The complicated tax implications for succession, in combination with NFL ownership rules, have forced the last of the family-owned major sports franchises into a bitter battle. The Wall Street Journal and CNBC both look at the potential sale of the Pittsburgh Steelers, which has been in the hands of the Rooneys since joining the NFL in 1933. The implications of a Barack Obama presidency and his policy on capital-gains tax rates may force the Rooneys to unload the team:
[Daniel] Rooney, 75 years old, is attempting to buy his four brothers out of their interest in the team in order to comply with NFL regulations and put an orderly succession process in place. But in a move that shows they want to get full value for their individual 16% shares of the storied franchise, Mr. Rooney’s four brothers have retained Goldman Sachs & Co. to field and evaluate offers for their stakes in the team.
Those brothers — Art Rooney Jr., Timothy Rooney, Patrick Rooney and John Rooney — aren’t involved in the operations of the team, which is run by Daniel Rooney and his son, the team’s president. The Wall Street Journal reported Monday that Mr. Rooney has offered his brothers $35 million each for about one-third of each brother’s stake, which would increase his own stake to 36% from 16%, a valuation that would put the team’s worth at about $700 million. He also pledged to buy additional equity during the next decade.
The revelation has turned a quiet family squabble into a public battle for a trophy asset, a battle that includes financier Stanley Druckenmiller, billionaire chairman of Duquesne Capital Management. He is angling to buy a controlling interest in a franchise the Rooney family has owned since 1933.
This starts with two ownership issues with the NFL. First, the league now requires that the controlling partner own at least 30% of the team, and Daniel Rooney only owns 16%. He needs to buy some of the ownership interest from his brothers, who themselves provide the second NFL complication. They own a horse track and recently added poker tables — which conflicts with the league’s policy on gambling ties. They want the Rooney brothers to get out entirely and have tried to facilitate the transfer to Daniel Rooney.
Unfortunately, the sale has major tax implications, and it will get worse if Obama puts his tax plans into effect. CNBC reports on the impact:
A capital gains tax is a tax on the profit from a sale of something. Currently, if an owner sells a team, he’ll have to give 15 percent of the profit back to the government in capital gains. But under Obama’s current plans, that number could rise to as much as 28 percent, meaning that the money paid to the government after the sale of the team might double by next year.
Let’s say the Rooneys could get $1.3 billion for the Steelers. Factoring in everything they pumped into the team, let’s say their profit is $600 million. Selling it now vs. if Obama is in office could mean the difference of nearly $80 million.
That requires a quick turnaround, and Daniel Rooney apparently doesn’t have that kind of liquidity. Also, Democrats want to end the repeal of the estate tax, while McCain wants it extended, and that has all of the Rooneys worried about the tax burden their children will face when the current generation of owners move to that Great Gridiron In The Sky. All of this favors a sale in 2008, before the sale gets hit with huge taxes, and that means the Druckenmiller bid looks very attractive to everyone — except the NFL, Daniel Rooney, and probably all of Pennsylvania.
It may be just one example of how a lot of investors will act in 2008, facing the prospect of higher tax rates on investment profits, but it’s also going to have a great deal of impact in a key battleground state in 2008. Pittsburgh lives and dies with the Steelers, and the prospect of the Rooneys losing control of their team because of the tax policies of an Obama presidency will put his economic policies on the hotseat. Obama cannot afford to lose Pennsylvania to John McCain, but the real-world example of his redistributionist policies may give voters in the Keystone State a reason to think twice about Obama.
The Rooneys have earned a great deal of respect and affection in Pennsylvania and with sports fans nationwide — certainly more than Barack Obama has. With Obama threatening to throw the legacy of Jerome “The Bus” Bettis under the bus of a confiscatory tax policy, that affection for Obama certainly won’t increase.