Sports team owners are currently experiencing not only the financial benefits of the soaring values of their teams but also the pressure that comes from two significant factors in American wealth – death and taxes. As the average age of team owners increases and team values reach into the billions, owners and leagues are now focusing more on ensuring smooth transitions of ownership to the next generation of buyers. Despite having highly sophisticated tax and succession plans in place, even the best-laid plans can be disrupted by family conflicts or unforeseen changes in tax laws.
The National Football League (NFL) is particularly feeling the impact of succession and tax planning due to the increasing age of team owners, with the average age now exceeding 72 years. The dilemma faced by NFL owners is that they can either sell the team during their lifetime, incurring substantial capital gains tax liabilities, or pass the team onto their families, potentially triggering estate taxes or family disputes over control. The case of former Denver Broncos owner Pat Bowlen is a clear example of how a detailed succession and tax plan can still lead to turmoil among family members, resulting in the team’s sale to Walmart heir Rob Walton for $4.65 billion after Bowlen’s death.
Instances like the division of ownership among family branches by Tennessee Titans founder Bud Adams or the prolonged litigation following the transfer of teams to spouses, as in the case of New Orleans Saints owner Tom Benson and Miami Dolphins owner Joe Robbie, illustrate the complexities that can arise in estate planning for sports team owners. With estate taxes set at 40% for amounts exceeding $13.6 million for individuals or $27.2 million for couples, the potential tax burden on team owners, considering the current high team values, is monumental.
Given the substantial tax implications, trust and estate attorneys are suggesting various tools for team owners to minimize tax liabilities during succession planning. One such popular strategy is the creation of a family limited partnership, which allows the primary owner to maintain control while reducing the taxable estate’s value. Additionally, owners can utilize individual trusts to distribute ownership among family members or transfer interests into irrevocable trusts through partnerships or LLCs. By focusing on long-term estate planning and tax efficiency, owners aim to secure a favorable outcome in terms of taxes and ownership transition.
While many owners desire to pass on their emotional and financial investment in their teams to their children, the changing interests or financial objectives of future generations can complicate ownership transitions. This scenario may lead to selling off parts of team ownership or exploring new opportunities for investment. The recent decision by the NFL to permit private equity firms to acquire minority stakes in teams presents owners and families with an avenue to generate liquidity that can be reinvested in the team or diversified into other assets, all while maintaining control.
The pressures facing sports team owners due to death and taxes are significant and require careful planning and considerations to ensure a smooth ownership transition while minimizing tax implications. The evolving landscape of sports team valuations and tax laws necessitates a proactive approach to succession planning, utilizing innovative strategies to secure a tax-efficient outcome and address the challenges posed by generational shifts and changing ownership dynamics.