Every Sunday, Pittsburgh’s Dan Rooney and other National Football League owners cheer on their teams. As important as those battles are to the titans of pro football, a larger one looms on the first Tuesday in November.
When a winner is declared during the presidential election Nov. 4, owners will understand more clearly the fate of the estate tax — a levy that affects few of the millions of football fans, but which impacts all 31 league leaders (and the many shareholders of the Green Bay Packers).
Democrat Barack Obama and Republican John McCain may obfuscate on some issues, but they are clear where they stand on the estate tax, which is levied on well-off citizens after they die. Obama favors a 45 percent top rate after a $3.5 million exemption, while McCain embraces a 15 percent top rate and a $5 million exemption.
As the value of NFL franchises continues to soar — thanks to new stadiums, labor peace, billion-dollar television contracts and other factors — the estate tax has become a primary concern, especially as owners enter their 70s and 80s. According to Forbes, NFL franchise values range from a low of $839 million (Minnesota Vikings) to a high of $1.6 billion (Dallas Cowboys). Some have quintupled in value since the 1990s.
If Congress approves either the Obama or McCain proposal, tens of millions of dollars in owners’ wealth will be affected. For a franchise whose value has soared nearly $1 billion since it was purchased — such as the Steelers, bought during the Great Depression for $2,500 — the Obama proposal would generate a $450 million federal tax burden. McCain’s plan would cost heirs $150 million.
The NFL’s ownership model — requiring a personal principal owner, no debt financing and no corporate owners — sets it apart from other major pro leagues. It also brings the estate tax into play with a vengeance, especially since many old-time owners lack income outside of football.
”The ownership model has significant benefits in the financial success, stability and governance of the NFL,” says Andrew Bergstein, associate director for the Center for Sports Business & Research at the Penn State University Smeal College of Business. “But as the values of the franchise increase dramatically, it does introduce a significant tax complication, which could reduce the pool of potential owners.”
As long ago as eight years ago, Steelers’ owner Rooney lamented the estate tax’s bite, telling Bloomberg News: “Estate taxes make every one of us nervous. If there’s an owner who isn’t, he has his head in the sand.”
Despite Rooney's anxiety over the 'death tax,' he has endorsed Obama over McCain.
Four of Rooney’s brothers — Timothy, Patrick, Art. Jr. and — – also hold a large stake in the Steelers, and they tried to unload their long-held shares this summer, prompted by the estate tax and league-related issues. Talks with investor Stanley Druckenmiller failed. Had they succeeded, the brothers would have paid only the 15 percent capital gains tax on their profits (Obama has proposed raising the capital gains tax 20 percent. McCain unveiled a plan on Tuesday that would cut capital gains in half to 7.5 percent).
Buffalo Bills’ Ralph Wilson — the oldest owner in the NFL — turns 90 this week. He told the Buffalo News the franchise will be sold after his death. He said his wife, Mary, will not inherit the team, even though spouses are exempt from the estate tax. Bequeathing it to his children would trigger substantial payments; the Bills, bought by Wilson in 1959 for $25,000, are worth close to $900 million today, Forbes estimates.
The estate tax has spurred sales in the past, most notably by the family members of late Miami Dolphins’ owner Joe Robbie, who peddled the franchise to Wayne Huizenga in the 1990s to pay off a $50-million estate tax burden.
As the law stands today, the estate tax exemption will reach $3.5 million in 2009 from $2 million today, but the rate will stay at 45 percent. Then, the estate tax disappears entirely in 2010. It is doubtful that one-year honeymoon — which would save hundreds of millions of dollars for all but the newest NFL owners who happened to pass away that year — will survive in the next Congress.
So don’t be surprised if NFL owners are watching election returns more closely than usual next month. When a family can save hundreds of millions of dollars based on an election, the estate tax becomes more than just a political football.