Why Ralph Sold 30% Of The Bills In 2010...

[ICanSleepWhenI'mDead]

Stop it already! No- Ralph didnt sell 30% of the team in 2010- why because doing so would suject the sale to a double tax- once with capital gains, and again at death. Ralph's plan is simple- if he sells ANY of the team prior to death he will be subject to capital gains tax, and the amount that he realizes will be taxed again through his estate- so his estate will sell the team after his death thereby subjecting the sum to taxation once. The thing to remember is were are talking about 10's of millions of dollars- EACH time the value of the team is taxed.

 

For some reason people are resistant to listening what Ralph has said- he has an estate plan- it is to sell the team at death to the highest bidder. Sorry but it makes NO sense to sell ANY part of the team before death.

I've thought about this a little more. Your argument about avoiding double taxation is entirely logical, but it can't be 100% applicable to the partial ownership sale that Galatioto mentioned in the CNBC video clip. It's been a while since I watched the video (couldn't get it to load today), but I have a pretty clear recollection of him saying that the partial ownership sale was being done in part for estate planning purposes. The earlier TSW thread about the video reflects this.

 

Think about it - - if your argument about avoiding double taxation always applied, when would anyone EVER sell a partial ownership interest in an NFL franchise as part of their estate planning process? It would always result in double taxation. Yet Galatioto said that estate planning was one of the reasons why the sale of a partial ownership interest was going to "launch."

 

On the other hand, I'm not saying that the Galatioto sale involved the Bills. Ralph was already pretty old in the fall of 2010, and he's always been pretty sharp financially. What changed in 2010 that would have made him alter course (because it's reasonable to assume he already had a course), and belatedly sell 30%?

 

On balance, I don't think we have enough information to draw many conclusions. I do appreciate, however, the OP's efforts to think things through, do some calculations, share his ideas with supportive links, and give us all something to think about.

 

Just my 2 cents.

[Hplarrm]

I understand your argument, however you need to stop it! And you need to think outside the box for a minute. The facts are there's a 1/32nd chance it was us. Realistically you can cut out 75% of the teams from this list. Think of the teams that are the most cash-strapped and/or facing a likely transition. Mergers & Acquistions are now the norm in the NFL & Sal Galatioto is the guy who brokers these deals. Someone recently sold 30% of an NFL franchise, quietly, and not a peep who it was - sounds familar. Too bad the players didn't get the NFL owners to open their books.

 

If Ralph did sell 30% of the team it's because he does not intend on leaving it entirely in the hands of his 3rd wife Mary Wilson. See it from this perspective, Mary as his wife would not incur any estate taxes being his wife. In fact she'd only pay capital gains when she sold. There's one problem with this logic, it leaves out Ralph's 2 surviving biological daugthers. To solve this problem Ralph needed to add more liquidity to his estate. If he died in 2010 the 2 daugthers would have received 35% more money. The reason why he sold 30% was to makeup for this loss of liquidity in 2011 moving forward.

 

The argument I'm trying to makes is if Ralph intends to leave the team in Buffalo this strategy makes sense. Ralph wants to lessen the estate tax bill on the folks he leaves the team to, so he needs to boost the liquid cash value of his estate. Ralph is a very schrewd businessman, frugal, stubborn, and intelligent. Ralph's legal team and estate planner would have advised him to change his estate plan to take advantage of the 0% estate tax in 2010.

 

Using the financial model I developed Ralph could leave Mary Wilson with 19% of the franchise ($133 million) and an additional $100 million cash tax free. That would leave Ralph's daughters 21.5 million cash & 25.5% ($178.5 million) each of the franchise. The remaining 30% minority owner effectively would in effect control the franchise if it was turned over to 1 individual.

 

I don't see any other way this transition can go any smoother. Getting involved in a bidding war against Los Angeles and Toronto would be an uphill battle.

There are methods used routinely to reduce if not virtually totally escape what folks who are addicted to this issue call a death tax. Its what trust and estate law is all about.

 

The thing to realize is that there are a bunch of different ways that a person can logically (or even illogically because there is no law against being stupid and often times these trust and estate decisions are made by folks who are older and sometimes near or at Alzheimers and facing the ultimate unavoidable outcome of death).

 

Mr. Ralph could easily be one of those like a Warren Buffett or a Bill Gates who has already made the decision not to pass on untold amounts of wealth to heirs because he has seen that simply giving untold wealth to your heirs without them doing anything to earn it or their place in life simply kills people as human beings.

 

I think all folks want to try to make sure their heirs do not face a life of poverty, but many have little desire to simply penalize their heirs by leaving them ungodly amounts of money.

 

If Mr. Ralph were to leave significant chunks of his holdings (including the Bills if he wants) in the form of sn irrevocable trust he can escape the massive taxation which you seem to assume as a given.

 

Not passing on his wealth to his wife or direct family may be the best gift he ever gives to his offspring.

 

He may want to simply give this "burden" to his heirs who unlike him did little or nothing to earn it.

 

No one knows and it is stupid and likely simply wrong to ASSUME what is his central motivation in this regard.

