Deal may extricate Pacers from costly TV-rights deal from ABA days

The NBA has quietly brokered a deal with the former owners of the American Basketball Association’s St. Louis franchise that sources say eventually could save the Indiana Pacers millions of dollars a year.

In 1976, when the National Basketball Association agreed to absorb four ABA franchises—the Pacers, Denver Nuggets, New York (now Brooklyn) Nets and San Antonio Spurs—the owners of the Spirits of St. Louis agreed to be paid one-seventh of each of the surviving ABA teams’ national television revenue for being cut out of the merger. The deal had no deadline—meaning the payments would be made forever—unless it was modified by consent of both sides.

In 2011, the owners of the St. Louis franchise—Ozzie and Daniel Silna—went to court in Manhattan seeking a larger piece of the broadcast revenue pie.

The settlement paves the way for payments to the Silnas to eventually cease. But getting to that point will come at a steep price.

Though the NBA and Pacers declined to discuss settlement terms, The New York Times said one provision is a $500 million upfront payment to the Silna brothers, financed through a private placement of notes by JPMorgan Chase and Merrill Lynch.

It’s not clear how much—if any—the settlement will cost the Pacers.

Documents filed in the lawsuit show just how lucrative the deal was for the Silnas and how burdensome it became for the Pacers, Nets, Nuggets and Spurs.

In 1980-81, the first year the Silnas were eligible to get their share of TV money, the brothers received $521,749, according to court documents filed by the NBA. For the 2010-11 season, they received $17.45 million.

The Silnas’ total take from their 37-year-old deal approaches $300 million.

It’s not clear how much of that was paid by the NBA and how much by the four former ABA teams. But if most or all was paid by the former ABA teams, as multiple sources have suggested, the payment to the Silnas has been costing the Pacers $4.5 million to $5 million annually in recent years.

Pacers owner Herb Simon has long moaned that the deal is a financial albatross for the franchise. 

“Something went wrong somewhere,” Simon told Forbes in 2011. “The intent of the deal [with the Silnas] was not to have it in perpetuity. It was to compensate them for the loss of their franchise. It’s just an egregious situation now.”

The deal got more painful with each passing year for the Pacers and the other ABA teams that joined the NBA. And the legal case the Silnas launched in 2011 threatened to escalate the pain.

The case sought a bigger slice of the old ABA teams’ national broadcast and cable television contracts. The Silnas also argued that they were due part of the money the league gets from international broadcasts, NBA TV, League Pass and other money-generating deals that didn’t exist in 1976.

The parties tried to reach settlements over the years that would bring payments to an end, but to no avail. In the 1980s, the Silnas discussed a settlement in the $6 million ballpark, sources said. In the late 1990s, the four former teams offered “substantially more,” sources said. As recently as 2008, the NBA made a serious push to settle, but talks halted when the economy crashed.

The latest round of discussions resulted in a settlement last week. The pact would allow the NBA to put the dispute behind it before its media-rights deals expire after the 2015-16 season. The league and ABA teams absorbed by the NBA were eager to cut the Silnas out of the never-ending cash buffet before the next batch of even-larger, multi-billion deals are signed.

The Silna brothers are settling, sources said, largely because they have grown tired of fighting the NBA.

The Pacers, however, are not entirely out of the mess. The Silnas will continue to get some television revenue through a new partnership that is to be formed with the Pacers, Nets, Nuggets and Spurs. The Silnas, sources said, will get some of money from the disputed revenue streams named in their lawsuit.

At some point, The Times reported, the Silnas can be bought out of their interest in the partnership. In an interview with the IBJ last month, Pacers owner Simon indicated it could take years to completely end the deal.

The settlement is pending before U.S. District Court Judge Loretta A. Preska.

There were two other remaining ABA teams when the league folded in 1976. Neither made out nearly as well as the Silnas. The Virginia Squires were on the brink of financial ruin and essentially folded, while the owners of the Kentucky Colonels settled for $3.3 million in 1976.