Sports team owners who have seen a significant increase in the value of their teams are now confronted with the challenges posed by inheritance and estate taxes. As many team owners are aging, the issue of smooth ownership transitions to the next generation has become a pressing concern. Despite having complex tax and succession plans in place, unforeseen events such as family disputes or changes in tax laws can derail even the best-laid plans.
The National Football League (NFL) is a prime example of the challenges faced by owners in relation to succession planning and taxes. With the average age of NFL team owners surpassing 72 and team values reaching unprecedented levels, owners are caught between the dilemma of selling their team during their lifetime or passing it on to their families. Both options come with their own set of tax implications and family disputes that can complicate matters.
Several NFL team owners have grappled with succession planning and taxes, with varying degrees of success. For instance, the late Pat Bowlen, former owner of the Denver Broncos, had meticulously planned for the future ownership of the team before his passing in 2019. However, family disagreements following his death led to the sale of the team to a Walmart heir. Similarly, Bud Adams, the founder of the Tennessee Titans, divided ownership among different branches of his family in the hopes of maintaining peace, but it resulted in a public battle for control.
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. Given that NFL and NBA teams are now valued in the billions, estate taxes could amount to hundreds of millions of dollars, necessitating careful planning. Moreover, the uncertainty surrounding estate tax rates beyond 2025 adds another layer of complexity for team owners.
To mitigate the tax impact of succession, team owners can utilize strategies such as family limited partnerships, individual trusts, and irrevocable trusts. These tools enable owners to decrease the taxable value of their estate by distributing ownership among family members or setting up control mechanisms. By implementing these estate planning techniques, owners can ensure a more tax-efficient transfer of ownership to the next generation.
Despite the efforts to plan for succession and minimize tax liabilities, the next generation of team owners may have different priorities or interests, leading to the possibility of selling team ownership. Additionally, the NFL’s decision to allow private equity firms to acquire minority stakes in teams presents an opportunity for owners to access liquidity and diversify their investments while retaining control. As the landscape of sports team ownership evolves, owners must navigate the complexities of succession planning and taxes to secure the future of their teams.
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