Poloncarz confirms there are suitors who want to move the team

[stuckinny]

we are truely the only team with in the states borders. I would think the governor and senators would do anything to keep the team and tax dollars pumping to albany! I am not concerned, if i was I woudl be google-ing goodells home address as we speak!

[Greg F]

I know I have read somewhere that supposedly Ralph said that he spoke with lawyers who advised him that he could not restrict the sale of the team to only someone who would keep the Bills in Buffalo.

 

I am sure he got top notch legal advice as to what he could and could not do. I do know there is no way to put restrictions (such as not being able to move the team) on the new owner. The lease agreement was likely the best that could be done.

 

... estate tax (or capital gains) hit is going to be astronomical given that he bought the team for $25,000.

 

Those are two different taxes. The reason Ralph refused to sell the team was due to the capital gains tax. Selling the team would have subjected him to a 15% capital gains tax. So for example had he sold the team for $1 billion he would have paid $150 million in taxes. Upon his death the heirs would have inherited $850 million which would be subject to an additional 40% on the estate. So all together the tax bill would have been $490 million (estate plus capital gains). By waiting till after his death the total tax bill would be $400 million, a $90 million savings.

 

Most people die holding highly appreciated investments. When you die, your heirs get a step up in cost basis and therefore pay no capital gains tax on a lifetime of growth.

 

The estate tax is due 9 months after the date of death and is 40% after the exemption ($5.34 million). If the team sells for $1 billion the Fed's will get $400 million. An interesting aspect of the estate tax is the IRS calculates it from what it considers the 'fair market value'. The reason for this is so an asset isn't sold for a reduced price to avoid the tax.

 

If the estate receives a bid for $1.5 billion from someone who intends to move the team but only a $800 million bid from someone who plans to keep the Bills in Buffalo it would be foolish to sell the team to the local bidder. The IRS is likely to see the $1.5 billion bid as the 'fair market value' and assess the estate tax of $600 million even if the team was only sold for $800 million.

 

I'm not a tax expert, but my understanding is that spouses are exempt from estate taxes.

 

To the best of our knowledge he didn't leave it to Mary, it was either in a living trust or moved into an trust upon his death. The spousal exemption only delays the estate tax. When the spouse dies the estate tax would have to be paid. It is doubtful the heirs have $400 million laying around to pay the tax man in December.

[3rdand12]

I doubt Mr. Wilson would have put that kind of faith in the other 31 greedy bastard owners

I think Mr Wilson , through his years and the trials and tribulations with the NFL per se , probably was quite organized and on point with this delicate matter

God bless the man . and Mary too .

[ICanSleepWhenI'mDead]

Those are two different taxes. The reason Ralph refused to sell the team was due to the capital gains tax. Selling the team would have subjected him to a 15% capital gains tax. So for example had he sold the team for $1 billion he would have paid $150 million in taxes. Upon his death the heirs would have inherited $850 million which would be subject to an additional 40% on the estate. So all together the tax bill would have been $490 million (estate plus capital gains). By waiting till after his death the total tax bill would be $400 million, a $90 million savings.

 

The estate tax is due 9 months after the date of death and is 40% after the exemption ($5.34 million). If the team sells for $1 billion the Fed's will get $400 million. An interesting aspect of the estate tax is the IRS calculates it from what it considers the 'fair market value'. The reason for this is so an asset isn't sold for a reduced price to avoid the tax.

 

I've read that a very wealthy person can effectively remove an asset from their estate by placing it in an irrevocable trust, and that this strategy is most often used for assets that are expected to rapidly appreciate between the date the asset is transferred to the trust and the date the wealthy person dies.

 

http://www.helsell.com/faq/irrevocable-trusts/

 

The sale of an asset to an irrevocable trust is often recommended if the asset to be transferred is . . . in excess of the annual exclusion amount and is expected to appreciate rapidly.

 

At any time after the AFL/NFL merger, the Bills would appear to fit the description of an asset that is worth more than the annual exclusion amount and is expected to appreciate rapidly. And if the Bills had already been transferred into an irrevocable trust by 2005, that could explain why Ralph mentioned in a 2005 interview that his lawyer told him that changing the terms of the trust to favor a local bidder would not be legal. Simply because like the name implies, the terms of an "irrevocable" trust can't legally be changed.

