NFL Team Owners Face Challenges in Succession and Taxes
Sports team owners are not only benefiting from the soaring values of their teams but also facing new pressures related to death and taxes. The average age of team owners is rising, and team values are skyrocketing into the billions, creating concerns about smooth ownership transitions to the next generation of buyers. Even with sophisticated tax and succession plans, family disputes and unexpected tax changes can derail the best-laid plans.
NFL owners, in particular, are grappling with the challenges of succession and taxes. The average age of NFL team owners is now over 72, and team values continue to surge. This has left owners with two painful choices: selling the team while they are alive, which can result in massive capital gains tax bills, or passing the team to their families, which can trigger estate taxes or prolonged family battles for control.
Several cautionary tales serve as reminders of the potential complications. Former Denver Broncos owner Pat Bowlen had a detailed succession and tax plan in place, but family disputes ultimately led to the sale of the team. Tennessee Titans founder Bud Adams divided ownership among three branches of his family, hoping to maintain peace, but it resulted in a highly public battle over control. Tom Benson, former owner of the New Orleans Saints, faced years of litigation when he removed his daughter and grandchildren from his estate, leaving his wife with control of the team.
Estate taxes pose another significant challenge for team owners. Under current U.S. tax law, estates over $13.6 million for individuals or $27.2 million for couples are subject to a 40% tax. With teams now worth billions, owners could potentially face hundreds of millions of dollars in taxes without proper planning. Additionally, there is uncertainty about whether estate tax rates will change in 2025 when current levels are set to expire, further complicating the planning process.
To minimize the tax impact of succession, team owners have a range of tools at their disposal. One popular option is the family limited partnership, which designates family members as minority stakeholders while leaving the primary owner in control as the general partner. This division of ownership can lower the taxable estate’s value. Owners can also utilize individual trusts to split ownership among family members or transfer an interest in the team to an irrevocable trust through a partnership or LLC.
Trust and estate attorneys emphasize the importance of comprehensive estate planning to ensure a tax-efficient outcome. Owners must consider the potential for changing tax laws and the possibility of offloading team ownership if their children have different interests or financial goals.
In addition to these challenges, there is now a new option for NFL owners to draw down cash and diversify their assets while retaining control. The NFL recently voted to allow select private equity firms to buy minority stakes in teams. This move provides owners and their families with liquidity that they can reinvest in their teams or allocate toward non-sports investments.
As team owners grapple with the complexities of succession and taxes, they must navigate these challenges with careful planning and consideration of their long-term goals. The future of their teams and their legacies depend on making strategic decisions that ensure a smooth transition to the next generation of owners.
