Rising values of sports activities groups put stress on house owners in the case of taxes and succession
A detailed view of an NFL shield logo on the field during a preseason game between the Los Angeles Rams and the Houston Texans at NRG Stadium on August 24, 2024 in Houston, Texas.
Getty Images Sports | Getty Images
While sports team owners benefit from rising team values, they also face new pressures from two of the oldest certainties of American wealth: death and taxes.
As the average age of team owners rises and team values soar into the billions, owners and leagues are increasingly focused on how to ensure a smooth transition of ownership to the next generation of buyers. While today's owners have sophisticated tax and succession plans in place, even the best-laid plans can fall apart due to family disputes or unexpected tax changes.
“The people who bought sports teams a long time ago have now realized that a large part, if not the majority, of their long-term wealth is now the value of the team,” said Stephen Amdur, co-head of the mergers and acquisitions and private equity practice at Pillsbury Winthrop Shaw Pittman, who advises many billionaire team owners. “They think a lot about who is going to keep it for the next generation and what they are 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 all soaring. CNBC's official 2024 NFL team ratings list, which ranks all 32 professional franchises, will be released Thursday.
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NFL owners face one of two painful decisions: They can sell the team during their lifetime, which can result in huge capital gains taxes, or they can pass the team on to their families, which can result in estate taxes or lengthy family battles for control.
Former Denver Broncos owner Pat Bowlen created a detailed succession and tax plan for the team a decade before his death in 2019. But a bitter dispute among family members both before and after his death resulted in the team being sold in 2022 to Walmart Heir Rob Walton for $4.65 billion.
Then-owner Bud Adams of the Tennessee Titans signs autographs during a preseason game against the Minnesota Vikings at LP Field on August 13, 2011 in Nashville, Tennessee.
Grant Halverson |
Tennessee Titans founder Bud Adams, who died in October 2013, had divided ownership of the team among three branches of his family in an attempt to keep the peace. Instead, the division sparked a public power struggle that eventually led to an agreement within the family. Amy Adams Strunk, Bud's daughter, is now the sole owner of the team.
Longtime New Orleans Saints owner Tom Benson sparked a years-long legal battle when he removed his daughter and two grandchildren from his estate after his death in 2018 and transferred ownership of the NFL team and the National Basketball Association's New Orleans Pelicans to his wife, Gayle, who still has control of the Saints.
Then-New Orleans Saints owner Tom Benson and his wife Gayle before a game at the Mercedes-Benz Superdome on August 26, 2016 in New Orleans, Louisiana.
Jonathan Bachman |
And perhaps the most striking example from the NFL is legendary Miami Dolphins owner Joe Robbie, who left the team to his wife and nine children when he died in 1990. A family dispute and inheritance taxes of over $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. With NFL and NBA teams now worth billions, all team owners could potentially be subject to hundreds of millions of dollars in taxes without proper planning.
Another problem: It is unclear whether inheritance tax rates will change in 2025, when current rates expire, so property owners must prepare for potentially higher inheritance taxes in the coming years.
Trust and estate attorneys say today's team owners have a much wider range of tools at their disposal to minimize the tax impact of an inheritance. One of the most popular is the family limited partnership, in which family members are minority shareholders and the primary owner retains control as the general partner. By splitting ownership, the partnership can lower the value of the general partner's assets (and thus taxable estate).
Owners can also divide ownership among family members through individual trusts, as Chicago Bears owner George “Papa Bear” Halas Sr. did with his 13 grandchildren. They can also transfer a share of the team into an irrevocable trust through a partnership or LLC.
Chicago Bears coach George Halas watches his team's game against the Los Angeles Rams at the Coliseum on November 2, 1958.
Bettmann |
“Owners are spending more time up front thinking about long-term estate planning to achieve the most tax-efficient outcome,” Amdur said.
That assumes, of course, that the team stays in the family. While owners often hope to pass on their passion and financial commitment to a team to their children, the next generations often have other interests or financial goals, which could mean giving up some of the team's ownership.
And there is now a new pool of potential buyers.
The NFL voted last week to allow select private equity firms to purchase minority stakes in teams, giving owners and their families the ability to withdraw cash that they can then reinvest in their teams or invest in non-sports assets for better diversification – all while retaining control.
“I think it's appropriate to give the teams that liquidity so they can reinvest in the game and in their teams,” NFL Commissioner Roger Goodell said in making the announcement.
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