A detail 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.
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Sports team owners who benefit from high team values also face new pressure from two of the oldest certainties in American wealth: death and taxes.
As the average age of team owners increases 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 highly sophisticated tax and succession plans, even the best plans can explode due to family disputes or unexpected tax changes.
“People who bought sports teams a long time ago are now finding that a large portion, if not the vast 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. of funds at Pillsbury Winthrop Shaw Pittman, who advises many billionaire team owners. “They’re thinking a lot about who’s going to keep 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 rising. The official CNBC 2024 NFL Team Valuations list, which ranks 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 generate huge capital gains taxes, or they can give the team to their families, which can trigger estate taxes or extended 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. However, a heated argument between family members, both before and after his death, led the team to be sold in 2022 to Walmart heir Rob Walton for $4.65 billion.
Tennessee Titans then-owner Bud Adams 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. Instead, the split created a highly public battle for control, leading to an eventual settlement within the family. Amy Adams Strunk, Bud’s daughter, now owns the team.
Longtime New Orleans Saints owner Tom Benson left behind years of litigation when he removed his daughter and two grandchildren from his estate and passed ownership of the NFL team and the National Basketball Association’s New Orleans Pelicans to his wife Gayle when died in 2018. retains control of the Saints.
New Orleans Saints then-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 tale in the NFL is legendary Miami Dolphins owner Joe Robbie, who left the team to his wife and nine children at the time of his death in 1990. A family feud and estate taxes over 45 million dollars forced the family to sell the majority of the team in 1994.
Under current US tax law, estates above $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 potentially be subject to hundreds of millions of dollars in taxes without proper planning.
Another wrinkle: It’s unclear whether property tax rates will change in 2025, when current levels are set to expire. Therefore, owners should plan for the potential for more punitive property taxes in the coming years.
Trust and estate attorneys say today’s group owners have a much wider array of tools at their disposal to minimize the tax implications of succession. One of the most popular is the family limited partnership, which makes family members minority stakeholders and leaves the principal owner, as a general partner, in control. By dividing the property, the partnership can reduce the value of the assets (and thus the taxable estate) of the general partner.
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 an interest in the group to 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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“Landlords are spending more time on the front end thinking about long-term estate planning to ensure the most tax-efficient outcome possible,” Amdur said.
That means the team will stay in the family, of course. While owners often hope to pass on their passion and financial commitment to a team to their children, subsequent generations often have different interests or financial goals, which could mean shedding some team ownership.
And there is now a new group of potential buyers.
The NFL voted last week to allow select private equity firms to buy minority stakes in teams, giving owners and their families a chance to raise cash that could then be reinvested in their teams or invested in non-sports assets for better diversification – all while maintaining control.
“I think it’s the right thing to do to give teams that liquidity to reinvest in the game and their teams,” NFL Commissioner Roger Goodell said in making the announcement.
