Sports team owners across various leagues are currently experiencing a unique set of challenges when it comes to passing down their wealth to the next generation. With team values soaring into the billions and the average age of team owners on the rise, there is a growing concern about how to smoothly transition ownership to the next generation of buyers. Despite having sophisticated tax and succession plans in place, even the best-laid plans can go awry due to family disputes or unexpected tax changes.
Lessons from the NFL
In the National Football League (NFL), the average age of team owners is now over 72, and team values continue to surge. This presents NFL owners with a difficult choice – they can either sell the team while they are alive, facing hefty capital gains tax bills, or pass the team down to their families, potentially triggering estate taxes or prolonged battles for control. The case of former Denver Broncos owner Pat Bowlen serves as a cautionary tale, as his detailed succession plan was marred by family disputes, ultimately leading to the sale of the team to Walmart heir Rob Walton.
Tennessee Titans founder Bud Adams attempted to prevent family conflict by dividing ownership of the team among three branches of his family. However, this move backfired, resulting in a highly public battle over control, which was eventually settled within the family. Other instances, such as New Orleans Saints owner Tom Benson removing his daughter and grandchildren from his estate and passing ownership to his wife, as well as Miami Dolphins owner Joe Robbie leaving the team to his wife and nine children, have also led to family feuds and substantial estate taxes.
To minimize the tax impact of succession, today’s team owners are advised to explore various estate planning tools. These include setting up family limited partnerships, transferring ownership through individual trusts, and creating irrevocable trusts through partnerships or LLCs. By proactively planning for the future, owners can ensure a tax-efficient outcome for their estates.
Another factor complicating succession planning is the uncertainty surrounding estate tax rates. With current levels set to expire in 2025, team owners must prepare for potentially higher estate taxes in the coming years. Trust and estate attorneys emphasize the importance of early and comprehensive estate planning to navigate the intricacies of passing down wealth to future generations.
While many team owners hope to pass on their passion for the sport and financial commitments to their children, the next generation may have divergent interests or financial goals. This could lead to a shift in team ownership or the entry of new buyers, such as private equity firms taking minority stakes in teams. The recent decision by the NFL to allow such investments provides owners with an opportunity to generate liquidity and reinvest in their teams or diversify their investments.
Sports team owners are facing a complex landscape of challenges when it comes to passing down their wealth to the next generation. By navigating issues related to succession, taxes, and family dynamics with careful planning and strategic decision-making, owners can safeguard the long-term viability of their teams and ensure a smooth transition of ownership.