Passing Down the Estate: Professional Sports Ownership and its Problems

Blog #3

Section #10

On the “wishlist” of sports fans of all ages is to one day accrue enough money to purchase a professional sports franchise. While we can’t personally experience the highs and lows of being a professional sports owner, we can live vicariously through outspoken Owners such as Jerry Jones of the Dallas Cowboys or Mark Cuban of the Dallas Mavericks in order to gain more insight into how these insanely rich and powerful men conduct their respective sport empires. With professional sport ownership, one would have to develop a powerful estate prior to purchasing such a large sized venture. This means that it is really unlikely to see owners who are not elderly. For example, in the NFL, only 2 owners are under the age of 50 (Mental Floss)

jerry-jones

Jerry Jones and Dallas Cowboys QB Tony Romo sharing a laugh before a game

 

Many professional sport franchises, just like many organizations worldwide, are corporately operated almost exclusively by families. Recently, it has become more of a prevalent issue in professional sports as to how to manage the ownership of a Sport franchise. With these owners acquiring so much wealth and with many in the elderly stages of their life, the question remains: Who takes over the team after the primary owner passes, and how will their estate be managed?

With this question in mind, I started to analyze the teachings of Edmund Burke in his expose “Reflections on the Revolution in France”. In the excerpts, Burke explains how Hereditary Power in England is something that is “good”. Burke goes on to state that the current legislators in England made up of the House of Commons and the House of Peers are comprised of mainly people who are “possessors of family wealth”. Burke, while coming from humble beginnings, believes that power should be allowed to those who have gained it from their relatives. A quote that particularly resonated with me from Burke perfectly describes his position on hereditary property (they referring to “men”):

“They have a a right to the fruits of their industry; and to the means of making their industry fruitful. They have the right to the acquisitions of their parents; to the nourishment and improvement of their offspring; to instruction in life, and to consolation in death.”

While Burke is mainly speaking on grounds of the revolution in England at the time, his philosophy regarding hereditary property loom large in today’s society and specifically in professional sport. Being from Detroit, I have witnessed the problems that occur from professional sport ownership in my “backyard”. Mike Ilitch – the proud founder of Little Ceasars Pizza and owner of the Detroit Redwings/Tigers – is 85 years old with declining health. In section, we talked explicitly about the Estate Tax, and how it was implemented into our constitution to dispel “family wealth” from dominating power in the United States along with providing social mobility between classes. According to Crain’s Business Journal, the Estate Tax for the very wealthy, including Ilitch, is 40% after a $5.25 Million exemption, and are due 9 months after the death of the owners.

bilde-22

Mike Ilitch – Owner of the Detroit Tigers/Redwings

 

These regulations raise many questions as to how professional sports organizations should be run with elderly owners such as Mike Ilitch. Will the teams be sold? Will the heirs be interested in keeping the franchises? Can the heirs afford them? While federal tax laws are in place to delay the 40% tax hit not to mention the outstanding legal fees to do so, the tremendous upkeep of a professional sports franchise may have the heirs apparent forced to sell; which the family may not want to do. In the case of the Detroit Pistons in 2009, late owner Bill Davidson wanted the team to stay in the Davidson family – two years later – his widow sold the team for various reasons including financial (Crains).

Across the “blogosphere”, many articles remain for arguing Burke’s opinion on hereditary property along with the estate tax, almost all backing my notion that Burke would be despised with the way estates are handled – specifically professional sports franchises. According to Burke, there would be no estate tax. Everyone would be able to live their life the way they wanted, without the government being able to tax you 9 months after your death. In the case of the Ilitch’s, if Mr. Ilitch wanted to give his family his teams, he should be able to do so without any federal regulation. According to the Crain’s Business Journal article, “If the IRS valuation of the two teams matched those from Forbes, the combined estate tax bill on those two assets alone could be $396 Million.” Burke would clearly be appalled by that number. While the family is intending on taking control of the teams when Mike Sr. passes, it remains to be seen whether they will be FORCED to sell due to the $396 Million along with the payment of operations. Since 1992, the Ilitch’s have been unbelievable in their efforts to revitalize the city of Detroit such as the development of the new Redwings Arena that will open in 2016 (Crains). This estate tax could rob Detroit of its most famous and loyal backers.

While the problems I have contended remain, I don’t think any right minded man would ever say no to owning a sports franchise, and that is something neither Burke or the Federal Government could debate.

Advertisements

One thought on “Passing Down the Estate: Professional Sports Ownership and its Problems

  1. The estate tax in my opinion, is wrong and should be revoked. Economically estate taxes make sense, but they are a true injustice. People work diligently in order to make their fortune and strive to be wealthy enough to pass their wealth to their families. The government should have no regulation in the distribution of wealth between families, especially after the death of a family member. In the case of Mike Ilitch, He deserves to be able to pass down his legacy to his family and should not have to lose his fortune to the government. As you demonstrate, even Burke agrees that estate taxes should not be implemented and should be stopped.

    Like

Comments are closed.