Can any financial tax person explain R. Wilson's thoughts

[BobbyC81]

Why does he think it's better for his family if he doesn't sell the team while he's alive?

 

Wouldn't they still get hit the same when they try to sell the team? Even if it's part of the estate, it's still selling assets.

[BuffaloRebound]

Why does he think it's better for his family if he doesn't sell the team while he's alive?

 

Wouldn't they still get hit the same when they try to sell the team? Even if it's part of the estate, it's still selling assets.

 

Heirs' tax basis becomes the market value at time of Ralph's death, instead of Ralph's tax basis of $25k. Ralph's heirs would avoid paying 15% capital gains on the sale price less $25k, saving approximately $150m.

[Smiley Dear]

I'm not a financial or tax expert but I'm pretty sure it has to do with the capital gains tax. Since Ralph paid something like 25- 50k for the Bills, when he sells them he's subject to a capital gains tax on essentially the whole amount. The Bills are estimated to be worth over 600 mil. Then when he dies his heirs will then have to pay estate taxes on their inheritance. If Ralph passes along the team intact, and the heirs then sell it, they will have to pay the estate tax on the value of the team, but no capital gains tax is owed, since they did not purchase the team.

[jr1]

I think he wants to own the team until his casket drops regardless of taxes

[BobbyC81]

I'm not a financial or tax expert but I'm pretty sure it has to do with the capital gains tax. Since Ralph paid something like 25- 50k for the Bills, when he sells them he's subject to a capital gains tax on essentially the whole amount. The Bills are estimated to be worth over 600 mil. Then when he dies his heirs will then have to pay estate taxes on their inheritance. If Ralph passes along the team intact, and the heirs then sell it, they will have to pay the estate tax on the value of the team, but no capital gains tax is owed, since they did not purchase the team.

 

 

Thanks guys! Pretty simple.

[Max997]

I think he wants to own the team until his casket drops regardless of taxes

 

Exactly

[PromoTheRobot]

Here's one for the financial experts. My buddy firmly believes that Ralph hocked the Bills long ago in order to enjoy his equity now, and once he passes we'll find out a couple of dozen banks hold paper on the team as collateral. That's one reason, supposedly, he won't sell now. He'd have to open his books and the jig would be up.

 

My buddy thinks it's a brilliant strategy, essentially dodging any capital gains on the ever-climbing value of the Bills. Anyone here with a financial background care to comment?

 

PTR

[Malazan]

Here's one for the financial experts. My buddy firmly believes that Ralph hocked the Bills long ago in order to enjoy his equity now, and once he passes we'll find out a couple of dozen banks hold paper on the team as collateral. That's one reason, supposedly, he won't sell now. He'd have to open his books and the jig would be up.

 

My buddy thinks it's a brilliant strategy, essentially dodging any capital gains on the ever-climbing value of the Bills. Anyone here with a financial background care to comment?

 

PTR

 

He would not be able to do that

Edited May 12, 2011 by jeremy2020

[KD in CA]

Here's one for the financial experts. My buddy firmly believes that Ralph hocked the Bills long ago in order to enjoy his equity now, and once he passes we'll find out a couple of dozen banks hold paper on the team as collateral. That's one reason, supposedly, he won't sell now. He'd have to open his books and the jig would be up.

 

My buddy thinks it's a brilliant strategy, essentially dodging any capital gains on the ever-climbing value of the Bills. Anyone here with a financial background care to comment?

 

PTR

 

 

Maybe Ralph got the idea from one of those Robert Wagner commercials pitching reverse mortgages to old people.

[PromoTheRobot]

He would not be able to do that

I'd love to hear why. The explanation I've heard is that it's not only doable but good financial sense.

 

PTR

[ICanSleepWhenI'mDead]

Here's one for the financial experts. My buddy firmly believes that Ralph hocked the Bills long ago in order to enjoy his equity now, and once he passes we'll find out a couple of dozen banks hold paper on the team as collateral. That's one reason, supposedly, he won't sell now. He'd have to open his books and the jig would be up.

 

My buddy thinks it's a brilliant strategy, essentially dodging any capital gains on the ever-climbing value of the Bills. Anyone here with a financial background care to comment?

 

PTR

I don't claim to be an expert about anything, but it's my opinion that it's certainly possible that Ralph caused the private, closely held New York corporation he owns and controls (Buffalo Bills, Inc.) to borrow money using the Buffalo Bills NFL franchise as collateral. As a private, closely held corporation, Buffalo Bills, Inc. is not required to disclose such borrowing (if there was any) to the public - - so there is no easy way to know if such borrowing was done.

