When we think of our worst negotiation mistakes, they tend to be recent blunders. But what about negotiation mistakes whose repercussions accumulate over years, even decades? A failed negotiation case study from 1976 shows how carelessly negotiated deals can lead to long-term headaches and losses.
A Short Season
In 1974, brothers Ozzie and Daniel Silna, Latvian immigrant owners of a New Jersey textile company, purchased the Carolina Cougars, a team in the American Basketball Association (ABA), for $1 million. The ABA had sprung up in 1967 as a scrappy challenger to the National Basketball Association (NBA).
Daniel Silna had been a basketball fanatic since his youth, but he wasn’t a strong player. “I kept saying that if I can’t play, the best thing to do is own a team,” he told Monte Burke of Forbes.
The Silnas moved the team to St. Louis—renaming it the Spirits of St. Louis—but in 1976, the NBA began negotiations to buy out the ABA. The NBA acquired four ABA franchises but was uninterested in the remaining three, including the Spirits.
The Silnas rejected a $3 million offer from the ABA as compensation for folding their team. The brothers had sunk close to that amount into the Spirits and hoped to do better.
A Full-Court Press
Demonstrating sound negotiation skills, the seven ABA team owners banded together to plan their strategy. Ozzie Silna suggested that any team not taken by the NBA should be granted a one-seventh share of the TV revenues of the four teams being admitted, namely the Indiana Pacers, the Denver Nuggets, the San Antonio Spurs, and the New York (now Brooklyn) Nets. All the owners agreed, Daniel Silna told Burke. For various reasons, however, only the Silnas made this demand.
The Silna brothers received the TV rights they requested, expressed in the contract as “visual media” rights—crucially, not for a set period of time but “for as long as the NBA or its successors [continue] in its existence,” as the contract was worded.
At the time, the NBA had little to lose from this promise. Its regular-season games were rarely seen on TV; playoff games were broadcast on tape delay after the nightly news.
Getting in the Zone
After three years, the four former ABA teams began earning revenues from TV broadcasts and sharing their profits with the Silnas. The brothers received about $200,000 in 1979.
Then, in the 1980s and 1990s, everything changed—and initial negotiation mistakes became apparent. First came Magic Johnson and Larry Bird. Then Michael Jordan. Interest in pro basketball exploded, and revenue from the NBA’s TV rights skyrocketed. In 1997, the NBA negotiated a $2.6 billion deal with NBC and Turner Broadcasting. In 2002, the league signed a $4.6 billion contract with ABC/ESPN and TNT.
By 2014, the Silnas had raked in an estimated $300 million in royalty payments. As if their TV deal weren’t enough of a cash cow, the brothers successfully argued in court in 2012 that the “visual media” stipulated in their contract should include royalties from international broadcasts, internet rights, and the NBA cable network. No wonder the president of the New York Knicks called the Silnas’ agreement “the greatest deal known to man.”
Over the years, the NBA tried repeatedly to buy the Silnas out of their contract. Finally, in January 2014, just before negotiating new, even more lucrative TV deals, the league managed to bring the brothers to the negotiating table.
In exchange for agreeing to end the perpetual annual payments and dropping their claims to international, internet, and NBA cable rights, the Silnas agreed to accept a $500 million up-front payment. According to the New York Times, Daniel Silna, then age 69, had grown tired of fighting the league. The brothers reportedly had squirreled away their NBA riches into a family trust. In 2016, Ozzie Silna died at age 83.
Common Negotiation Mistakes
The NBA’s 1976 deal with the Silnas stands out among failed negotiation examples for the sheer amount of money sacrificed, but we can all learn from its negotiation mistakes. Here’s where the league went wrong:
Using imprecise language. The NBA might not have been able to foresee its future success or the invention of the internet, but its lawyers should have known to replace the vague phrase “visual media” with the specific word “television.” In contracts, precision is important.
Agreeing to a long time horizon. There is rarely a good reason to sign a contract that lasts in perpetuity. A finite contract gives you opportunities to renegotiate better terms or move on if the deal no longer serves you well.
Making the same mistake twice. In 1982, the NBA offered to buy the Silnas out of their contract for $5 million paid over five years. The Silnas countered with $8 million over eight years. The NBA refused, though it should have been clear the brothers stood to earn much more over time. By 2014, the league had learned its lesson.
What types of negotiation mistakes have you seen emerge long after a deal was signed?