Why Leon Hess’ Jets Succession Plan Remains a Model for the NFL
Today’s column is Part 2 of a series covering inheritance and estate planning in the National Football League. NFL owners, with an average age of 72, face tax and legal decisions familiar to any family with assets to pass to the next generation—compounded by rules and restrictions unique to a league with $17.4 billion in annual revenue and an average franchise valuation of $4.14 billion.
The Bowlen family feud over the ownership of the NFL’s Denver Broncos is the latest in a long line of succession-related disputes in professional sports. But the death of a team owner does not have to mean litigation or a messy transfer of control. A well-thought-out estate plan can help to ensure an easy transition for all parties involved, Marc Ganis (president, Sportscorp) said.
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The succession plan formulated by former New York Jets owner Leon Hess is widely considered, at least within league circles, to be one worth replicating. “Everything was done in advance [of his death],” Ganis said. “The whole process was in place. So, when the time came, they had all the parties of interest on board. They had the [investment bank] on board. He had gone over it already with the league. They had the role that the team and the family were going to play all set in place, and it proceeded beautifully.”
In fact, the process went so well that Hess’ long-time friend Ralph Wilson, who owned the Buffalo Bills until his death in 2014, “effectively copied” it, Ganis said.
JWS’ Take: Succession disputes often begin because control owners put off having potentially difficult discussions with family members. Owners with heirs, as Hess had, typically elect to pass the club down; family members often have a strong emotional connection to the organization and are its biggest fans. However, Hess made it well known that he would rather have the franchise sold instead of keeping it in the family upon his demise.
To ensure the sales process would run smoothly, Hess arranged to have then-Jets president Steve Gutman representing the Hess family’s interests during a bid process run by Goldman Sachs. Eric Grubman led the sale on the bank side. A few years after the Jets deal, in 2004, the NFL hired him as an EVP.
But it wasn’t just a thoughtful plan. It was also a well-executed auction of the club.
The raw emotion and scrutiny associated with sports franchise sales can result in a discipline breakdown. But Goldman managed to keep unqualified individuals, such as former players without the financial means to purchase the club, from entering the process. The investment bank was also able to prevent information about bidders and their bids from leaking out. Loose lips can prevent bidders from submitting their highest and best offer.
The advance planning and disciplined execution paid off for the Hess family. Robert Wood Johnson IV bought the AFC franchise for $635 million in January 2000, which was “more than 50% more than they had originally expected,” according to Ganis.
But it couldn’t prevent Bill Belichick for resigning as “HC of the NYJ.” The Hall of Fame coach stated in an ESPN documentary that, “Essentially, the problem I had with the whole arrangement eventually was, when all this transpired, there was no owner. Mr. Hess passed away before the ’99 season. There were two potential owners, and that was Johnson and [Charles] Dolan. I hadn’t spoken with either one, but I had issues with both. It wasn’t Mr. Hess anymore, which was the original agreement. … That whole ownership configuration at that time was a major factor in my decision.”
Hess never stated publicly why the team would be sold upon his death. However, a source familiar with his will said the late Hess Corp. founder sought to preserve the family’s interest in the oil company.
Two common reasons for an owner to plan for the sale of an NFL franchise are insufficient tax and estate planning and the desire to avoid familial conflict. The former situation may force a sale since there may not be enough liquid family assets to cover the taxes owed on the estate.
If the club owner has done a good job with tax and estate planning, inheritance taxes should not be the reason for a sale. The NFL has also taken steps to make it easier for an owner to pass down the franchise to the next generation, because it values family ownership over an extended period.
The perception of owner stability within a given geographic location is important to keep the fan base engaged—and can pay off when, for instance, a team starts looking for public funding for a new stadium.
And stable ownership transitions such as the Leon Hess’ Jets only contribute to the bottom line. Having strong estate planning in place for each franchise is in the NFL owners’ collective best interests, particularly in the case of an unexpected death. To help address the issue, ownership voted in 2015 to require clubs to file formal succession plans with the league office and the commissioner. In theory, the requirement forces existing owners to decide if an heir, or which heir, will one day take control of the franchise.
But when family feuds erupt over an estate, as recent history shows, there’s not a lot the league can do except ride it out.
NFL Succession, Part 1: Broncos’ Fumbled Handoff Reveals Perils of NFL Estate Planning
