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Friday, October 21, 2016

Should We Believe LaMarcus Aldridge or Should We Believe the Media?

It has been widely reported that LaMarcus Aldridge is unhappy with his role with the San Antonio Spurs and that he wants to be traded to a team for whom he can be the clear number one offensive option. During Aldridge's first season in San Antonio, the Spurs went 67-15 in 2015-16, tied with six other teams for the seventh best regular season record in NBA history.

Aldridge ranked second on the team in scoring (18.0 ppg) while averaging a team-high 8.5 rpg in 30.6 mpg; in the playoffs, Aldridge averaged 21.9 ppg and a team-high 8.3 rpg. Aldridge set a career-high in regular season field goal percentage (.513) and playoff field goal percentage (.521) but his regular season scoring average was his lowest since 2009-10. Perhaps most significantly, Aldridge advanced to the second round of the playoffs for just the second time in his 10 year career. If he stays in San Antonio, Aldridge will likely contend for the NBA title on an annual basis for the next several years.

Aldridge is a five-time All-Star and a four-time member of the All-NBA Team (once on the Second Team, three times on the Third Team). He is arguably the best power forward in the league, though he would never be an odds-on favorite to win the MVP in today's analytics driven/small-ball climate that has seen Steve Nash and Stephen Curry win two MVPs apiece while Shaquille O'Neal and Kobe Bryant combined to win two MVPs during their entire careers.

If it is true that Aldridge prefers putting up big scoring numbers for a non-contending team as opposed to playing a significant role on a championship contender, then he is just another Stephon Marbury, Gilbert Arenas, Carmelo Anthony and James Harden--or, to put it another way, he is the antithesis of Nate Archibald, Bob McAdoo, Mark Aguirre, Manu Ginobili and a few other All-Stars who voluntarily sacrificed personal glory to win NBA championships.

There is a proper protocol when elite players join forces (whether via trades or free agency) to win championships: the newcomer publicly states that this is still the established star's team, whether or not that is actually the case anymore, because what is most important is to put the "Whose team is this?" nonsense to rest before the media runs wild with it. When Moses Malone joined the Philadelphia 76ers prior to the 1982-83 season, Malone was the reigning MVP while Julius Erving had won the 1981 MVP and finished third in the 1982 MVP voting. Malone stated that the 76ers were Erving's team. Any potential problem was squashed before it could start; Malone won the 1983 regular season and playoff MVPs, while Erving joined Malone on the All-NBA First Team as the 76ers rolled to the championship. Both players voluntarily reduced their scoring and could not have cared less about their personal statistics or about whose team it was. Similarly, when LeBron James signed with the Miami Heat in 2010 he spoke of the Heat being Dwyane Wade's team--and the funny thing is that the media actually bought this even though James was clearly the best player on the team; James won regular season and Finals MVPs in both 2012 and 2013, while Wade progressively dropped from All-NBA First Team status (prior to James' arrival) to the All-NBA Second Team and then the All-NBA Third Team before eventually not being selected to the All-NBA Team at all. The point is that, as the old saying goes, it is amazing how much can be accomplished when no one cares who gets the credit.

Does it really matter if the Spurs are Kawhi Leonard's team or LaMarcus Aldridge's team? Isn't the most important goal to win a championship?

However, there is one rather significant problem with the headline-grabbing story of Aldridge's alleged selfishness: the story may be false.

Aldridge has publicly denied that he is unhappy in San Antonio or that the Spurs are unhappy with him. Media members who regularly cover the Spurs have indicated that the Aldridge rumors are false. If that is true, then what we have is not a story about a selfish athlete but rather yet another example of certain members of the national media either making stuff up or else trusting anonymous "sources" who are not trustworthy. Relying too heavily on an anonymous source is like playing Russian roulette and hoping that you don't blow your brains out: it might work but it also might end very badly.

During the years that I covered NBA games in person with a media credential, I saw firsthand the unsavory tactics employed by many members of the media. For instance, a media member might ask one player a leading question designed to elicit a particular quote and then five minutes later that media member would go up to another player and say, "Player X said ABC about you. What do you think of that?" The media member would not indicate that the first player was merely answering a question that the media member had asked. An even slimier version of this tactic is to paraphrase what the first player said in a way that takes the quote out of context and makes it sound like something different than what the first player really meant.

Then, there is also the problem that many of the people who cover the NBA do not have the requisite knowledge of the sport or its history to do the job properly. Early in my career as an NBA writer, I did a one on one interview with Paul Silas, who was then the coach of the Cleveland Cavaliers. I asked him about Bob Dandridge, who Silas played against in two NBA Finals. Silas told me that Dandridge was a "talker." If I did not know the history of the sport or if I just wanted to create controversy, I could have left that quote as it stood or even paraphrased it so that it seemed like Silas was calling Dandridge a trash-talker--but I knew that Dandridge did not have that kind of demeanor, so I remarked to Silas that I am surprised that Dandridge was a "talker." Silas immediately clarified that he meant that Dandridge communicated well with his teammates: "He talked the game and understood it and imparted that (to his teammates). He was very, very smart about the game and how he fit within the scheme and how he wanted everybody else to fit." I did not generate any headlines or create any controversies but I provided my readers with some insight about one of the most underrated players from the 1970s. If I had not known about Dandridge before speaking to Silas--or if I had been more interested in sizzle than substance--then my article would have had a completely different tone.

