Buss was never afraid to spend money to attract stars. The Lakers have the NBA’s highest payroll this season, $99 million, for the fourth straight year. Buss could afford it. The Lakers operating profit averaged $37 million a year the past 10 years, which is second best in the NBA behind the Bulls.
The Lakers are in a huge transition period with Buss’ death. Buss was the longest-tenured NBA owner (a post now held by Clippers owner Donald Sterling). Buss was a regular at Lakers games, but he did not attend a game this year as his health deteriorated. Two of his kids, Jeanie and Jim, have been running the franchises with Jim focused on the player side and Jeanie concentrating on business. AEG, which owns a 27% stake in the Lakers, put itself up for sale last year.
Buss’ estate faces a massive tax bill with the soaring value of the Lakers, as he owned two-thirds of the billion-dollar franchise. The Lakers are expected to stay in the family thanks to its massive $3.6 billion television deal with Time Warner Cable, which kicked off this season. The 20-year deal includes a 5-year option that is expected to bring the total value to $5 billion.
If the Buss family needs to raise money to pay estate taxes, they have a benefactor in their backyard. Patrick Soon-Shiong, the richest man in L.A., bought a 5% stake in the Lakers from Magic Johnson in 2010 and could easily afford a bigger stake if the Buss family wants to raise any cash.
Choosing a successor for a business is an important step, but there are many more steps that may be necessary to help keep a large family business in the family. One of the main obstacles is to avoid estate taxes upon the death of the principle owner that could be as much as 40% after the first $5,250,000 in 2013, the year that Buss died. Without planning, a large tax bill could force a sale of a business or a sports franchise to make sure that it is paid. Strategies such as trusts and insurance to cover estate taxes could prevent the need to sell the business and make sure that it remains in the family. You do not have to be the owner of an NBA team to have a business as part of a taxable estate as many successful small businesses can cross the ever changing threshold of estate taxes. it is important to come up with a business succession plan with an estate planning attorney and possibly a CPA to make sure that a goal such as Jerry Buss had to keep the team in the family can become a reality.
Despite all of his preparation, there is one thing papa Buss admits could derail the ownership plan: the inheritance tax: "It's a severe economic issue for me. It's an ongoing one, and I'm addressing it as best I can. I'm prepaying the taxes, and I'm keeping my fingers crossed that I live long enough to accomplish the whole thing."
Could it force a sale? "It could," he says. "There are rules and regulations, but we're getting to a point where I'm pretty sure my family can hold on to the team."
Ironic in that, god forbid, had Buss died in 2010 there would’ve been no inheritance tax. But since that loophole has now closed, Buss needed TWC’s enormous cash infusion to ensure the Lakers would stay in the Buss family.
Rooscooter wrote:The team is most likely leveraged and there are fiduciary requirements on spending and other decisions. It's not as simple as your making it out. This is a complicated ownership/partnership and the portfolio is more than the Lakers and is largely illiquid. Cash is needed to pay the governments for that value you noted......a freaking ton of it. Could be 400M and the governments don't have payment plans.....
angrypuppy wrote:Rooscooter wrote:The team is most likely leveraged and there are fiduciary requirements on spending and other decisions. It's not as simple as your making it out. This is a complicated ownership/partnership and the portfolio is more than the Lakers and is largely illiquid. Cash is needed to pay the governments for that value you noted......a freaking ton of it. Could be 400M and the governments don't have payment plans.....
The team is most certainly not leveraged, other than what you'd expect from continuing operations. The trust wouldn't be leveraged either. The trust itself was created to avoid estate taxes; it is probably an intentionally defective grantor trust (IDGT) or grantor retained annuity trust (GRAT).
angrypuppy wrote:Roos, any operating asset can be held in trust. That's how many small business owners transfer ownership rights to their offspring, retain control and yield operations upon death... in the Lakers case it is a form of voting rights that are probably not equal shares among the kids (the latter is my speculation). Estate planning is not my province though it is part of my background.
It really doesn't matter. The point is that no matter how the estate is structured, both the Lakers and the family trust are not encumbered with meaningful debt.
Still, I do believe that you were hitting on the periphery of something very important. I do believe that cash flows, while healthy, are not as dandy as they seem, at least from Time Warner. Like most media contracts, there are likely audience targets that have been missed. What is curious is that the Lakers front office has a rather bizarre view of finances, one that seems highly reactive. Lockout? Fire everyone. Can't find a pick or prospect for Pau? Eat the contract, despite its material impact on profitability.
angrypuppy wrote:This is a strange post, but that's the big picture. We run the country like a fiefdom so that the royals pass their dukedoms on to the heirs while the serfs continue to pay. In contrast the NBA is run like a socialist state where the income is mindlessly redistributed. As Yakov Smirnoff once said, what a country.
lakersyunowin wrote:ongoing...here's a snippet from just now that left me baffled:
some caller basically asked why he should keep his season tickets. so jeanie tried to point to bright spots in the season and she mentioned being able to see lebron play during the christmas day game. she then said you'd miss seeing people at the game like the parking lot guy, or the guy behind you telling jokes.
Jerry Buss wrote:One of the biggest reasons I bought the Lakers was to beat the Celtics …..you just got it into your soul that you couldn't stand the Celtics anymore
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