 

If my tentative understanding of how this tax-minimizing strategy works is correct, it would go something like this:

 

1. Ralph creates an irrevocable trust and transfers ownership of the Bills to the trust. He would have to pay gift tax on the then-current value of the team to the extent it was greater than the unified lifetime exclusion for gifts and post-death transfers. For many years the value of the Bills has far exceeded that unified lifetime exclusion. So the down side of this strategy would be that Ralph would have to pay immediate tax at the then current estate tax rate (which has varied over the years) on whatever the fair market value of the team was when he transferred it into the irrevocable trust.

 

2. But the up side is that after Ralph pays that initial gift tax, any future appreciation in the value of the Bills would escape future estate taxes that would otherwise be due upon his death. To make the math simple, suppose the Bills were worth $100 million when transferred into the irrevocable trust, but worth $1 billion when Ralph died. If this strategy was used, the $900 million in appreciated value after the team was transferred into the irrevocable trust would escape future estate taxes.

 

3. Let's just say that, unlike Ralph, I've never had to worry about whether a gift I was making would use up my unified lifetime gift and estate tax exclusion. So I need to do some reading before I feel like I have a good handle on some of the other tax-related details. But from what I've read so far about this strategy, it's use would be consistent with the 2005 interview Ralph gave, and minimize the overall tax burden when passing his assets on to his family.

 

4. My tentative impression is that the strategy might effectively apply the lower capital gains tax rate (in place of the much higher estate tax rate) on future appreciation in the value of the team (i.e., in my hypothetical example, on the $900 million increase in value). I haven't nailed that down yet, and I'm not sure if the future estate tax savings on the $900 million would be enough to offset the need to pay immediate gift taxes on the first $100 million many years before Ralph's death. Seems like its possible, though.

 

5. Spitballing - - with irrevocable trust:

 

40% of 1st $100 million = $40 million (gift tax)

15% of $900 million = $135 million (capital gains tax)

 

Total = $175 million

 

Compared to 40% of $1 billion = $400 million (estate tax if trust is not irrevocable)

 

6. Anyway, does anybody have any expertise on the use of IRREVOCABLE trusts (not the more common revocable type often used as an estate planning tool by less wealthy individuals)? I would appreciate knowing if I'm on the right track here with respect to understanding how Ralph's potential use of an irrevocable trust would affect the overall tax burden he would incur when planning to pass his wealth on to his family. If he used an irrevocable trust set up many years ago, the Buffalo area may have been prosperous enough then so that he did not anticipate how great the need would be to protect the team from out-of-town bidders who might move it after his death.

 

Any help in understanding the tax ramifications (estate vs. capital gains) of irrevocable trusts would be appreciated.

Edited June 4, 2014 by ICanSleepWhenI'mDead

[PromoTheRobot]

This is exactly right. Make it look like you tried everything you could to keep them in Buffalo. At least that will keep people coming to the games for the next 6 years.

If the latest stories about Bon Jovi/MLSE wanting to play in Niagara Falls are true then a new stadium would have to be built for them. We are not building a new stadium without a very long term lease. Did you forget that part?

Edited June 4, 2014 by PromoTheRobot

[8-8 Forever?]

specific performance clause. Playing their games at RWS is, in fact the lease payment. Not playing there violates the lease/non-relo agreement.

Ok, got it. Lets hope its in there. Poloncarz is curiously silent on this critical point. Maybe no one has asked him point blank if a specific performance clause is part of the lease. If so , all good. Hope so.

 

Of course the NFL can refuse to accept any bid. So such a lawsuit could be fruitless based on the fact that the highest bid is worth $0 if the NFL likes another bid better.

Of course. But remember the NFL is not the seller. And whoever wins the bidding will make a strong case to the owners. Will be interesting to see how the owners deal with a high bidder who also indicates they intend to move the franchise. That will be the moment of truth for all the owners who talk a good game about the importance of keeping the team in WNY. This is going to get interesting. Very interesting.

[HalftimeAdjustment]

I've read that a very wealthy person can effectively remove an asset from their estate by placing it in an irrevocable trust, and that this strategy is most often used for assets that are expected to rapidly appreciate between the date the asset is transferred to the trust and the date the wealthy person dies.

 

http://www.helsell.c...vocable-trusts/

 

It would be interesting to know if an irrevocable trust can own an NFL team. After all, if you followed this strategy, you would no longer be the legal owner, the trust would be. If there's any previous examples where a team had been transferred to a trust before the owner's death, that would be a sure sign. If not... maybe it's not allowed?

 

Ok, got it. Lets hope its in there. Poloncarz is curiously silent on this critical point. Maybe no one has asked him point blank if a specific performance clause is part of the lease. If so , all good. Hope so.

