This is the fourth installment of a series covering inheritance and estate planning in the National Football League; in short, how NFL team owners prepare to hand down the team to the next generation. With an average age of 72, owners face decisions familiar to any family with assets to pass on—compounded by restrictions unique to a league where the average franchise valuation is $4.14 billion.
Lamar Hunt helped make modern football. One of the many sons of billionaire oil tycoon H.L. Hunt, the younger Hunt didn’t have his father’s love of wildcatting despite a geology degree from Southern Methodist University. Rather, Lamar loved sports— and none more than football. Within a decade of his stint as a benchwarmer for the SMU football team, Hunt had co-founded the Kansas City Chiefs and the American Football League, helped steer the AFL’s merger with the NFL, and even coined the term Super Bowl. “You’d be hard-pressed to find anybody that’s made a bigger contribution [to the NFL] than Lamar Hunt,” Jerry Jones, the Dallas Cowboys owner, said after Hunt’s death in 2006.
There’s one more gift Hunt gave the NFL: a roadmap for a franchise’s smooth transition from one generation of family owners to the next.
The generational handoff is a big deal in the NFL. No sports league is more focused on long-held family ownership: Nearly a third of the league’s owners or their families acquired their clubs before MLB’s oldest ownership group, the Yankees’ Steinbrenner clan, bought their team in 1973. There’s also no ownership group that is as old: 20 principal owners of the league’s 32 franchises are 70 or older. By comparison, there are 12 septuagenarians in both MLB and NHL, and just 10 in the NBA, according to Sportico data.
The approach Hunt pioneered nearly three decades ago? Use sophisticated estate-planning tools like trusts to make the handoff as efficient as possible and clearly designate an heir who will run the team.
The stakes have never been higher: The average NFL team is worth $4.14 billion. A sale at that price could lead to a $1.6 billion federal estate tax bill without proper planning. NFL owners are rich, but for many of them, the overwhelming share of their wealth is tied up in the team. Soaring franchise values, aging owners and tight NFL ownership rules have made estate planning more important and challenging than ever. Half of the past dozen NFL ownership changes have followed the death of an owner.
At the time, Hunt’s use of trusts was a source of conflict with the league, and it took extended negotiations for the NFL to sign off on Hunt’s plan. Now, trusts are common in current ownership standards because they’re tax efficient and offer a way to rein in unruly heirs if needed. And such tricks of the trade are widely shared among owners who, despite their wealth, struggle like the rest of us with the byzantine U.S. code.
“If one owner’s advisors come up with some unique planning and ideas, many are happy to share that with other teams that are interested,” Arthur Blank, Atlanta Falcons owner, said in a phone interview. “It’s one of the advantages of this fraternity of 32 owners—when I was running Home Depot, I couldn’t call my friends at Lowe’s and ask about their financial planning.”
Indeed, even though NFL teams are individual businesses, it’s better to view them as parts of a whole, according to John A. Davis, a management professor and head of the family enterprise center at the Massachusetts Institute of Technology. “Teams are like divisions within a company, they’re not really like separate companies,” Davis said in a phone call. “They’re not independent, they all depend on each other and they have some unified overall governance that defines how they’re going to work.” In that spirit, the NFL requires owners to have a succession plan in place, checking in periodically.
Despite the league’s interest in estate plans, few details are disclosed. Even years after Hunt’s death, only some details of the structure are publicly known. In 1995, Lamar Hunt put 95% of the Chiefs in a series of grantor trusts, with his four children as beneficiaries, according to former NFL finance executive Frank Hawkins. Hunt’s longtime right-hand man, Jack Steadman, was appointed trustee. The interlocking trusts meant Steadman had total control and legal title to 95% of the stock but the beneficial interest of the trusts were the Hunt family members. Depending on the structure, if Lamar ceded legal control of the team to the trusts in 1995, it’s possible the estate-tax basis of the team would have been much lower, dating to its valuation in 1995 and not 2006. The Chiefs declined to comment for this story.
Today, NFL owners favor a grantor-retained annuity trust (GRAT), according to four attorneys who have experience with NFL estate plans but all of whom asked not to be identified to avoid exposing private client matters. GRATs are highly complex trusts in practice, but work off a simple idea: Shifting assets into a GRAT freezes the estate tax value to the date the trust is given an asset. What’s more, the GRAT can pay an annuity to the team owner from its assets, which then reduces the taxable value of asset in the GRAT.
Plus, if the asset grows in value during its time in the GRAT, that growth is tax-free above a low growth rate the IRS assumes. And since NFL teams are highly illiquid assets, they likely qualify for a discounted valuation in the IRS’ eyes. How dramatic may the advantages of this be? In 2021 the IRS GRAT rate—the amount of growth the IRS assumed a trust would earn and which is taxed—was 1.2%. Over the same period, NFL team values grew 18%, according to Sportico data.
The risk? Almost none. The main one: If the creator of the trust dies during the term of the GRAT, just about everything in it, including its appreciation, is exposed to estate tax. “GRATs work if you survive them,” one New York-based attorney familiar with team owner strategies said. “They do involve a significant amount of tax, but the tax is so highly discounted that clients like to use them.”
Even in cases where they have been lax in crafting estate plans, NFL owners get a break. They can take advantage of a clause that allows heirs to extend estate-tax payments over 15 years on a family business that is worth at least 35% of the value of the estate. The first five years require only interest payments to the government followed by, at most, 10 annual estate-tax payments. The expectation is that team values will continue to soar and, more importantly, cash flow will increase to more than meet the estate tax bill, said a Boston-based attorney with NFL owner experience. “An NFL franchise is highly valuable. It’s something people typically want to keep within the family—with the revenue and cash flow coming off these teams, between the TV and intellectual property deals alone, it’s no longer about hoping to sell out the stadium.”
In many cases, team owners seek large life insurance policies as a way to pay at least some of the expected estate taxes, because life insurance proceeds are not subject to estate taxes. There is even a small, rarefied industry creating syndicates to issue life insurance policies for individually owned businesses worth billions, crafting complex ways to generate insurance payouts potentially over a hundred million dollars. “It’s one of those subsets of business that you never knew existed,” said the Boston attorney.
Certainly, NFL owners have the wherewithal to hire the best attorneys and accountants around. The biggest variable, however, is the heirs themselves. In that respect, Lamar Hunt also did it right. He telegraphed well before his death that his son Clark would take over, and he let Clark gain experience by running the family’s Major League Soccer properties before advancing to the Chiefs.
“It was clear-cut. Clark had the interest and the background with his work in MLS,” said David Sweet, a sportswriter who wrote Lamar Hunt: The Gentle Giant Who Revolutionize Professional Sports. “His dad saw him as very sharp, and by all accounts there was no animosity that Clark was the one.”
Hunt’s will, which is public through probate court, required only one sentence to pass along the Chiefs to his children. The document spent more words detailing how to divvy up the six NBA title rings he received through his part-ownership of the Chicago Bulls (a blind draw by the four heirs to each get one, with the two remaining rings going on display at a local Hunt-owned commercial property). An emphasis on fairness is often a key to effectively transitioning a family business to heirs, MIT’s Davis noted.
Today, Clark Hunt still runs the Chiefs and also chairs the powerful NFL finance committee, which is the gateway for potential new owners and league rules and exceptions concerning debt ownership requirements. Hunt is looking to help find solutions to keep legacy ownership families in the NFL, similar to how the NFL helped his family, according to sources.
“It’s a great long-term business to be in, where you can innovate in marketing and you can innovate in other ways,” said Davis, of the NFL. “And families tend to be good at that.”
More from Sportico’s NFL Succession series: