Sports team owners who have reaped the benefits of skyrocketing team values are now facing new challenges in the form of succession planning and taxes. As the average age of team owners continues to rise and team values hit the billions, there is growing concern about ensuring smooth ownership transitions to the next generation of buyers. While current owners may have sophisticated tax and succession plans in place, these plans are not foolproof and can be derailed by family disputes or unexpected tax changes.
In the National Football League (NFL), where team values are on the rise and the average age of team owners is over 72, succession planning and taxes have become particularly important. NFL owners are faced with difficult decisions regarding the future of their teams. They must choose between selling the team while they are alive, which can result in significant capital gains tax bills, or passing the team to their families, potentially triggering estate taxes or family conflicts over control.
The stories of former sports team owners offer cautionary tales of the consequences of inadequate succession planning. Examples such as former Denver Broncos owner Pat Bowlen, Tennessee Titans founder Bud Adams, and New Orleans Saints owner Tom Benson demonstrate the importance of creating detailed and comprehensive plans for the future ownership of sports teams. Failure to do so can result in family disputes, sell-offs, and prolonged legal battles.
Under current U.S. tax law, estates over a certain threshold are subject to a 40% tax rate. Given that NFL and NBA teams are now worth billions of dollars, team owners could potentially face hundreds of millions of dollars in estate taxes without proper planning. Uncertainty regarding potential changes to estate tax rates in the future adds another layer of complexity for team owners who are tasked with safeguarding the financial future of their teams.
Trust and estate attorneys recommend a variety of strategies for minimizing the tax impact of succession for sports team owners. Family limited partnerships, individual trusts, and irrevocable trusts are among the popular tools employed to reduce the taxable value of assets and ensure a tax-efficient outcome. By investing time and resources in comprehensive estate planning, team owners can protect the long-term financial stability of their teams.
While many team owners hope to pass on their passion for their teams to future generations, the reality is that the next generation may have different interests and goals. This could result in the need to offload team ownership or seek out new buyers. The NFL’s recent decision to allow private equity firms to buy minority stakes in teams provides owners with a fresh opportunity to access liquidity, reinvest in their teams, and diversify their assets while retaining control.
Sports team owners are grappling with complex challenges related to succession planning and taxes. By learning from the experiences of past owners, leveraging tax planning strategies, and staying abreast of changes in tax laws and industry regulations, current owners can ensure the long-term success and sustainability of their teams in an increasingly competitive and dynamic sports landscape.