 

If you read the non-relocation agreement (not just the lease) you will see that it specifically requires the team to play their games there and that compliance is spelled out in the number of games played per season. It's not just a lease.

[Greg F]

Interesting post ICanSleepWhenI'mDead. Some time ago I considered the possibility of Ralph using an irrevocable trust but for a number of reasons I didn't think he did. In 2000 Forbes valued the Bills at $365 million and the gift tax would have been 55% resulting in a gift tax liability of $201 million. In 2005 they were valued at $708 million with a gift tax of 47% the gift tax liability would have been $333 million.

• I don’t think Ralph would have been a billionaire without the Bills. Would Ralph have had the cash to pay the gift tax? I don’t think so.
  
• If Ralph had put the Bills in an irrevocable trust the Bills would no longer be his property, it would be the property of the beneficiaries. This would be an issue with NFL ownership rules.
  

That said I suppose he could have put a percentage of the Bills in an irrevocable trust. Something I had not considered before. He would have had to maintain a percentage consistent with NFL ownership rules.

 

As far as “changing the terms of the trust to favor a local bidder” I don’t think you can dictate from the grave the sale of assets from your estate as they are now the property of the beneficiaries.

[CodeMonkey]

Sure. The NFL is going to approve an owner who would piss on a city for 6 years, then move. Not to mention make an enemy of Chuck Schumer.

Regarding the 6 year thing, they probably wouldn't. But while some here think the 6 years is cast in stone, it isn't necessarily in my opinion anyway.

And you really think that the group of Billionaires that collectively call themselves the NFL are afraid of tiny little Senator Chuckles?

[thebandit27]

Regarding the 6 year thing, they probably wouldn't. But while some here think the 6 years is cast in stone, it isn't necessarily in my opinion anyway.

And you really think that the group of Billionaires that collectively call themselves the NFL are afraid of tiny little Senator Chuckles?

 

The theory, as I understand it, is that Shumer is tight with Cuomo, who has ambitions of a White House run in 2016. Cuomo doesn't want to lose the state's only team, and would be (supposedly) willing to go as far as challenging the anti-trust exemption the NFL enjoys in the highest court(s) he can manage.

[PromoTheRobot]

Regarding the 6 year thing, they probably wouldn't. But while some here think the 6 years is cast in stone, it isn't necessarily in my opinion anyway.

And you really think that the group of Billionaires that collectively call themselves the NFL are afraid of tiny little Senator Chuckles?

Uhhhhh, yeah? Chuckles can make life very hard on their little billionaires club.

[ICanSleepWhenI'mDead]

Interesting post ICanSleepWhenI'mDead. Some time ago I considered the possibility of Ralph using an irrevocable trust but for a number of reasons I didn't think he did. In 2000 Forbes valued the Bills at $365 million and the gift tax would have been 55% resulting in a gift tax liability of $201 million. In 2005 they were valued at $708 million with a gift tax of 47% the gift tax liability would have been $333 million.

• I don’t think Ralph would have been a billionaire without the Bills. Would Ralph have had the cash to pay the gift tax? I don’t think so.
  
• If Ralph had put the Bills in an irrevocable trust the Bills would no longer be his property, it would be the property of the beneficiaries. This would be an issue with NFL ownership rules.
  

That said I suppose he could have put a percentage of the Bills in an irrevocable trust. Something I had not considered before. He would have had to maintain a percentage consistent with NFL ownership rules.

 

As far as “changing the terms of the trust to favor a local bidder” I don’t think you can dictate from the grave the sale of assets from your estate as they are now the property of the beneficiaries.

I would like to discuss this further but the next few days are gonna be very hectic for me. Please check back here in a few days if you can.

[CodeMonkey]

The theory, as I understand it, is that Shumer is tight with Cuomo, who has ambitions of a White House run in 2016. Cuomo doesn't want to lose the state's only team, and would be (supposedly) willing to go as far as challenging the anti-trust exemption the NFL enjoys in the highest court(s) he can manage.

Uhhhhh, yeah? Chuckles can make life very hard on their little billionaires club.

If you guys think the rest of congress is going to go along with Chuckles and essentially kill the NFL in order to keep a team in Buffalo (and kill any chance they have at reelection in the process) then we agree to disagree. Billionaires that acquired their fortune through business eat politicians for breakfast. If this situation ever comes up (and I hope it does not) I fully expect all WNY politicians to do a lot of sabre rattling because they can't afford to look weak on this issue (again for reelection) but that's all it would amount to.