Maybe the person who is spreading the Aldridge rumors has an ax to grind with Aldridge and/or the Spurs. There are any number of possible motives and I will not speculate about all of them.

All I will say is this: if Aldridge really wants to be the kind of player that Kenny Smith calls a "looter in a riot" (i.e., someone amassing big stats for a losing team) then I hope the Spurs grant his wish as quickly as possible and that Aldridge spends the rest of his career scoring 25 ppg without sniffing the playoffs--but if some members of the media are either just making this up or they are too lazy/incompetent to research the facts before publishing the story, then I hope there are some consequences for their reckless behavior (I don't expect such consequences, mind you, as there is a long and shameful tradition of discredited journalists perversely becoming celebrities and thus profiting from actions that should have made them pariahs).

The truth (almost) always comes out in the end and when we know for sure what that truth is regarding Aldridge I will have a lot more to say about this subject, but the most responsible course of action for now is to let this story unfold naturally.

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posted by David Friedman @ 3:28 PM

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Tuesday, October 18, 2016

In Perpetuity: The Story of the Silna Brothers

When I took the Transactional Drafting class at University of Dayton School of Law in Spring 2015, one of my assignments was to write a brief paper and make a five minute presentation about a real-life transactional drafting issue. I chose to examine the "in perpetuity" clause of the agreement that the Silna brothers signed in exchange for relinquishing the opportunity for their Spirits of St. Louis franchise to participate in the 1976 ABA-NBA merger. Here is the paper as I wrote it, along with some expanded additional notes that I summarized during my oral presentation to the class:

We are going to enter a time machine and go back to before LeBron James, before Kobe Bryant, before Michael Jordan, before Magic Johnson and Larry Bird—and before the National Basketball Association enjoyed multi-billion dollar media rights deals.

From 1967-76, the American Basketball Association (the ABA) operated as a rival professional basketball league to the older, established National Basketball Association (the NBA). The ABA featured a red, white and blue basketball, the three point shot and, at the league’s final All-Star Game, a Slam Dunk contest.

The ABA also had a host of future Hall of Fame players with colorful nicknames, including Julius "Dr. J" Erving, George "Iceman" Gervin, Artis "A-Train" Gilmore and David "Skywalker" Thompson. What the ABA did not have was financial stability or a national television contract.

In 1976, the leagues entered talks to merge operations. The leagues needed to come to terms with each other and also resolve several lawsuits that had been filed against one or both leagues by various parties. As a result of the negotiations, it was decided that four ABA teams--the champion New York Nets and the runner-up Denver Nuggets plus the Indiana Pacers and the San Antonio Spurs--would join the new league, while the remaining two ABA teams--the Kentucky Colonels and the Spirits of St. Louis--would be bought out in a settlement.

The owner of the Kentucky Colonels, John Y. Brown, accepted a cash settlement worth a little more than $3 million.

The NBA had previously had a franchise in St. Louis and that team eventually moved to greener pastures in Atlanta, where they still exist today as the Hawks. The NBA did not see a viable future for a franchise in St. Louis but the owners of the Spirits of St. Louis, Dan and Ozzie Silna, rejected the cash settlement offer. They really wanted to own an NBA team but, failing that, they wanted to remain part of the league in some fashion, hoping to eventually buy a team or be awarded an expansion franchise.

The NBA and ABA owners could not proceed with their plans unless they settled with the Silnas, so the Silnas enjoyed some leverage. The Silnas and their lawyer Donald Schupak negotiated to receive a 1/7th share of each of the surviving ABA teams' visual media revenue in perpetuity.

The Silnas received about $2.2 million in compensation for their former players who were signed by NBA teams. Since the Silnas' deal was supposed to be comparable in value to the settlement that Kentucky Colonels' owner John Y. Brown received, that means that the four ABA team owners that signed the deal with the Silnas valued the visual media rights at about $1 million. That may seem absurdly low in light of the multi-billion dollar TV deals that the NBA has now but during that era the NBA sometimes could not even get the networks to agree to show the championship series live. Magic Johnson's great performance in game six of the 1980 NBA Finals was shown on tape delay.

For the four ABA owners whose teams would be joining the merged league, it seemed like a very meaningless and inconsequential concession to offer the Silnas a small percentage of "visual media" (television) revenues to make the Silnas go away. However, as we have learned in Contracts class and in this class, it is very important to negotiate a definite length of time for a contract. Surely the lawyers involved in the NBA-ABA merger negotiations--including David Stern, who just a few years later became the NBA's Commissioner--knew this as well but they thought that the most important thing was to bring the four ABA teams (and their star players, most notably Julius Erving) into the NBA. The Silna brothers and their colorfully named team just seemed to be a small sideshow. Why not just pay off the Silnas with a small piece of a small TV revenue pie and be done with them?

