Rising Sports Team Values ​​Put New Pressure on Owners on Taxes, Succession – NBC New York

• Sports club owners and sports leagues are increasingly concerned about how to ensure a smooth transition of ownership.
• 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 2024 CNBC NFL Team Valuations list, ranking all 32 professional franchises, will be released on Thursday.

Sports team owners who benefit from the rising value of their teams also face new pressures from two of the oldest certainties of American wealth: death and taxes.

As the average age of team owners increases and team values ​​skyrocket into the billions, owners and leagues are increasingly focused on how to ensure a smooth ownership transition for the next generation of buyers. While today’s owners have highly sophisticated tax and succession plans, even the best-laid plans can fall apart due to family disputes or unexpected tax changes.

“People who bought sports teams a long time ago are now discovering that a large part, if not the vast majority, of their long-term wealth is now in the value of the team,” said Stephen Amdur, co-leader of the mergers and acquisitions and private equity practices at Pillsbury Winthrop Shaw Pittman, who advises many billionaire team owners. “They’re thinking a lot about who’s going to hold 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 more than 72 and team values ​​are skyrocketing. CNBC’s official 2024 NFL team valuation list, which includes all 32 professional franchises, will be released Thursday.

NFL team owners face one of two agonizing decisions: They can sell the team while they are alive, which could mean paying huge capital gains taxes, or they can pass the team on to their family, which could mean paying estate taxes or a protracted family dispute over control.

Former Denver Broncos owner Pat Bowlen created a detailed succession and tax plan for the team a decade before his death in 2019. But a bitter dispute between family members, both before and after his death, led to the team being sold in 2022 to Walmart heir Rob Walton for $4.65 billion.

Tennessee Titans founder Bud Adams, who died in October 2013, divided ownership of the team among three branches of his family in a move he believed would preserve peace. Instead, the split sparked a very public battle for control that eventually led to a family agreement. Amy Adams Strunk, Bud’s daughter, is now the team’s controlling owner.

Longtime New Orleans Saints owner Tom Benson sparked years of litigation when he left his daughter and two grandchildren inheritance after his death in 2018 and transferred ownership of the NFL team and the New Orleans Pelicans of the National Basketball Association to his wife, Gayle. Gayle still controls the Saints.

Perhaps the most poignant cautionary tale in the NFL comes from legendary Miami Dolphins owner Joe Robbie, who left the team to his wife and nine children when he died in 1990. A family feud and an estate tax bill of more than $45 million forced the family to sell most of the team in 1994.

Under current U.S. tax law, estates exceeding $13.6 million for individuals or $27.2 million for couples are subject to a 40% tax rate. Since NFL and NBA teams are now worth billions of dollars, all team owners could potentially be burdened with hundreds of millions of dollars in taxes without proper planning.

Another drawback: It’s unclear whether inheritance tax rates will change in 2025, when the current levels are due to expire, so owners need to plan for potentially more punitive inheritance taxes in the coming years.

Trust and estate lawyers say today’s team owners have a much wider range of tools at their disposal to minimize the tax impact of succession. One of the most popular is the family limited partnership, which makes family members minority shareholders and the principal owner, as the general partner, controls. By splitting ownership, the partnership can reduce the value of the assets (and therefore 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 ownership of a team to an irrevocable trust through a partnership or LLC.

“Owners are spending more time thinking about long-term estate planning to ensure the most tax-efficient outcome possible,” Amdur said.

That is, of course, assuming the team stays in the family. While owners often hope to pass on their passion and financial commitment to the team to their children, subsequent generations often have different interests or financial goals, which may mean giving up some ownership of the team.

As a result, a new group of potential buyers appeared.

Last week, the NFL voted to allow select private equity firms to buy minority stakes in teams, giving owners and their families a chance to cash out, which they could then invest in their teams or in non-sports assets to better diversify — all while retaining control.

“I think it’s the right thing to do to give teams liquidity so they can reinvest in the game and their teams,” NFL commissioner Roger Goodell said in announcing the decision.