Rising sports team values ​​put pressure on owners on taxes and succession

Sports team owners who benefit from rising team values ​​also face new pressures from two of the oldest certainties of American prosperity: death and taxes.

As the average age of team owners increases and team values ​​skyrocket into the billions, owners and leagues are increasingly focused on how to ensure smooth transitions of ownership to the next generation of buyers. While today’s owners have sophisticated tax and succession plans, even the best-laid plans can be derailed by family conflicts or unexpected tax changes. finzexpert

“The people who bought sports teams a long time ago have now discovered that a large portion, if not the vast majority, of their long-term ownership is now the value of the team,” said Stephen Amdur, co-leader of mergers and acquisitions and private equity practices at Pillsbury Winthrop Shaw Pittman, who advises many billionaire team owners. “They’re thinking a lot about who’s going to hold it for the next generation and what they’re going to do with it.”

Succession and taxes have become especially important in the National Football League, where the average age of team owners is now over 72 and team values ​​are skyrocketing. CNBC’s official 2024 NFL Team Valuations list, ranking all 32 professional franchises, is released Thursday.

NFL owners face one of two agonizing choices: They can sell the team while they are still alive, which could lead to huge capital gains tax bills, or they can bequeath the team to their families, which could lead to estate taxes or lengthy family battles for control.

Former Denver Broncos owner Pat Bowlen laid out a detailed succession and tax plan for the team a decade before his death in 2019. However, a bitter dispute between family members, both before and after his death, led to the team being sold to Walmart heir Rob Walton for $4.65 billion.

Bud Adams, founder of the Tennessee Titans who died in October 2013, had split ownership of the team among three branches of his family, which he thought would keep the peace. Instead, the split led to a very public battle for control, which eventually led to a deal within the family. Amy Adams Strunk, Bud’s daughter, is now the controlling owner of the team.

Longtime New Orleans Saints owner Tom Benson sparked a years-long lawsuit when he removed his daughter and two grandchildren from his estate and transferred ownership of the NFL team and the National Basketball Association’s New Orleans Pelicans to his wife, Gayle, when he died in 2018. She still runs the Saints.

And perhaps the most poignant cautionary tale in the NFL is that of legendary Miami Dolphins owner Joe Robbie, who left the team to his wife and nine children upon his death in 1990. A family feud and inheritance taxes of more than $45 million forced the family to sell most of the team in 1994.

Under current U.S. tax law, estates over $13.6 million for individuals or $27.2 million for couples are subject to a 40% tax. Given that NFL and NBA teams are now worth billions, each team owner could potentially owe hundreds of millions of dollars in taxes without proper planning.

Another problem: It’s unclear whether inheritance taxes will change in 2025, when current rates expire. So owners should expect to see more severe inheritance taxes in the years to come.

Trust and estate attorneys say team owners now have a much broader range of tools at their disposal to minimize the tax impact of succession. One of the most popular is the family limited partnership, which makes family members minority shareholders and gives the primary owner, as the general partner, control. By dividing ownership, the partnership can reduce the value of the general partner’s assets (and therefore its taxable wealth).

Owners can also distribute ownership to family members through individual trusts, as Chicago Bears owner George “Papa Bear” Halas Sr. did with his 13 grandchildren. They can also transfer an interest in the team to an irrevocable trust through a partnership or an LLC.

“Owners are spending more time thinking about long-term estate planning to achieve the most tax-efficient outcomes possible,” Amdur said.

That’s assuming the team stays in the family, of course. While owners often hope to pass their passion and financial commitment to a team on to their children, subsequent generations often have different interests or financial goals, which may mean divesting some team ownership.

And now there is a new group of potential buyers.

The NFL voted last week to allow certain private equity firms to buy minority stakes in teams, giving owners and their families a chance to take out money that they could then reinvest in their teams or invest in non-sports assets to better diversify — all while retaining control.

“I think it’s a good thing to give the teams that liquidity to reinvest in the sport and their teams,” NFL Commissioner Roger Goodell said in making the announcement.