Joe Pompliano (@joepompliano on X/twitter) recently shared the story of the two brothers who made almost a billion dollars from the NBA and never owned an NBA team. It’s a fascinating tale of leverage and knowing what you have when you enter negotiations.
Ozzie and Daniel Silna were from a Latvian immigrant family born in New Jersey. The dad had a textile business employing the sons, but he sold the business and they had to find something to do. They started up a company manufacturing polyester for use in clothing right in the 1960s and profited from the boom in polyester clothing that so characterizes that era.
In 1974 they counted up the profits and realized they had an extra $1m and decided that they didn’t want to only invest in the polyester business but to diversify into something that wasn’t subjected to the same market forces — very smart lesson for my business owner readers. They liked sports and entertainment but knew that the price tag to own a franchise was out of their reach, but they heard that the ABA (competitor to the NBA) had a team in bankruptcy in North Carolina. They bought the team for $1m and negotiated with the the City of Saint Louis to move the team there as the Saint Louis Spirits. A very young Bob Costas was their on-air announcer.
2 years later the ABA and NBA met in secret to discuss a merger. The stresses of running dual competing leagues was bad for business and bad for the sport, they argued and so a merger was the solution. The NBA was the dominant partner between the two and it only wanted to take 4 of the ABA teams into the combined league (New York Nets, Denver Nuggets, Indiana Pacers, and the San Antonio Spurs). The other ABA teams would have to shut down (the Virginia Squires, the Kentucky Colonels and the Saint Louis Spirits). They were offered $3m to disband their organizations.
During negotiations, the Virginia Squires went bankrupt leaving just two at the table. The ownership of the Kentucky Colonels was split between a group of businessmen and politicians — it was a vanity play for them to own a professional sports team. The team had the highest win percentage in the ABA, were well coached and sourced good talent, but it had no committed leadership from the ownership team who agreed to just fold it and move on — another big lesson there, committees can’t lead and never make the right decision. That just left the Saint Louis Spurs and the Silna brothers weren’t going anywhere, they wanted their team to play.
Turning $1m into $3m in just 2 years was a great return, of course, but the Silna’s recognized that they had the ability to leverage being the last team at the table. They kept negotiating with the NBA who were desperate to have them just go away and eventually the two sides signed what has been called the “best deal in sports history.”
The brothers were paid $2.2m up front and 1/7th of all TV money received by the 4 ABA teams that joined the NBA. Even better, the deal was in perpetuity. As long as the NBA existed and took TV revenue, the Silna’s would get about 2% of the entire league’s TV revenue.
In the earlier years that amounted to about $500k per year, not big money but pure profit to them. By 2014, the annual payout crossed the $20m threshold — for a team that never played a game in theNBA. That same year, the NBA was negotiating to renew its TV deals and realized that it was going to continue paying the Silna’s ever increasing sums for no contributions. They sat back down at the negotiating table with brothers who walked away with a $500m buyout of their position. From 1980 to 2014, the brothers were paid $800m in revenue share.
The numbers are really better than that. In 2004, Wall Street was figuring out that you could securitize any income stream. Credit Suisse First Boston met with the brothers and offered to take their payouts and securitize them at a reasonable interest rate. When that deal was done the brothers had $155m in their pockets.
They then met a guy called Bernie Madoff who read about the deal in the papers. He convinced them to invest some of the money with him and explained that there was little risk involved. "I asked him what the downside was," Dan Silna recalls saying at what was his only meeting with Madoff. "He looked me straight in the eye and told me that if everything went south at once the most I could lose was 4%."
While others lost everything with Madoff, the brothers were paid $24m over the next 6 years, according to Irving Picard, the trustee who oversaw the liquidation of Madoff Securities and who sued to recover those funds. The brothers claim that they lost money in the transaction and they confidentially settled the case with Picardy, so we’l never know if they beat Bernie or not.
“Bliss is the highest peak of what brings you joy. If happiness is just above the status quo, bliss is what makes you feel most alive.”
—Kyle Maynard
Can anyone figure this economy out? I’ve been proclaiming doom and gloom on these pages for several months because I don’t see how you grow the economy enough to eclipse the stomach-churning, existential debt load we have as a country. The economy answers with a great quarter of GDP growth, keeping us squarely on the fence.
In an impressive display of economic resilience, the United States' economy demonstrated a robust annualized growth rate of 3.3% in the concluding quarter of 2023. This data, revealed in a preliminary report released yesterday, significantly eclipses the projections of analysts, who had anticipated a growth rate near 2%. The surge is primarily attributed to robust consumer spending, evidenced by a record-setting holiday retail spending of approximately $965 billion.
Considering that last year began with talk of a looming recession and an inflation rate hovering near 6.5%, things are looking better than I thought, and even better than the “soft landing” crowd had thought. In light of these developments, the Fed has hinted that we may not need three rate reductions in 2024, perhaps just two will do the job of balancing employment and taming inflation.
Frankly, these are good numbers and I’d like to see years of cumulative increases. If we don’t tackle the debt load, though, it will all be for naught. The nation's total GDP now stands at approximately $27.6 trillion, a debt-to-GDP ratio of 120%. That means we owe $1.20 cents for every dollar we produce which translates into about $1b in interest per day out of the US Treasury.
“No one is qualified to tell you how to experience the world.”
— Vlad Zamfir
I have always been fascinated by the grocery business. When I was a kid I loved going to the supermarket with my mom, and seeing all the wonderful food a picky-eater like me would never want. It’s still a marvel to me and a parable of abundance every time I go into a store.
This weekend my son and I visited a new Indian grocery store in our town and were gobsmacked at all the things we never knew existed. This store was about 10,000 square feet and I guarantee you there was over 5 tons of various rice stacked around its perimeter, most of which we had never seen before. The spice and curry aisles had over 300 different spices and combinations alone. The flour aisle was stupefying with over 70 different types of flour.
Our next stop was the Asian market so Ret could get a specific kind of rice and pick up a teriyaki sauce that he sees on Youtube. Again, the variety made your head swim. The freezer section was packed with frozen fish of over two dozen varieties.
2 years ago I bought a vacant grocery store and set about trying to rent it to any of the national grocery chains. We approached 31 different grocery brands and couldn’t entice a single one to give us a legitimate offer. I knew there had to be a reason and so I dug deep to understand why. The reason? Revenue per square foot numbers have changed dramatically in the last 7 years.
The best in the business, Trader Joe’s, runs smallish stores and produces about $2,100 per square foot. The next closest competitor, Whole Foods, barely breaks $1,000 per square foot. Walmart with its megastore footprint brings in about $470 per square foot. My space was 43,000 sq feet and it was quite simply too large to produce the revenue numbers required to support the investment by one of the chains.
No worries, we repurposed it to indoor, climate control storage and we are off to the races now!