[Mr. WEO]

I am sure he got top notch legal advice as to what he could and could not do. I do know there is no way to put restrictions (such as not being able to move the team) on the new owner. The lease agreement was likely the best that could be done.

 

 

 

Those are two different taxes. The reason Ralph refused to sell the team was due to the capital gains tax. Selling the team would have subjected him to a 15% capital gains tax. So for example had he sold the team for $1 billion he would have paid $150 million in taxes. Upon his death the heirs would have inherited $850 million which would be subject to an additional 40% on the estate. So all together the tax bill would have been $490 million (estate plus capital gains). By waiting till after his death the total tax bill would be $400 million, a $90 million savings.

 

 

 

The estate tax is due 9 months after the date of death and is 40% after the exemption ($5.34 million). If the team sells for $1 billion the Fed's will get $400 million. An interesting aspect of the estate tax is the IRS calculates it from what it considers the 'fair market value'. The reason for this is so an asset isn't sold for a reduced price to avoid the tax.

 

If the estate receives a bid for $1.5 billion from someone who intends to move the team but only a $800 million bid from someone who plans to keep the Bills in Buffalo it would be foolish to sell the team to the local bidder. The IRS is likely to see the $1.5 billion bid as the 'fair market value' and assess the estate tax of $600 million even if the team was only sold for $800 million.

 

 

 

To the best of our knowledge he didn't leave it to Mary, it was either in a living trust or moved into an trust upon his death. The spousal exemption only delays the estate tax. When the spouse dies the estate tax would have to be paid. It is doubtful the heirs have $400 million laying around to pay the tax man in December.

 

Well unless you think MAry Wilson will die before the team is sold, the "heirs" of Mary Wilson will have plenty of dough to pay an estate tax when she ultimately passes on.

[thebandit27]

If you guys think the rest of congress is going to go along with Chuckles and essentially kill the NFL in order to keep a team in Buffalo (and kill any chance they have at reelection in the process) then we agree to disagree. Billionaires that acquired their fortune through business eat politicians for breakfast. If this situation ever comes up (and I hope it does not) I fully expect all WNY politicians to do a lot of sabre rattling because they can't afford to look weak on this issue (again for reelection) but that's all it would amount to.

 

I have no idea if it's a realistic threat or not...I'm only saying that that's the theory behind the "don't anger Schumer" sentiment.

[Greg F]

Well unless you think MAry Wilson will die before the team is sold, the "heirs" of Mary Wilson will have plenty of dough to pay an estate tax when she ultimately passes on.

 

Mr. WEO,

All reports indicate that Mary didn't inherit the team. Rather, the team went into a trust and therefore the spousal exemption does not apply. The estate taxes on the trust will be due in December of this year.

[ICanSleepWhenI'mDead]

I am sure he got top notch legal advice as to what he could and could not do. I do know there is no way to put restrictions (such as not being able to move the team) on the new owner. The lease agreement was likely the best that could be done. . . .

 

Hey Greg F:

 

Sorry it took so long to get back to this thread - - life got even more hectic than expected, and then I had to deal with some computer issues, too.

 

Anyway, the above-quoted part of one of your earlier posts has me curious. Why do you say that "there is no way to put restrictions (such as not being able to move the team) on the new owner."?

 

Ralph was reported to have said something similar in a 2005 interview. Here's what the interviewer wrote in his 2005 article:

 

http://www.sportsbusinessdaily.com/Journal/Issues/2005/05/20050516/Other-News/In-Profile-Bills-Owner-Ralph-Wilson.aspx

 

Wilson asked his lawyer if his estate could require a buyer to keep the team in Buffalo but was informed that would be illegal. So he is left hoping that a future acquirer will be as committed as he to the region.

 

Unfortunately, the article never mentions WHY Ralph's lawyer believed that requiring a buyer to keep the team in Buffalo would be illegal. I realize that contract terms that all parties voluntarily agree to can nonetheless be void if they are considered against public policy. There have been reported instances of team owners in other sports including restrictions on moving a team in their sale contracts, but that doesn't necessarily mean that such restrictions are enforceable.

 

It is not obvious to me, however, that all such restrictions would be considered against public policy. That has always left me wondering just what the basis was for Ralph's lawyer's opinion that is mentioned in the 2005 article.

