Sports team owners are currently experiencing the dual pressures of escalating team values and the inevitable realities of death and taxes. As the average age of team owners increases and team values reach unprecedented levels, owners and leagues are now focusing more on ensuring a smooth transition of ownership to the next generation of buyers. Despite the existence of sophisticated tax and succession plans among current owners, the complexity of these plans can be derailed by family disputes or unexpected changes in tax regulations.
The National Football League (NFL) serves as a notable example of the challenges faced by team owners in navigating succession and taxes. With the average age of NFL team owners surpassing 72 years and team values continuously surging, owners are confronted with difficult decisions regarding the future of their franchises. The tragic passing of prominent owners like Pat Bowlen, Bud Adams, Tom Benson, and Joe Robbie has exposed the complexities of succession planning in the NFL.
Former Denver Broncos owner Pat Bowlen meticulously prepared a succession and tax plan for the team years before his death, only to witness a contentious family dispute culminating in the sale of the franchise to a wealthy buyer. Similarly, Tennessee Titans founder Bud Adams distributed ownership of the team among his family members in an attempt to maintain harmony, yet this decision ultimately led to a public battle for control. The case of longtime New Orleans Saints owner Tom Benson, who faced litigation over the transfer of ownership to his wife and subsequent removal of his daughter and grandchildren from his estate, serves as another cautionary tale in the realm of sports team succession.
Tax Implications and Estate Planning
In light of current U.S. tax laws that levy a 40% tax on estates exceeding $13.6 million for individuals or $27.2 million for couples, team owners could potentially face exorbitant tax bills without comprehensive planning. The looming uncertainty surrounding estate tax rates beyond 2025 further complicates the strategic considerations for team owners. To mitigate the tax impact of succession, owners can leverage various tools such as family limited partnerships, individual trusts, and irrevocable trusts within partnerships or limited liability companies (LLCs).
Today’s team owners are advised to proactively engage in long-term estate planning to ensure optimal tax efficiency and succession processes. While owners often aspire to pass down their passion for their teams to their children, the divergent interests and financial objectives of the next generations may necessitate a reevaluation of ownership structures. Moreover, the NFL’s recent decision to permit private equity firms to acquire minority stakes in teams presents owners with new opportunities to generate liquidity for reinvestment in their franchises or diversification into other assets.
In essence, the challenges confronted by sports team owners in navigating succession and taxes underscore the critical importance of thoughtful estate planning and strategic decision-making to guarantee the longevity and prosperity of professional sports franchises in an evolving economic landscape. By addressing these challenges proactively, team owners can safeguard their legacies and preserve the integrity of their organizations for future generations.