Estate tax threatens NFL's old guard of owners
Where the possibility of a stake in the Steelers being sold is cause for panic in Pittsburgh, the changing of the old guard is old hat in the NFL.
Now that the days of Jack Kent Cooke, Leon Hess and Art Modell have given way to those of Daniel Snyder, Woody Johnson and Steve Bisciotti, some NFL observers figured it was only a matter of time before the Rooney family followed suit and sold a share of the Steelers.
"I expected the Rooneys to sell at some time, but this is earlier than I thought," Modell said in a statement released by the Baltimore Ravens, of which he owns a one percent share after selling controlling interest to Bisciotti in 2004.
"I don't know their situation, but I do know that issues with minority shareholders can sometimes force a sale. It becomes the only resolution. If there is a sale of the Steelers because of that, it won't be the first."
It's a different era
In an industry where franchises such as the Steelers are billion-dollar commodities, an estate tax of about 45 percent can amount to a fortune in and of itself and threaten a continuation of ownership by descendants.
Professional football is becoming a business of billionaires, and the family-oriented ownership groups that once ran the NFL have to overcome obstacles such as estate taxes when transferring controlling interests.
"Once this passes, I don't think we're going to go old-school again," said Andrew Bergstein, associate director of the Center for Sports Business and Research and a Penn State marketing instructor. "You won't say, 'My family is going to put money together and buy your team.' Unless you're Bill Gates, not many people have a billion dollars."
One person who does is Stanley Druckenmiller, chairman of $4.5 billion Duquesne Capital Management who is trying to buy a stake in the Steelers.
There have been a dozen changes of NFL ownership since 1994, with three involving family estates. With four of the five Rooney brothers - Art Jr., Timothy, Patrick and John - seeking to divest their combined 64 percent interest in the club (Steelers president Dan Rooney also owns a 16-percent share), the estate-tax issue could play a prominent role in any decision.
"You've got an extraordinarily valuable second-generation family business, and it's very complicated," said attorney Chuck Greenberg, head of the sports industry group at Philadelphia-based Pepper Hamilton LLP, which has handled franchise acquisitions involving the NHL's Penguins and Florida Panthers. "NFL franchises have appreciated at a phenomenal rate. The increased value is a wonderful thing for an owner but creates enormous additional complications from an estate-planning standpoint."
It's an issue that many longtime NFL owners will eventually have to address. The Bidwill family has owned the Cardinals as long as the Rooneys have owned the Steelers, since 1933. The key is for family-owned teams to find loopholes in the transference of NFL ownership, which has allowed the Mara and Tisch families to maintain control of the New York Giants, and the Chicago Bears to remain in the Halas/McCaskey families.
A handful of others have owned their teams since the 1960s, including 89-year-old Buffalo Bills owner Ralph Wilson, who plans to sell his team rather than bequeath it upon his death because none of his relatives want to run it.
"When you don't have significant other assets to use as collateral to either buy out your siblings or pay the IRS the estate taxes, that's when you have an issue," said Marc Ganis of Sports Corp. Ltd., a sports business consulting firm. "The dilution gets greater and greater from one generation to the next."
Advance planning needed
Ganis noted that the late Lamar Hunt planned his estate years in advance and had assets in addition to the Kansas City Chiefs when he transferred 80 percent of ownership to his daughter and three sons in 1997. Hunt paid a gift tax equal to estate tax - then 55 percent - based on the value of his team, which was $188 million at the time but is now worth four times as much.
"If I was real farsighted, I would have done it when the franchise was worth $10 million," Hunt told the New Orleans Times-Picayune in 2000, six years before his death at age 74. "But for some people, it's hard to think in terms of dying. They don't want to admit it could happen to them at any time."
Dan Rooney, the oldest of the five brothers, is 75. The youngest brothers are in their late 60s.
"The challenge is, how do they retain ownership of the team while meeting NFL rules and regulations and addressing IRS-related matters and keeping the family intact?" Ganis said. "That last part is not insignificant. When Joe Robbie passed away, his family battled tooth and nail for ownership. I don't know if they have ever recovered."
Robbie's surviving family members couldn't pay the estate taxes to keep the team. A family squabble resulted in them selling their remaining rights to the team and its stadium in 1994 to Wayne Huizenga. He, in turn, sold a 50-percent share in the team and all of its stadium rights to real estate developer Stephen Ross for $550 million in February. The NFL has had presentations at league meetings about estate planning and considers it a matter of strategizing for an inevitable moment. In 2000, Dan Rooney told Bloomberg News that estate taxes "make every one of us nervous. If there's an owner who isn't, he has his head in the sand."
No shortage of investors
Where Rooney and his son, Steelers president Art Rooney II, secretly had the value of the franchise assessed, his four brothers hired Goldman, Sachs & Co. as part of "normal-course Rooney family estate planning."
Dan Rooney buying out his brothers may well require a substantial influx of capital. The NFL forbids corporate ownership but mandates that its majority owners own at least 30 percent of the team. The majority owner doesn't necessarily have to be the controlling partner, but anyone making such a significant investment might not be willing to play backup quarterback.
"There's no shortage of people who would gladly invest alongside Mr. Rooney," said Mt. Lebanon native John Moag, chairman and CEO of Moag & Co., the Baltimore-based sports investment banking firm which brokered the recent Ravens and Dolphins deals. "There are lots of investors in the NFL who take a backseat. There are also people who would be interested in taking over at some point. People who are smart about the NFL and have a true interest would see strong value in learning that business and learning it slowly at the hands of Mr. Rooney.
"That doesn't mean there's an interest in Mr. Rooney doing that."
Rooney, a member of the Pro Football Hall of Fame, is held in high regard as one of the league's power brokers. Modell called Rooney "one of the best owners ever" and "invaluable to the NFL" and said, "if he does sell, he will be missed immensely."
That could prompt league officials to intervene and broker a deal everyone involved is willing to live with.
"As Steelers fans, we've been fortunate to enjoy the best of the old NFL and new NFL simultaneously," Greenberg said. "With all the Rooney family has contributed, it would be wonderful if there was an avenue for the Rooney family to maintain control of the franchise. Ultimately, the wishes of the individual Rooney brothers will determine how feasible that is."