 

Maybe I'm missing something obvious, but here are the possibilities I can come up with:

 

1. Illegal because the team was already in an irrevocable trust, which would potentially make any changes to the trust provisions "illegal," including but not limited to adding restrictions about moving the team. Possible, but as already discussed upthread, perhaps unlikely because of certain tax consequences that would result from placing the team in an irrevocable trust prior to 2005.

 

2. Illegal because the NFL Constitution & Bylaws prevent any owner from unilaterally making his team's territory "permanent" in some sense because that governing document must allow a vote of the other owners to determine any team's territory? I find this possible but unpersuasive, as it would be somewhat stilted to describe conduct that violated some provision of the NFL Constitution & Bylaws as "illegal." Breaking a private agreement has legal consequences, but isn't "illegal" in a strict sense of the word, at least in my mind.

 

3. Illegal because the proposed restriction would be against public policy as a restraint on alienation? If that was the basis for Ralph's lawyer's opinion, I think Ralph failed to get good advice about all of his potential options for dealing with the issue.

 

Like I said, I'm left with the feeling that I may be missing something obvious. What's the rationale for your statement quoted above?

[BringBackFergy]

 

 

Hey Greg F:

 

Sorry it took so long to get back to this thread - - life got even more hectic than expected, and then I had to deal with some computer issues, too.

 

Anyway, the above-quoted part of one of your earlier posts has me curious. Why do you say that "there is no way to put restrictions (such as not being able to move the team) on the new owner."?

 

Ralph was reported to have said something similar in a 2005 interview. Here's what the interviewer wrote in his 2005 article:

 

http://www.sportsbusinessdaily.com/Journal/Issues/2005/05/20050516/Other-News/In-Profile-Bills-Owner-Ralph-Wilson.aspx

 

 

 

Unfortunately, the article never mentions WHY Ralph's lawyer believed that requiring a buyer to keep the team in Buffalo would be illegal. I realize that contract terms that all parties voluntarily agree to can nonetheless be void if they are considered against public policy. There have been reported instances of team owners in other sports including restrictions on moving a team in their sale contracts, but that doesn't necessarily mean that such restrictions are enforceable.

 

It is not obvious to me, however, that all such restrictions would be considered against public policy. That has always left me wondering just what the basis was for Ralph's lawyer's opinion that is mentioned in the 2005 article.

 

Maybe I'm missing something obvious, but here are the possibilities I can come up with:

 

1. Illegal because the team was already in an irrevocable trust, which would potentially make any changes to the trust provisions "illegal," including but not limited to adding restrictions about moving the team. Possible, but as already discussed upthread, perhaps unlikely because of certain tax consequences that would result from placing the team in an irrevocable trust prior to 2005.

 

2. Illegal because the NFL Constitution & Bylaws prevent any owner from unilaterally making his team's territory "permanent" in some sense because that governing document must allow a vote of the other owners to determine any team's territory? I find this possible but unpersuasive, as it would be somewhat stilted to describe conduct that violated some provision of the NFL Constitution & Bylaws as "illegal." Breaking a private agreement has legal consequences, but isn't "illegal" in a strict sense of the word, at least in my mind.

 

3. Illegal because the proposed restriction would be against public policy as a restraint on alienation? If that was the basis for Ralph's lawyer's opinion, I think Ralph failed to get good advice about all of his potential options for dealing with the issue.

 

Like I said, I'm left with the feeling that I may be missing something obvious. What's the rationale for your statement quoted above?

You and GregF have a better grasp on advanced estate planning than yours truly, but it would seem that a condition requiring an asset (team) to stay in one market would violate two rules: the fiduciary duty of the trustee to the beneficiaries (what if the market bottoms out in Buffalo but another city offers more income to the beneficiaries) and the rule against perpetuities (in that tying a team to a community in perpetuity may render the asset unmarketable ). I'll be interested to see how you and Greg resolve this. Interesting stuff.

[machine gun kelly]

Good posts. I appreciate all of the links to older articles, etc.

 

I think we talked this topic to death and now we just have to wait. I believe one of the Buffalo invested owners will come through, but not Trump. I believe he was just getting easy publicity.

 

Pegula makes the most sense as he can build up his other downtown investments along with negotiating a stadium deal with the state.

[Cloverbank]

If this has been addressed, pardon me.

How does the bidding process work? Does a perspective owner have the opportunity to increase his bid or is it one and done?

Does the highest bid have to be taken or does the trust have options?

Thanks.

PS..... El Pegul appears to be the best choice for the team, fans, city and region!