In the realm of professional sports, team owners are facing a unique set of challenges driven by the culmination of rising team values and an aging owner demographic. As the average age of sports team owners continues to increase, the need for meticulous succession planning has never been more pressing. In recent years, team values have soared into the billions, making it imperative for owners and leagues to strategize seamless ownership transitions for the next generation of stakeholders.
While today’s sports team owners have robust tax and succession plans in place, unforeseen circumstances such as family disputes or alterations in tax regulations can jeopardize even the most carefully crafted strategies. Stephen Amdur, co-leader of mergers and acquisitions and private equity practices at Pillsbury Winthrop Shaw Pittman, emphasized the growing significance of determining successors and outlining future plans for the preservation of team ownership.
The National Football League (NFL) serves as a poignant example of the challenges looming over team owners, with the average age of owners surpassing 72 and team values reaching unprecedented heights. The looming dilemma for NFL owners revolves around the decision to sell the team during their lifetime, leading to substantial capital gains taxes, or passing on ownership to their heirs, potentially triggering estate taxes or contentious family disputes.
Case Studies: The Testament of Succession Planning
Several high-profile cases in the NFL underscore the importance of succession planning and tax mitigation. Former Denver Broncos owner Pat Bowlen meticulously crafted a succession plan, yet family discord posthumously resulted in the sale of the team. The cautionary tale of Bud Adams, founder of the Tennessee Titans, showcases how a division of ownership among family members led to public battles over control. Longtime New Orleans Saints owner Tom Benson’s decision to pass ownership to his wife sparked litigation, emphasizing the perils of inadequate succession planning.
Under current U.S. tax laws, estate taxes can pose a significant burden on sports team owners, given the astronomical valuations of NFL and NBA franchises. Estate tax rates of up to 40% on estates exceeding $13.6 million for individuals underscore the necessity of proactive tax planning. Trust and estate attorneys advocate for tools such as family limited partnerships and individual trusts to diminish the tax impact of succession and secure a tax-efficient outcome for team owners.
Prospective Solutions and Future Considerations
In anticipation of potential changes in estate tax rates post-2025, sports team owners must engage in comprehensive estate planning to mitigate tax liabilities. Strategies involving the diversification of ownership through trusts and partnerships provide owners with the flexibility to navigate evolving tax landscapes effectively. Moreover, the emergence of private equity firms as potential minority stakeholders presents owners with opportunities to unlock liquidity while retaining operational control.
In essence, the intersection of wealth transfer, estate planning, and tax mitigation poses intricate challenges for sports team owners seeking to safeguard their legacies and uphold the integrity of their franchises. By embracing proactive succession planning and leveraging tax-efficient strategies, owners can secure a sustainable future for their teams amidst evolving regulatory landscapes and generational transitions.