US Markets
Tuesday, September 3rd, 2024 4:07 pm EDT
Key Points
- Rising Team Values and Aging Owners: With sports team values soaring into the billions and the average age of team owners increasing, there is growing pressure on owners to plan for smooth ownership transitions to the next generation while managing tax implications.
- Challenges of Succession Planning: Despite sophisticated tax and succession plans, many team owners face difficulties in passing on their teams due to potential family disputes, estate taxes, and capital gains taxes, as illustrated by several high-profile cases in the NFL.
- New Ownership Strategies: To mitigate tax impacts and ensure smoother transitions, owners are increasingly using tools like family limited partnerships, trusts, and, recently, the option to sell minority stakes to private equity firms, allowing them to maintain control while gaining liquidity.
Sports team owners, particularly in the NFL, are facing increasing challenges as they manage the soaring values of their franchises alongside the complexities of succession planning and tax liabilities. With the average age of team owners rising and team valuations now in the billions, owners and leagues are becoming more focused on ensuring smooth ownership transitions to the next generation. However, even the most sophisticated tax and succession plans can unravel due to family disputes or changes in tax laws.
As Stephen Amdur, a mergers and acquisitions expert, notes, many of today’s team owners are grappling with the fact that their sports team now represents the majority of their estate’s value. This realization is driving intense deliberation over who will inherit these valuable assets and how to manage the financial implications. NFL owners, in particular, face tough decisions: they can sell their teams while alive, triggering significant capital gains taxes, or pass them to family members, potentially incurring hefty estate taxes and risking internal conflicts over control.
Historical examples highlight the challenges of succession planning in sports team ownership. Former Denver Broncos owner Pat Bowlen, despite his detailed succession and tax plan, saw his family embroiled in disputes that eventually led to the team being sold for $4.65 billion to Walmart heir Rob Walton. Similarly, Tennessee Titans founder Bud Adams’ attempt to divide ownership among his family led to a public battle over control, ultimately resulting in a family settlement. The situation with longtime New Orleans Saints owner Tom Benson, who left his NFL and NBA teams to his wife, also sparked years of litigation after he excluded his daughter and grandchildren from his estate.
Perhaps the most illustrative case is that of Miami Dolphins owner Joe Robbie. After his death in 1990, a family feud coupled with estate taxes exceeding $45 million forced the sale of a majority stake in the team by 1994. These cautionary tales underscore the importance of careful succession planning, especially given the current U.S. tax law, which imposes a 40% tax on estates exceeding $13.6 million for individuals or $27.2 million for couples. With the value of NFL and NBA teams now in the billions, owners could face tax bills running into hundreds of millions of dollars without proper planning.
The uncertainty surrounding future estate tax rates, particularly with potential changes in 2025, adds another layer of complexity. To mitigate these risks, today’s team owners are leveraging various tools, such as family limited partnerships and irrevocable trusts, to minimize the tax impact of succession. These strategies can help lower the taxable value of the estate and allow for a more tax-efficient transfer of ownership to family members.
Despite these strategies, the possibility remains that the next generation may not share the same passion or financial commitment to the team, leading to potential sales of ownership stakes. This challenge is compounded by the NFL’s recent decision to allow select private equity firms to purchase minority stakes in teams. This move offers owners and their families a new avenue to generate liquidity without relinquishing control, enabling them to reinvest in their teams or diversify their assets.
In summary, while sports team ownership has become an incredibly valuable asset, it also presents significant challenges related to succession planning and tax liabilities. Owners must navigate complex financial and family dynamics to ensure their teams remain a part of their legacy, all while managing the risks posed by changing tax laws and market conditions.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/09/03/soaring-sports-team-values-pressure-owners-on-taxes-succession.html