 

You can use all sorts of assets as collateral to borrow money. But the borrowing doesn't affect the amount of any taxes that might be due when you sell. In tax jargon, borrowing money against an asset doesn't change your tax "basis" in the asset. If Buffalo Bills, Inc. ever sells the Buffalo Bills franchise, the taxes due on the appreciated value of the franchise are totally unaffected by the earlier borrowing. If the company owes money to banks or other lenders at the time of sale, that's an obligation in addition to whatever tax obligation the sale causes.

 

I sometimes use colloquialisms when I post, and I don't claim to have any particular expertise or education, so maybe I don't know what I'm talking about. For all you know, I'm two sandwiches shy of a full picnic and FOS.

 

BTW, the most recent publicly available version of the NFL Constitution and Bylaws that I have been able to find (it often gets amended at annual league meetings) is dated 2006, and it contains what appear to be periodically increased debt ceiling limits for each franchise. See, for example page 167/292 at:

 

http://static.nfl.com/static/content//public/static/html/careers/pdf/co_.pdf

 

If you know how to search a pdf formatted doument, you can see a few other provisions in the Constitution and Bylaws document that involve limits on each team's debt by going to the top of the first page, typing "debt ceiling" in the search box, and hitting "enter." This will jump you to the first use of the term "debt ceiling" in the document. You can then hit the left or right arrow buttons next to the search box to jump forward or back to other places in the document where the same term is used.

[NoSaint]

I'd love to hear why. The explanation I've heard is that it's not only doable but good financial sense.

 

PTR

 

Much like baseball with the dodgers, I think the NFL would step in is atleast an entry level thought on the subject....

[Vinny4sum]

Here's one for the financial experts. My buddy firmly believes that Ralph hocked the Bills long ago in order to enjoy his equity now, and once he passes we'll find out a couple of dozen banks hold paper on the team as collateral. That's one reason, supposedly, he won't sell now. He'd have to open his books and the jig would be up.

 

My buddy thinks it's a brilliant strategy, essentially dodging any capital gains on the ever-climbing value of the Bills. Anyone here with a financial background care to comment?

 

PTR

 

I may be very wrong, but wouldn't this approach require you to make payments with interest? So the interest would eat away at your equity...even if the lender was going to defer interest and payments,they would come due at his death...that would mean Ralph would have to get more interest from the investments he made with the money that was loaned than the interest on the loan..

 

Now I am even more confused...he should will the team to me..I will sell 49% of the team to cover the taxes..

Edited May 12, 2011 by Vinny4sum

[Lurker]

Here's one for the financial experts. My buddy firmly believes that Ralph hocked the Bills long ago in order to enjoy his equity now, and once he passes we'll find out a couple of dozen banks hold paper on the team as collateral. That's one reason, supposedly, he won't sell now. He'd have to open his books and the jig would be up.

 

My buddy thinks it's a brilliant strategy, essentially dodging any capital gains on the ever-climbing value of the Bills. Anyone here with a financial background care to comment?

 

PTR

Your buddy needs to learn to google...

[ICanSleepWhenI'mDead]

Your buddy needs to learn to google...

Really nice find! For those who may not have noticed, you can sort each column by clicking on the blue hyper-linked column header. And if you click on the blue "Buffalo Bills" hyperlink you get this page:

 

http://www.forbes.com/lists/2010/30/football-valuations-10_Buffalo-Bills_301765.html

 

It contains a more detailed breakdown specific to the Bills' operations. They even break the estimated franchise value down into various components, and have a "player-costs-to-win" ratio that seems to measure how efficiently the team converts payroll expense into wins. I haven't had time to review it in detail, but the Bills' efficiency number looks pretty low.

 

With respect to team debt and estimated franchise value, make sure you read the footnotes. If I'm reading the estimates of team value correctly, the footnotes state that the estimate doesn't include ANY debt except for stadium debt. If that's right, I'm not sure you can draw any conclusions about whether Ralph Wilson caused Buffalo Bills, Inc. to take out any loans. There could be huge loans that aren't reflected in the estimate of franchise value - - you just can't tell.

 

Maybe the table is set up that way because even Forbes can't get info about non-stadium related debt incurred by the types of closely held, private corporations that own most NFL franchises.

Edited May 13, 2011 by ICanSleepWhenI'mDead

[BillnutinHouston]

Here's one for the financial experts. My buddy firmly believes that Ralph hocked the Bills long ago in order to enjoy his equity now, and once he passes we'll find out a couple of dozen banks hold paper on the team as collateral. That's one reason, supposedly, he won't sell now. He'd have to open his books and the jig would be up.

