By Alicia Denton and Mallon FitzPatrick
October 27, 2022 – The National Football League (NFL) is a ubiquitous part of American culture and an extremely profitable sport league. According to Statista, the 32 teams in the NFL generated revenue of $17.29 billion in 2021. Acquiring an NFL team is seen as one of the ultimate status symbols, the average team is worth approximately $4.14 billion.
While rooting for your favorite team, you may not think about the management of a franchise or its ownership structure. Team owners participate in hiring coaches, general management, marketing, day-to-day operations, and strategic planning. They use their network and wealth to drive the team’s progress.
The NFL mandates that each franchise identify a controlling owner who holds at least a 30% interest. A rule enacted in 2009 allows for a subdivision of the controlling ownership; 10% to a single ‘family leader’ and the remaining 20% to other family members. This subdivision rule was added to help NFL owners transition to the next generation and keep ownership within their family. The league prohibits publicly traded companies and groups of more than 24 people from ownership. The Green Bay Packers are an exception predating the NFL rules. The Packers have been a publicly owned nonprofit corporation since 1923 with more than 537,000 shareholders.
Did you know that the average owner in the league is age 72? This is an age by which most people have or should start succession planning. Owners face unique challenges passing down a franchise because of the controlling owner mandate. The current owner is given the unenviable task of selecting a single child or relative to become the family leader. This may cause infighting amongst offspring or more sophisticated issues in the cases where there are children from a first, second, and even third spouse.
To help maintain business continuity and attempt to mitigate infighting, an NFL owner can select an independent trustee instead of a family member to take over when they become incapacitated or pass away. An independent trustee is a person or entity who has no beneficial interest in the trust: a non-adverse party and a non-family member. Unlike a more traditional corporate trustee such as a big bank, the independent trustee avoids conflict of interest by not providing investment services.
An independent trustee focuses on trust administration and usually works with an investment advisor that directs the investments. An independent trustee can serve the family in perpetuity. The trustee follows the document provisions and are meant to objectively handle issues with beneficiaries. However, the independent trustee cannot solve all family dynamic complications and infighting.
Take the Denver Broncos for instance: longtime owner Pat Bowlen supposedly designed his trust in a way that should have worked by appointing an independent trustee and executing the documents prior to his incapacity. However, the trust did not name a ‘family leader’ and the descendants couldn’t decide on a controlling owner. As a result, the independent trustee sold the Broncos, and it is now held by another group and the controlling owner is Rob Walton from the Walmart family.
The Broncos story is an example of the deceased avoiding a difficult decision while alive and ‘punting’ to his heirs. Selecting a controlling family member may have been tough but likely less painful than giving up the team. Whether you are an NFL owner or not, we recommend planning and executing documents well before there’s a risk of incapacitation and communicating intentions to heirs even though the conversations may be difficult. Wouldn’t you want to keep your beloved team in the family?