Hello! Welcome to the second edition of Deep Pockets! Thank you for being here!

Fact: There are assets in the world right now that are currently valued at ZERO dollars, which will be worth hundreds of millions of dollars in the future.

I’m not talking about an undervalued stock that will explode in the next decade. Or a startup that someday will get acquired for billions. I’m telling you that there are assets you could buy right now for nothing, maybe even be paid to take, that someday will be worth a fortune… without you having to lift a finger.

Don’t believe me? Ask Ozzie and Daniel Silna: Two brothers who made what might be the greatest accidental fortune of all time thanks to what was at one time considered a “meaningless concession” in a contract.

DEEP DIVE: The greatest accidental fortune ever.

In the 1970s, Ozzie and Daniel Silna decided to launch a fabric business in New Jersey. To keep costs down at their fledgling company, they focused on inexpensive materials like polyester.

That was a wise choice.

Within a few years, disco fever was sweeping the nation. The fabric of choice for the fashion of disco dancers and dancer-wannabes? Polyester. Sales boomed and the Silna brothers sold their company for a small fortune. This is not the accidental fortune that eventually gave the Silna brothers extremely deep pockets.

Daniel Silna'’s childhood dream was to own an NBA team. Using their polyester fortune, in early 1974 they offered to buy the Detroit Pistons for $4.85 million. They were rejected.

Fortunately, there was another option. At the time there were TWO professional basketball leagues:

The NBA

and

The ABA

Have you seen the Will Ferrell movie “Semi-Pro”? The plot wasn’t terribly far from what was actually happening in professional basketball in the 1970s.

A few months after their NBA rejection, the Silnas paid $1 million for a struggling ABA team called the Carolina Cougars. Before the next season started, they moved the Cougars to St. Louis and changed the team’s name to Spirits of St. Louis.

They also hired a 22-year-old fresh out of Syracuse’s Broadcasting school to be the “Voice of the Spirits.” That young broadcaster’s name was Bob Costas.

Unfortunately, just one year later, the ABA went bankrupt.

In the wake of the bankruptcy, the NBA agreed to merge with the ABA by absorbing its four most valuable teams. Those four teams were the:

• Denver Nuggets

• Indiana Pacers

• San Antonio Spurs

• New York Nets (today’s Brooklyn Nets)

Meaningless Concession

Three ABA teams did not get invited to become NBA teams. One of those teams went bankrupt before the merger was finalized. Another took a $3 million payout from the NBA. That left the Silnas.

Why was the NBA even paying these defunct teams in the first place? Because technically, the ABA players on these teams were still under contract with their ABA owners. For example, future NBA Hall of Famer Moses Malone was contracted to the Spirits.

The NBA offered the Silnas $2.2 million for the right to draft Spirits players. They declined. To get them over the finish line, an NBA lawyer sweetened the offer with what was internally referred to as a “meaningless concession.”

The NBA offered the Silnas a percentage of the league’s “Visual Media” rights. AKA, revenue earned from TV licensing deals.

Specifically, they were offered a 1/7 cut of any revenue earned off television rights by the four teams that were absorbed into the NBA. Not for a few years, or even a decade. IN PERPETUITY.

Obviously, in retrospect, this seems like an obviously terrible deal for the NBA. But at the time the contract was signed, NBA TV rights were fairly meaningless. At the time the deal was signed, NBA Playoff and Finals games were often broadcast on tape delay after the 11pm news!

For the first few years of the deal, the NBA lawyers felt brilliant. “Visual Media” rights were a meaningless concession and the Silnas earned ZERO dollars in royalties. Pretty soon, meaningless started to become a little bit meaningful…

For the 1979-1980 season, they earned $200,000.

For the 1980-1981 season, their royalty check was $521,749. Not bad!

Then something magic happened. Literally.

In the early 1980s, the NBA’s popularity exploded thanks to players like Kareem Abdul-Jabar, Larry Bird and Magic Johnson. A few years later, the league went to the stratosphere thanks to Michael Jordan, Shaq, Charles Barkley, Dennis Rodman, etc…

In 1997, Turner Sports paid $2.7 billion for the rights to broadcast games for five years on TNT. Five years later, TNT/ABC/ESPN chipped in a combined $4.6 billion for five more years. In 2007, the same group paid $7.4 billion.

Every time a new deal was signed, the revenue was paid to 31 team owners on a pro-rated, monthly basis. Keep in mind, there are only 30 NBA teams 😀 

Between 1979 and 2013, the Silna brothers earned $300 MILLION thanks to that “meaningless concession.”

And actually, it gets better.

In 2012, the Silnas sued the NBA, claiming they were owed money from “Visual Media” sources that were totally unimaginable and worthless in the 1970s when their deal was struck. For example, international broadcasts, streaming rights, and revenue earned from the NBA’s own cable network. A federal judge AGREED and the Silnas' royalty checks got even bigger from that point forward.

The Buyout

As you can imagine, when that meaningless concession began to look very much not meaningless, the NBA desperately wanted to get rid of the Silnas. In 1982 the NBA offered to buyout their rights for $5 million. The Silnas countered with $8 million… but the NBA DECLINED!

In April 2014, the Silna brothers finally accepted an NBA buyout offer. Care to guess the price?

.

.

.

.

$500 million

That’s $500 million AFTER they had already earned $300 million, for a total of $800 million… And that’s without even adjusting either amount for inflation! Keep in mind that earning $20 million per year in 1999 is the same as making about twice that today. Making $500m in 2014 is the same as making $660m today. Not bad for a meaningless concession.

And frankly, maybe they sold too soon. As I type this story, the NBA is closing in on a $76 BILLION deal with NBC/ESPN and Amazon, covering rights over 11 years.

Ok great! So let’s all go out and collect a bunch of worthless assets that someday will be worth hundreds of millions, right?! Obviously, I wish it was that easy. In addition to being lucky and patient, the Silnas also had some foresight. They had the vision to see how a meaningless concession could someday be very much the opposite. I think even they were surprised just how meaningful that concession ended up being!

Ozzie Silna died in 2016. He was 83 and very rich. Daniel is still alive. Unfortunately, he never did fulfill his childhood dream of buying an NBA team. Here’s a live shot Daniel coming to terms with that fact:

FINAL WORD

On the next edition of “Deep Pockets,” we’re diving into why starting any business today is more important than waiting to start the “perfect” business. Oftentimes, wealth is created from the unexpected result of just getting started.

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