 

My buddy thinks it's a brilliant strategy, essentially dodging any capital gains on the ever-climbing value of the Bills. Anyone here with a financial background care to comment?

 

PTR

 

I do not have a financial background but I'll comment anyway:

 

Sure it's a free country, but just because "your buddy firmly believes", you post this wild speculation about a guy that used to drive a used Taurus? Really? Was that intended to trump your post from earlier this week saying a friend of Jack Kent Cooke told a friend of a friend of yours that the NFL wants out of Buffalo in the worst way? What gives, PTR? Having a bad week?

Edited May 13, 2011 by BillnutinHouston

[PromoTheRobot]

I do not have a financial background but I'll comment anyway:

 

Sure it's a free country, but just because "your buddy firmly believes", you post this wild speculation about a guy that used to drive a used Taurus? Really? Was that intended to trump your post from earlier this week saying a friend of Jack Kent Cooke told a friend of a friend of yours that the NFL wants out of Buffalo in the worst way? What gives, PTR? Having a bad week?

Sorry but I don't make this stuff up. The thing about Cooke I was told about last month, though I waited till now to share. Normally I wouldn't add to the misery index but the thread seemed appropriate.

 

As for this story I've been told this for years. It's only his opinion but its a curious scenario. In fact if anything it would be Ralph flipping Jerruh and Kraft the bird from beyond the grave. The logic being you borrow against an asset to extract it's value now and let the schitt hit the fan after you're gone. And if you know anything about the history of the AFL, Ralph had secret deals all over the place, some that went against league rules.

 

And really this doesn't negatively impact the Bills in the present. If it were true it would certainly complicate the disposal of the franchise. Maybe this is Ralph's "succession plan?" Bury the Bills so deep in legal poop the team could never leave!

 

PTR

Edited May 13, 2011 by PromoTheRobot

[Malazan]

I'd love to hear why. The explanation I've heard is that it's not only doable but good financial sense.

 

PTR

 

It violates NFL rules.

Edited May 13, 2011 by jeremy2020

[Guest three3]

explain R. Wilson's thoughts regarding selling the team

 

link

[Thoner7]

Here's one for the financial experts. My buddy firmly believes that Ralph hocked the Bills long ago in order to enjoy his equity now, and once he passes we'll find out a couple of dozen banks hold paper on the team as collateral. That's one reason, supposedly, he won't sell now. He'd have to open his books and the jig would be up.

 

My buddy thinks it's a brilliant strategy, essentially dodging any capital gains on the ever-climbing value of the Bills. Anyone here with a financial background care to comment?

 

PTR

 

There may be something to this. He may have needed to do this just to have the working capitol to run an NFL team.

 

But, this is what all smart business people have been doing for years, partly because the banks allow them to and partly because of the US tax system being a complete joke. Working for the Glazer family (Owners of the Bucs and Man U.) has opened my eyes to this amazing business model.

 

I work for a commercial real estate company that owns shopping centers as separate entities. Our company would buy a shopping center, then refinance it as much as possible, essentially getting 100% or more in most cases of the money invested in the center back out. As the value of the properties rose, we could refinance again and get some more millions out of the property we essentially get paid millions to buy a shopping centers. Then when the housing market tanks, and the places are severely over-leveraged, we can walk away with non-recourse loans and just found the corporation. If we had to sell the centers, we would have to pay taxes on the gains, AND pay back any depreciation that was written off during the years we owned them. This is what they have done with the Bucs and Man U. Both are almost 100% leveraged.

 

For example, the Glazer's bought the Bucs for 195 Mil in the 90's. Now its worth what, 800 mil at least? In 15 years they have made about 600 mil through refinancing the percieved value of the team, and still own the team. They didnt have to sell the team or pay taxes on the 600 mil in profit, because its not profit - they have a bank note for the equal value of the money they are taking out.

 

This is the same model that has made Donald Trump millions. Ever notice how a lot of his casinos and buildings go bankrupt? People seem to make fun of him for this, but he is really out smarting them and everyone else. He builds these assets out of nothing, refinances the crap out of them, making millions in the process, then defaults on a non-recourse loan. All that profit is not taxed as income (it may be taxed a much smaller amount based on state law at the time of refinance) and he doesnt have to pay back any written off depreciation.

 

This could work for your house too. you can get up to 85% of the value of your home out in a refinance. Do the math, it may be more profitable for you to default on a loan than sell!