[Homey D. Clown]

While this topic is one of the biggest sources of anxiety for Bills fans everywhere, it is all just speculation and guessing until that fateful day comes and we find out what will become of our team.

 

Yes, our team, Ralph may be the physical owner of this franchise, but we are it's soul, and we are the ones that keep it alive in Western NY. Our tax dollars into the stadium, our time, money, and emotional investment as fans, those things that won't be measured by the bean counters when they value the team.

 

Only time will tell what fate this team has, but it is interesting to know if there is a way we can find out if he did in fact sell 30% ownership. I honestly don't think he did.

[The Wei 44]

There are methods used routinely to reduce if not virtually totally escape what folks who are addicted to this issue call a death tax. Its what trust and estate law is all about.

 

The thing to realize is that there are a bunch of different ways that a person can logically (or even illogically because there is no law against being stupid and often times these trust and estate decisions are made by folks who are older and sometimes near or at Alzheimers and facing the ultimate unavoidable outcome of death).

 

Mr. Ralph could easily be one of those like a Warren Buffett or a Bill Gates who has already made the decision not to pass on untold amounts of wealth to heirs because he has seen that simply giving untold wealth to your heirs without them doing anything to earn it or their place in life simply kills people as human beings.

 

I think all folks want to try to make sure their heirs do not face a life of poverty, but many have little desire to simply penalize their heirs by leaving them ungodly amounts of money.

 

If Mr. Ralph were to leave significant chunks of his holdings (including the Bills if he wants) in the form of sn irrevocable trust he can escape the massive taxation which you seem to assume as a given.

 

Not passing on his wealth to his wife or direct family may be the best gift he ever gives to his offspring.

 

He may want to simply give this "burden" to his heirs who unlike him did little or nothing to earn it.

 

No one knows and it is stupid and likely simply wrong to ASSUME what is his central motivation in this regard.

 

Very well put and excellent point!!

[Tbone]

I've thought about this a little more. Your argument about avoiding double taxation is entirely logical, but it can't be 100% applicable to the partial ownership sale that Galatioto mentioned in the CNBC video clip. It's been a while since I watched the video (couldn't get it to load today), but I have a pretty clear recollection of him saying that the partial ownership sale was being done in part for estate planning purposes. The earlier TSW thread about the video reflects this.

 

Think about it - - if your argument about avoiding double taxation always applied, when would anyone EVER sell a partial ownership interest in an NFL franchise as part of their estate planning process? It would always result in double taxation. Yet Galatioto said that estate planning was one of the reasons why the sale of a partial ownership interest was going to "launch."

 

On the other hand, I'm not saying that the Galatioto sale involved the Bills. Ralph was already pretty old in the fall of 2010, and he's always been pretty sharp financially. What changed in 2010 that would have made him alter course (because it's reasonable to assume he already had a course), and belatedly sell 30%?

 

On balance, I don't think we have enough information to draw many conclusions. I do appreciate, however, the OP's efforts to think things through, do some calculations, share his ideas with supportive links, and give us all something to think about.

 

Just my 2 cents.

 

The taxation applied depends on the basis a person holds in the asset (to over simplify what "basis" is, it is what the person paid for the asset). Ralph paid $25,000 for the Bills he will not be taxed on the first $25,000 he gains from the Bills, thus there will be no double taxation with regard to that amount. Other owners, who have higher basis can plan differently. For instance if Jerry paid 500 million for the Cowboys, the first $500 million will no be subject to taxation. So yes, in some instances it can make sense to sell off ownership stakes- it doesnt in Ralph's situation.

 

There are methods used routinely to reduce if not virtually totally escape what folks who are addicted to this issue call a death tax. Its what trust and estate law is all about.

 

The thing to realize is that there are a bunch of different ways that a person can logically (or even illogically because there is no law against being stupid and often times these trust and estate decisions are made by folks who are older and sometimes near or at Alzheimers and facing the ultimate unavoidable outcome of death).

 

Mr. Ralph could easily be one of those like a Warren Buffett or a Bill Gates who has already made the decision not to pass on untold amounts of wealth to heirs because he has seen that simply giving untold wealth to your heirs without them doing anything to earn it or their place in life simply kills people as human beings.

 

I think all folks want to try to make sure their heirs do not face a life of poverty, but many have little desire to simply penalize their heirs by leaving them ungodly amounts of money.

 

If Mr. Ralph were to leave significant chunks of his holdings (including the Bills if he wants) in the form of sn irrevocable trust he can escape the massive taxation which you seem to assume as a given.

 

Not passing on his wealth to his wife or direct family may be the best gift he ever gives to his offspring.

 

He may want to simply give this "burden" to his heirs who unlike him did little or nothing to earn it.

 

No one knows and it is stupid and likely simply wrong to ASSUME what is his central motivation in this regard.

 

I think that people that have no experience with estate planning assume that there are a bunch of loopholes that make escaping tax easy. That is simply wrong. You are correct that an estate tax burden can be minimized by charitable giving. Ralph could do that, however the most likely way that is done is through a complete sale of the Team at death and a distribution of the proceeds to a charitable organization- so you theory is plausible in that regard. Assuming however that the tax plan Ralph has shared with us on numerous occasions is correct- no portion of the team will be sold until death.