The exact wording of the key clause is, "The right to receive such revenues shall continue for as long as the NBA or its successors continues in its existence." In other words, the clause lasts "in perpetuity," the words that Ozzie Silna later had stitched on a custom-made Spirits of St. Louis retro cap. Schupak owned a 10% stake in the team and thus he has received 10% of the revenue from this deal.

The deal did not pay off immediately. As part of the NBA-ABA merger, the four former ABA teams did not receive any TV revenue for three years. So, from 1976 to 1978, the Silnas did not earn a dime from the NBA. According to published reports, however, in 1979 the Silnas received their first royalty check in the amount of $200,000. For the 1980-81 season, the Silnas earned $521,749.

By this time, the NBA realized that this deal was a lot better for the Silnas than it was for the league. In 1982, the NBA offered the Silna brothers $5 million spread over an eight year period to cancel the deal. The Silnas proposed that the league pay them $8 million over five years and the NBA refused. At that point, the Silnas had made about $1 million total from the deal. Then, the NBA's popularity exploded.

By the 1986-87 season, the annual payout topped $1 million. By the 1999-2000 season, it was more than $10 million. For the 2010-11 season, the Silnas made $17.5 million. That number increased to over $19 million in 2012-13. Overall, the Silnas received more than $300 million as a result of those little words "in perpetuity."

The Silnas had no overhead costs--no arena to maintain, no player salaries to pay--but every time the TV deals grew larger their profits increased.

That is not all. During the original negotiations, Donald Schupak inserted an intentionally broad definition of visual media revenues, a clause that could make the contract applicable to distribution channels unimaginable in 1976. "I was blunt during these discussions," Schupak explained in 2012. "Rather than narrow the definition of TV revenues, I insisted instead that we add a new sentence [to] emphasize that this was a broad definition that could not be evaded or made obsolete."

Since the contractual language covers all "visual media" revenues, in 2009 the Silnas took the NBA to court over money earned from sources beyond the scope of basic U.S. broadcast TV revenue, including international broadcasts, internet rights and the NBA TV cable network. As a result of that suit, early in 2014 the Silna brothers and the NBA reached a confidential settlement agreement. Reportedly, the Silnas received a $500 million payment from the league in exchange for ending the perpetual payments. The Silnas also will receive additional compensation for various revenue streams not imagined in 1976. The Silnas formed a new partnership with the four former ABA teams. That partnership will supply the Silnas with some TV revenue payments as well, though a buyout clause enables the NBA to end that partnership at any time.

It is not clear why the Silnas agreed to this settlement but the Silnas reportedly lost some money during the Madoff scandal and that could have factored into their decision.

The best practices that we can learn from the Silna brothers' story are (1) Do not agree to a contract that lasts "in perpetuity." The mistake in granting the Silna brothers a share of visual media rights was compounded by the fact that the contract lasted "in perpetuity." (2) Do not rush to make a deal. The four ABA teams that were joining the NBA were so anxious to get things over with that they let the Silnas dictate terms. (3) Clearly specify/define which rights you are signing over and which rights you are keeping and never give away future rights to something that has an unknown value. In this case, the term "visual media" can be interpreted very broadly.

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Notes:

1) You may wonder why the Silnas asked for 1/7th of each of the surviving ABA teams' shares. In December 1975, the ABA owners figured a merger was coming soon and thought that six ABA teams would be allowed and one would be left out. The ABA owners held a meeting and Ozzie Silna wanted to be equitable to the owner who would be excluded from the merger. "The seventh team, I said, should be fully compensated for its players, and they also should receive a share of television money in perpetuity," said Silna. "Everybody was in favor of it, and it was written into the league bylaws at the time. I, of course, had no intention of being that seventh team. I told the owners, 'We're all in this together.' I thought that seventh team deserved the same benefit as the other six. That's how we came up with the one-seventh" figure. However, just a few months later, when the negotiations began, the seventh team had folded and it had also become clear that the Spirits of St. Louis would not be joining the NBA. The Silnas and Schupak applied the parameters they'd set up for the seventh team to themselves. "You try to live by the Golden Rule," Ozzie Silna said. "Some people say it's the best deal ever done. I just looked at it as a way of being fair."

2) Thanks to another bit of foresight by the Silnas and Schupak, they actually received more than 1/7 of each of the former ABA teams' shares of the NBA's TV contract starting in 1995 when the Toronto Raptors and Vancouver Grizzlies joined the league. The Silnas and Schupak anticipated that expansion would threaten to dilute their revenue and so they capped the split of their share at 28 teams. So the Silnas' share is based on a split among a maximum of 28 teams, not however many teams are actually in the league (which has increased from 22 to 30 since 1976).

3) John Y. Brown later bought the Buffalo Braves (the team now known as the L.A. Clippers) and then swapped teams with the owner of the Boston Celtics. After a brief, unsuccessful run as the Celtics' owner, Brown sold the team and went into politics and was elected as Kentucky's governor.

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posted by David Friedman @ 8:15 PM

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