Sports team owners are currently facing a myriad of challenges when it comes to succession planning and dealing with taxes. The average age of team owners is on the rise, while team values are skyrocketing into the billions. This combination is intensifying the focus on how to ensure smooth ownership transitions to the next generation of buyers. While many current owners have elaborate tax and succession plans in place, these plans can easily fall apart due to family disputes or unforeseen tax changes.
In the National Football League (NFL), where the average age of team owners is now over 72 and team values are continuously rising, succession and taxes have become critical issues. NFL team owners are stuck between a rock and a hard place – either selling the team while they’re alive, incurring massive capital gains tax bills, or passing the team down to their families, triggering estate taxes or family conflicts for control.
Several real-life examples highlight the complexities surrounding succession planning for sports teams. Former Denver Broncos owner Pat Bowlen meticulously planned for the future of the team a decade before his passing in 2019, yet family disputes ultimately led to the sale of the team to Walmart heir Rob Walton. Similarly, the Tennessee Titans’ founder, Bud Adams, divided ownership among his family branches hoping to maintain peace, but it ended up causing a public battle. And the case of New Orleans Saints owner Tom Benson, who faced litigation after passing on ownership of the team to his wife, underscores the challenges of succession.
Under current U.S. tax law, estates over a certain threshold are subject to a 40% tax rate. Given the skyrocketing values of NFL and NBA teams, team owners are potentially facing hundreds of millions of dollars in taxes without proper planning. Trust and estate attorneys recommend utilizing tools such as family limited partnerships, individual trusts, and irrevocable trusts to minimize the tax impact of succession planning. Owners now spend more time on upfront estate planning to ensure a tax-efficient outcome.
Future generations may not always share the same passion for team ownership as current owners, leading to the possibility of selling off some ownership. Furthermore, with the NFL’s recent decision to allow private equity firms to buy minority stakes in teams, owners now have the option to cash out some of their investments and reinvest in their teams or diversify into other assets. This move provides liquidity for owners while maintaining control over their teams.
Sports team owners are navigating uncharted territory when it comes to balancing succession planning, tax implications, and the soaring values of their teams. With careful estate planning and strategic decision-making, owners can ensure a smooth transition of ownership while minimizing tax liabilities. As the landscape of sports ownership continues to evolve, adapting to new challenges and opportunities will be essential for long-term success.
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