In the world of professional sports, team ownership has become a lucrative investment with soaring team values reaching into the billions. However, with the average age of team owners rising, new challenges around estate planning and taxes have emerged. The focus has shifted towards ensuring smooth ownership transitions to the next generation of buyers.
The National Football League (NFL) presents a unique set of challenges when it comes to succession planning. With the average age of team owners in the NFL now over 72 and team values skyrocketing, owners are faced with difficult choices. They must decide whether to sell the team while alive, facing significant capital gains tax bills, or pass the team along to their families, which can lead to estate taxes or prolonged family disputes.
Cautionary Tales of Ownership Transitions
Several high-profile cases within the NFL have highlighted the importance of effective estate planning. For instance, the bitter family dispute that arose after the death of former Denver Broncos owner Pat Bowlen led to the sale of the team to Walmart heir Rob Walton. Similarly, Tennessee Titans founder Bud Adams’ decision to divide ownership among family branches resulted in a public battle over control. These cautionary tales underscore the need for careful planning to avoid family conflicts and tax issues.
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. Given the soaring values of NFL and NBA teams, owners could potentially face substantial tax liabilities without proper planning. Moreover, uncertainties around potential changes in estate tax rates in 2025 add another layer of complexity to the planning process.
Trust and estate attorneys suggest a variety of tools to mitigate the tax impact of succession. Family limited partnerships, individual trusts, and irrevocable trusts are popular options for transferring ownership and reducing tax burdens. By utilizing these strategies, owners can ensure a more tax-efficient outcome while securing the long-term financial stability of the team.
While many owners hope to pass on their passion for the team to their children, the next generations may have different interests or financial goals. This could result in the need to offload some team ownership. Additionally, the recent decision by the NFL to allow private equity firms to buy minority stakes in teams opens up new possibilities for owners to generate liquidity and reinvest in their teams or other assets.
Sports team owners must navigate a complex landscape of estate planning and taxes to ensure the successful transition of ownership to the next generation. By proactively addressing these challenges and leveraging effective strategies, owners can protect the legacy of their teams while safeguarding their financial future.