A detailed view of the NFL shield logo paint on the field during the preseason game between the Los Angeles Rams and the Houston Texans at NRG Stadium on August 24, 2024 in Houston, Texas.
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Sports team owners who benefit from rising team values ​​are also facing new pressures from two of the oldest certainties in American wealth: death and taxes.
With the average age of team owners increasing, and team values ​​rising into the billions, owners and leagues are increasingly focusing on how to insure 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 plans can lead to family disputes or unexpected tax changes.
“People who have bought sports teams in the past are now finding that a large part, if not the majority, of their long-term property is now team value,” said Stephen Amdur, co-leader 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’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 a team owner is now over 72 and team values ​​are rising. CNBC’s Official 2024 NFL Team Valuation List, ranking all 32 professional franchises, will be released Thursday.
NFL owners face one of two painful choices: They can sell the team while they’re alive, which can create a massive capital gains tax bill, or they can pass the team to their families, which can trigger estate taxes or a prolonged family battle for control. .
Former Denver Broncos owner Pat Bowlen created a detailed succession and tax plan for the team ten years before his death in 2019. Walmart heir Rob Walton for $ 4.65 billion.
Bud Adams, owner of the Tennessee Titans, signs autographs during a preseason game against the Minnesota Vikings at LP Field on August 13, 2011 in Nashville, Tennessee.
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Tennessee Titans founder Bud Adams, who died in October 2013, had divided ownership of the team among three branches of his family, which he believed would keep the peace. However, the split created a public battle over control, which led to a deal within the family. Amy Adams Strunk, Bud’s daughter, is now controlling owner of the team.
Longtime New Orleans Saints owner Tom Benson has been embroiled in years of litigation as he dispossessed his daughter and two grandchildren of his estate and passed ownership of the NFL team and the National Basketball Association’s New Orleans Pelicans to his wife Gayle when he died in 2018. 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.
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And perhaps the most poignant cautionary story in the NFL is the legendary Miami Dolphins owner Joe Robbie, who left the team for his wife and nine children when he died in 1990. Family and estate taxes of more than $45 million were forced. family to sell the majority of the team in 1994.
Under current US tax law, estates over $13.6 million for individuals or $27.2 million for couples are taxed at 40%. Since teams in the NFL and NBA are now worth billions, all team owners could be facing hundreds of millions of dollars in taxes without proper planning.
Another wrinkle: It’s unclear whether estate tax rates will change in 2025, when the current rate expires. So owners should plan for the potential for more punitive estate taxes in the coming years.
Trust and estate attorneys say team owners now have a wider variety of tools to minimize the tax impact of succession. One of the most popular is the family limited partnership, which makes family members minority shareholders and leaves the main owner, as the general partner, in control. By dividing ownership, the partnership can lower the value of the assets (and therefore the taxable property) of the general partner.
Owners can also split ownership among family members through individual trusts, as Chicago Bears owner George “Papa Bear” Halas Sr. with 13 grandchildren. They can also transfer their interest in the team into an irrevocable trust through a partnership or LLC.
Chicago Bears coach George Halas watches his team play the Los Angeles Rams at the Coliseum on November 2, 1958.
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“Owners are spending more time upfront thinking about long-term estate planning to ensure a tax-efficient outcome,” Amdur said.
That’s assuming the team stays in the family, of course. While owners often hope to pass on their passion and financial commitment to the team to their children, the next generation often has different financial interests or goals, which may end up taking ownership of the team away.
And now there is a new pool of potential buyers.
The NFL last week voted to allow private equity firms that choose to buy minority stakes in teams, giving owners and their families the opportunity to withdraw money to reinvest in teams or invest in non-sports assets to better diversify — all while maintaining control. .
“I think it’s appropriate to give the team that liquidity to reinvest in the game and for that team,” said NFL Commissioner Roger Goodell in the announcement.