be dead birds, worth nothing. In fact, to be accurate the phrase should say that a bird in the hand might be worth two in the bush. This is an important distinction, particularly during negotiations.

The lesson is, I suppose, is to be aware of one’s inherent tendency to be risk averse when evaluating an offer. Understand we are inherently more likely to take the cash. Evaluate future offers thoroughly. Do the homework. Finally, when making an offer, it might make sense to remind your counterpart of the old adage that a bird in the hand is worth two in the bush. One never knows. It might just work.

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