Steelers and Estate Tax

With the Super Bowl scheduled to be played on Sunday evening, February 1, 2009, sports fans worldwide will focus on the Arizona Cardinals and the PITTSBURGH STEELERS -- you know, that football team from PENNSYLVANIA.

Both teams are family-controlled. Owners in both families face a significant hurdle: Payment of Federal Estate Tax. Complex estate planning is in order so that the games can go on.

According to Wikipedia, "the Arizona Cardinals, founded in 1898, hold the distinction of being the oldest continuously run professional American football club in the United States." The team's history divides into the Chicago years (1898–1959), the St. Louis years (1960–1987), and the Arizona years (1988–Present). The Cardinals' current coach, Ken Whisenhunt, was hired away from the Pittsburgh Steelers -- where he served as offensive coordinator -- on January 14, 2007.

Also according to Wikipedia, "[f]ounded in 1933, the Steelers are the oldest and most championed franchise in the AFC [American Football Conference]."

The team will appear in its seventh Super Bowl on February 1st 2009 and is one of three teams to have won the Super Bowl five times.

No team has played more conference championship games and Pittsburgh has hosted more conference championship games than any other NFL franchise.

From 1974 to 1979 the franchise became the first NFL franchise to win four Super Bowl titles in six seasons, a feat which is yet to be matched.

The 2005 team was the first sixth-seeded team in NFL history to advance to a conference championship game; they went on to win the game, followed by their latest Super Bowl victory on February 5, 2006. * * *

When these two powerhouse teams meet on Sunday evening, will you be thinking about estate planning, among the many other aspects of the game? There would be reasons.

On July 11, 2008, the Pittsburgh Tribune Review published an article entitled "Estate tax threatens NFL's old guard of owners" by Kevin Gorman & Mike Prisuta, who mentioned both teams when reporting about the concentrated family ownership of the Pittsburgh Steelers that will present problems one day when subject to federal estate tax:

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. * * *

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. * * *

Estate planning and family cooperation were concerns of "the Chief," Art Rooney, when he wrote a letter dated March 18, 1987, to his five sons. According to a New York Times "Freakonomics" blog posting entitled "Art Rooney Saw the Steelers’ Future" by Stephen J. Dubner, the Chief (as "Dad") wrote:

Time is starting to run out on me. I am concerned, just as you are, about my Will, particularly my Stock in the football club. I would like to reach some kind of an understanding so that there will be no questions or complications regarding my estate. * * *

Matters of ownership, cooperation, and estate planning came to a head in 2008 for the Steelers, as noted in a blog posting entitled "Death, Taxes and NFL Football (Go Steelers!)" by Julie Garber posted Wednesday August 6, 2008 by About.com:

Having grown up in Pittsburgh, the recent news that my beloved Pittsburgh Steelers are on the verge of being sold to an outside third party did not sit well with me.

This fifth oldest NFL franchise was purchased by Arthur Joseph Rooney in 1933 for a mere $2,500 and is still controlled today by a majority of Rooney family members.

According to a 2007 Forbes.com article, the fair market value of the team is now estimated at well over $900,000,000 and this has put the five sons of Arthur Joseph Rooney at odds over the future of the team. It seems that one son, Daniel, wants to keep the team, but the other four sons want to cash out and focus on other businesses.

Recently stepping into the middle of this family feud is a potential buyer named Stanley Druckenmiller, a billionaire Pittsburgh businessman with very deep pockets. * * *

The death tax threat to the Steelers football franchise was discounted, however, in an article entitled "Estate taxes pose little threat to Steelers ownership" (08/10/08) by Mark Roth, published in the Pittsburgh Post-Gazette.

As the Rooney family prepares to meet with NFL Commissioner Roger Goodell to discuss a possible ownership change in the Steelers, the federal estate tax may turn out to be the least important factor affecting the team's future, tax experts and some family members say.

On the surface, the estate tax seems daunting -- 45 percent on all estates above $2 million in value. With the Rooneys' 80 percent share of the franchise being valued at $800 million or more on the open market, that would seem to make the family liable for hundreds of millions of dollars in tax liabilities.

In reality, though, few estates pay the full estate tax rate, and there is almost no evidence that any family-owned enterprises have had to dissolve or sell out because of the federal tax, said Ben Harris, a senior research associate at the Tax Policy Center in Washington, D.C., a joint operation of the Brookings Institution and Urban Institute. * * *

Before the general election in November, 2008, levy of a succession tax on National Football League team franchises had become a "political football" kicked by the candidates, according to "NFL owners have rooting interest in election --McCain estate-tax plan would save some owners millions" by David Sweet, posted on MSNBC.

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.* * *

At least for the Steelers, by early December 2008, the ownership and transfer issues appear to have been resolved, according to a posting on Sports Business Daily, "NFL Franchise Notes: Steelers Ownership Deal Nearly Finished" (12/02/08) citing a KDKA report:

CBS' Andy Sheehan cited sources as saying that details surrounding the Steelers ownership transition "should be settled by this weekend."

The sources indicated that Steelers investors Tim, Art Jr., Patrick and John Rooney, each of whom is selling all or part of his 16% ownership stake in the franchise, and their brother, Steelers Chair Dan Rooney, will stay in Pittsburgh following Sunday's Cowboys-Steelers game for a Monday board meeting, at which they "plan to ratify the deal."

Sources indicated that the deal "affixes a value to the team" of between $750-800M. In compliance with NFL rules, Tim and Patrick Rooney will "completely divest themselves of the team," as they both operate race tracks, while Art Jr. and John Rooney also will "sell shares to Dan but retain a smaller stake."

In order to purchase the shares, PNC is "loaning Dan Rooney an undisclosed sum".

With that now resolved, you can focus on Super Bowl XLIII game-play.

Go Steelers!!!

“Estate taxes make every one of us nervous.
If there’s an owner who isn’t, he has his head in the sand.”

-- Dan Rooney, quoted by Bloomberg News (2000)

Update: 02/01/09 @ 10:30 pm:

In a nerve-shattering, topsy-turvy, "incredible game" that demonstrated the tenacity, skill, focus, and passion of the titans on both teams, the Pittsburgh Steelers won the Super Bowl, 27-23.

The game will be remembered not only as the Steelers' sixth Super Bowl victory (a record), but also for the plays at the ends of the first half and the second half, which likely made football history.

Post-game, the Vince Lombardi Trophy was presented by Pennsylvania native, Pro Football Hall of Famer Joe Namath, to Club representative Dan Rooney, in the presence of transfixed fans.

"Both teams, when they were down,
kept fightin' and comin' back."
-- John Madden
ESPN TV sports commentator, immediately post-game

"Anything's possible."
-- Ben Roethlisberger
Quarterback for the Pittsburgh Steelers, interviewed post-game

"If you believe together you can accomplish things, you can be successful."
--Ken Whisenhunt
Head Coach of the Phoenix Cardinals, interviewed post-game