What the L.A. Chargers Can Teach Us About the Value of Family Business Succession Planning

Two years ago I wrote a post about a family-owned business that many of us are familiar with – the Tennessee Titans. The franchise’s majority owner, Bud Adams, died in 2013. Bud did not have a well-crafted succession plan in place at the time of his death. Three years later, there was still not a clear successor and the ownership agreement was in violation of NFL policies. While things eventually worked out, it was a cautionary tale about the negative consequences that can arise when a family business owner doesn’t plan for his or her succession well in advance.

Today, I’m back with another NFL story, although I’m happy to share that this one has a much better outcome. The Los Angeles Chargers recently lost their patriarch, Alex Spanos. NFL franchises are valued in the billions; according to Forbes, the current value of the Chargers is $2.275 billion. So as you can imagine, the potential estate tax bill in a situation like this is enormous. Many franchises would need to sell part or even all of the team to raise enough capital to pay the tax bill. Thanks to some savvy advance planning on Alex Spanos’ part, the Chargers will not be forced to go that route.

According to sources with knowledge of the situation, Spanos started preparing for the team’s succession in 1998 because he had a strong desire to keep the Chargers within the family. So at that time he transferred 60 percent of the team to his four children. Then, in 2006, he named his son Dean the controlling owner (a league requirement for voting purposes). Alex and his wife retained 36 percent of the team, and he put plans in place for the eventual transfer of this portion to family members as well as payment of the estate taxes. The remaining four percent is held by external legacy owners.

With Alex’s passing, Dean remains the controlling owner and the four children retain their 60 percent ownership. Ninety-six percent of the franchise is still family-owned, satisfying Alex’s wishes. Nothing will need to be sold in order to pay the estate taxes.

From the information that is publicly available, Alex Spanos appears to have successfully checked off several of our six key elements of a family business succession plan. He conducted personal estate planning to ensure the family’s wealth would be preserved for future generations. He also likely tackled personal retirement planning to ensure that he would have an adequate nest egg in his retirement years and that his wife would be cared for after his death. And by naming his son Dean the controlling owner, he was grooming the next generation for their eventual succession.  Dean has now had over twelve years to operate and function in a leadership role, while still having his father around to advise him.

The other critical success factor is that Alex began this process well in advance. Twenty years may seem like a long time, but life often takes unexpected turns. The path from ownership to retirement is not always smooth, so having a plan in place well in advance is vital, especially if you wind up facing an emergency situation. You can always amend or update your plan as time goes by to ensure it is still in line with your wishes. In fact, we recommend reviewing key documents like your shareholders’ agreement on a regular basis for this very reason. But waiting to plan until a crisis is upon you is never a good idea.

 

Steven E. Staugaitis is a director at Kreischer Miller Steven E. Staugaitis, Kreischer Millerand a specialist for the Center for Private Company Excellence. Contact him at Email.

 

 

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