 

As for your irrevocable trust statement- that all depends on what the trust is set up to do... some trust can avoid some types of taxation, but most likely another applies. If the trust benefits an individual or individuals it is a gift thus applying the gift tax- which is presently higher than the estate tax- meaning that the team would most likely be sold to raise the funds to pay the tax.

 

You simply are making statements you have no knowledge on so you should stop- you comment on Alzheimers makes that clear- if someone executes documents and they are not of sound mind those documents are not legally binding in this case with over a billion at stake that would lead to litigation, charges against his attorneys etc.

Edited May 18, 2011 by Tbone

[Wagon Circler]

I thought it was San Diego that ended up being the team that the CNBC story was about. I love the conspiracy though......you must be bored now that Obama showed his birth certificate.

Didn't you hear. it's a forgery!

[need therapy]

Thanks TBone. I was happy someone with knowledge of estate and tax law weighed in. Everyone wants to see the Bills stay in Buffalo, and I still think there's a good chance that happens. But the one year sunset of estate tax in 2010 didn't have any effect on Ralph situation. His cost basis in the team is so low that any sale would have generated a significant amount of capital gains tax. Then once he passes on his family would have to pay estate tax on whatever remains of his estate. There may be ways that Ralph is considering to ensure that the team stays here, but selling a minority stake in the team at this stage of his life doesn't make financial sense.

[DasNootz]

.

 

Let's analyze the facts and the numbers that support what is going on:

 

In September 1993 Sports Illustrated reported Ralph's Net Worth was $150 million, at a conservative 6.5% annual rate of return Ralph would be worth roughly $481 million in cash today. Presently the Bills Team value is $700 million. With an estate valued at $1.181 billion Ralph's heirs would have been forced to pay a 35% estate tax or $413 million. With only $313 million after tax cash on hand, Ralph's heirs would have been forced to pay $100 million out-of-pocket to cover the cost of the cost of retaining the franchise. Purchasers would have gotten the franchise at a bargain basement price as suitors would have known what a cash-strapped position they were in.

 

 

I'm not an accountant or an estate planner... but explain this to me. If his total assets are valued at $1.181 billion (Cash and Team per your calculations), why would they have to come out of pocket at all? You've estimated that his net worth is $481 million in cash value aside from the team. Why couldn't they liquidate those assets after death and still have $68 million left over plus 100% ownership of the fanchise?

 

Why couldn't they secure a loan of say $200 million on the franchise? I would think that private lenders would jump at that opportunity to take $700 million in collateral vs a $200 million loan. I don't understand why they would be in such a cash strapped position that they'd have to force a fire sale.

[Captain Caveman]

Is it just me, or is the title of this thread incredibly misleading?

[ICanSleepWhenI'mDead]

The taxation applied depends on the basis a person holds in the asset (to over simplify what "basis" is, it is what the person paid for the asset). Ralph paid $25,000 for the Bills he will not be taxed on the first $25,000 he gains from the Bills, thus there will be no double taxation with regard to that amount. Other owners, who have higher basis can plan differently. For instance if Jerry paid 500 million for the Cowboys, the first $500 million will no be subject to taxation. So yes, in some instances it can make sense to sell off ownership stakes- it doesnt in Ralph's situation.

Thanks. I understand tax basis, but hadn't thought about how someone who recently became an owner wouldn't have much appreciation yet on which the capital gains tax from selling a 30% ownership stake would have to be paid.

 

So back to trying to figure out which team Galatioto might have been referring to in the 2010 CNBC video, the most likely candidates might be owners who fit one or both of the following criteria (because any owner could be thinking about estate planning regardless of age, and Galatioto said that estate planning was one of the factors motivating the sale - not the only factor):

 

1. Relatively recently bought a franchise (based on the seemingly reasonable assumption that there has been fairly steady appreciation in team values over the years); and

 

2. Has a relatively greater need for cash now - - [maybe because the owner foresaw the lockout coming, has relatively high debt service that will still need to be paid even if the 2011 season gets delayed, and had the foresight to realize that the lockout fund created by renegotiating the TV contracts might not hold up to court scrutiny in MN? In that regard, Judge Doty found for the players in the TV lockout fund case in part because the NFL, in creating a lockout fund from TV revenues, put (1) its own interest in avoiding violations of some teams' loan covenants above (2) the league's contractual CBA obligation to maximize TV revenues for the JOINT benefit of the owners and the NFLPA.]

 

Does that sound like a sensible way to narrow down the list of possible teams that Galatioto was talking about?

Edited May 18, 2011 by ICanSleepWhenI'mDead

[need therapy]

 

Does that sound like a sensible way to narrow down the list of possible teams that Galatioto was talking about?

 

 

As a Bills fan, I don't have the interest in trying to find out. Once I know it's not the Bills, who it is doesn't really matter to me.

[Malazan]

This research is not complete and makes a large number of assumptions. In addition, it reads into the words and ignores certain realities.

Edited May 19, 2011 by jeremy2020