SBJ/20091026/This Week's News

NFL pares ownership rule

The NFL has changed its team ownership rules so that a lead owner can now control as little as 10 percent of the franchise, half of the previous minimum, league sources said.

Owners approved the change at their fall meetings in Boston earlier this month.

The NFL is renowned for having ownership requirements far more onerous than any other league, but aging owners and increasing team values have combined to create significant estate-planning challenges.

The recent difficulties the Rooney family endured retaining ownership of the Pittsburgh Steelers in part sparked the revision of the rule.

“This change helps facilitate succession planning,” an NFL source said.

Prior to 2004, a controlling owner had to own at least 30 percent of the club, a level installed in the mid-1980s. The league revised the rule in 2004 to allow the lead owner, or general partner, to own as little as 20 percent of the team, but with his or her family needing to own at least another 10 percent, such that the total family ownership would be at 30 percent.

That ratio can now essentially be flipped, with the controlling owner at 10 percent and his or her family at 20 percent. This should help clubs looking to maintain family ownership of the franchise.

Timeline of NFL ownership rules
• Mid-1980s: League institutes new percentage requirement for a lead owner, requiring that the general partner own at least 30 percent of the team. The requirement previously had been 51 percent.
• 2004: Responding to high team valuations, NFL lowers the required percentage for the general partner to 20 percent for teams that had been owned at least 10 years by the same family, though another 10 percent must be controlled by other family members.
• October 2009: With estate planning in mind, league lowers the threshold to 10 percent, with at least 20 percent having to be controlled by other family members. The new rule only is triggered by an active succession plan and is eligible only for existing owners. New owners will have to wait a decade before becoming eligible.
Source: SportsBusiness Journal reporting

Many NFL teams are family-run, including the Chicago Bears, New England Patriots, Dallas Cowboys and New Orleans Saints. (Saints owner Tom Benson is the chairman of the finance committee that initially approved the new measure). In each of these cases, the principal owner has close family members helping run the team, with the expectation that they will one day take over as principal owners.

The new rule applies to all current owners and can only be triggered by a succession plan, the sources said. Incoming owners would still be bound by the 20 percent/10 percent rule, though after a decade they would be eligible for the lower threshold, the sources said.

Two trends collided to force the NFL’s hand. One was rising valuation, notwithstanding some recent pullback caused by the down economy. With the value of some teams now exceeding $1 billion, a 20 percent lead stake would require the son or daughter of an owner to have $200 million to satisfy league requirements. (Depending on debt, the amount could be less).

At the same time, many of the league’s owners are aging. Several years ago, Mike McCaskey, son of 86-year-old Chicago Bears owner Virginia McCaskey approached the league about relaxing its ownership requirements. The league rebuffed him at the time, but at least on paper, a path to ownership now would be easier for him.

The Steelers’ situation emerged because the ownership by four Rooney brothers of racetracks ran afoul of NFL gambling restrictions. The brothers inherited the team from their father when he died in 1988. The ownership structure of the team was established before the 30 percent rule was implemented, so even though the five brothers each owned 16 percent, the league allowed the structure.

Ultimately, owner Dan Rooney ended up with 10 percent and his son, Art Rooney, who now runs the club, 20 percent, sources said. But the transaction would have been easier to structure, these sources said, had Art Rooney needed only 10 percent.

The NFL’s ownership rule is designed to prevent syndicates of owners from owning the league’s teams, a situation that has occurred in the NHL and MLB. The idea behind a high percentage requirement for the general partner is to have a single voice running the team and a person who would be able to step in financially if so needed.

As a result, some critics question the NFL’s move.

“It creates additional risk for the clubs without having a deep-pocketed lead investor,” said Joe Kosich, formerly a sports banker at major sports lender Wachovia and who now runs his own sports advisory boutique, Dornoch Capital Advisors. “I really don’t like the idea of them lowering the threshold for existing clubs.”

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