 

Ralphs heirs may not be planning on selling, they may be planning on defaulting!

Edited May 13, 2011 by Thoner7

[PromoTheRobot]

There may be something to this. He may have needed to do this just to have the working capitol to run an NFL team.

 

But, this is what all smart business people have been doing for years, partly because the banks allow them to and partly because of the US tax system being a complete joke. Working for the Glazer family (Owners of the Bucs and Man U.) has opened my eyes to this amazing business model.

 

I work for a commercial real estate company that owns shopping centers as separate entities. Our company would buy a shopping center, then refinance it as much as possible, essentially getting 100% or more in most cases of the money invested in the center back out. As the value of the properties rose, we could refinance again and get some more millions out of the property – we essentially get paid millions to buy a shopping centers. Then when the housing market tanks, and the places are severely over-leveraged, we can walk away with non-recourse loans and just found the corporation. If we had to sell the centers, we would have to pay taxes on the gains, AND pay back any depreciation that was written off during the years we owned them. This is what they have done with the Bucs and Man U. Both are almost 100% leveraged.

 

For example, the Glazer's bought the Bucs for 195 Mil in the 90's. Now its worth what, 800 mil at least? In 15 years they have made about 600 mil through refinancing the percieved value of the team, and still own the team. They didnt have to sell the team or pay taxes on the 600 mil in profit, because its not profit - they have a bank note for the equal value of the money they are taking out.

 

This is the same model that has made Donald Trump millions. Ever notice how a lot of his casinos and buildings go bankrupt? People seem to make fun of him for this, but he is really out smarting them and everyone else. He builds these assets out of nothing, refinances the crap out of them, making millions in the process, then defaults on a non-recourse loan. All that “profit” is not taxed as income (it may be taxed a much smaller amount based on state law at the time of refinance) and he doesn’t have to pay back any written off depreciation.

 

This could work for your house too. you can get up to 85% of the value of your home out in a refinance. Do the math, it may be more profitable for you to default on a loan than sell!

 

Ralphs heirs may not be planning on selling, they may be planning on defaulting!

Thanks for the explanation. So the scenario my friend describes is entirely plausible.

 

PTR

[UpperDeck]

The difference is that the NFL is not going bankrupt so no taxes will be avoided by doing this.

[jo39416]

Here's one for the financial experts. My buddy firmly believes that Ralph hocked the Bills long ago in order to enjoy his equity now, and once he passes we'll find out a couple of dozen banks hold paper on the team as collateral. That's one reason, supposedly, he won't sell now. He'd have to open his books and the jig would be up.

 

My buddy thinks it's a brilliant strategy, essentially dodging any capital gains on the ever-climbing value of the Bills. Anyone here with a financial background care to comment?

 

PTR

 

Disguised sale rules would prevent that.

 

There may be something to this. He may have needed to do this just to have the working capitol to run an NFL team.

 

But, this is what all smart business people have been doing for years, partly because the banks allow them to and partly because of the US tax system being a complete joke. Working for the Glazer family (Owners of the Bucs and Man U.) has opened my eyes to this amazing business model.

 

I work for a commercial real estate company that owns shopping centers as separate entities. Our company would buy a shopping center, then refinance it as much as possible, essentially getting 100% or more in most cases of the money invested in the center back out. As the value of the properties rose, we could refinance again and get some more millions out of the property – we essentially get paid millions to buy a shopping centers. Then when the housing market tanks, and the places are severely over-leveraged, we can walk away with non-recourse loans and just found the corporation. If we had to sell the centers, we would have to pay taxes on the gains, AND pay back any depreciation that was written off during the years we owned them. This is what they have done with the Bucs and Man U. Both are almost 100% leveraged.

 

For example, the Glazer's bought the Bucs for 195 Mil in the 90's. Now its worth what, 800 mil at least? In 15 years they have made about 600 mil through refinancing the percieved value of the team, and still own the team. They didnt have to sell the team or pay taxes on the 600 mil in profit, because its not profit - they have a bank note for the equal value of the money they are taking out.

 

This is the same model that has made Donald Trump millions. Ever notice how a lot of his casinos and buildings go bankrupt? People seem to make fun of him for this, but he is really out smarting them and everyone else. He builds these assets out of nothing, refinances the crap out of them, making millions in the process, then defaults on a non-recourse loan. All that “profit” is not taxed as income (it may be taxed a much smaller amount based on state law at the time of refinance) and he doesn’t have to pay back any written off depreciation.

 

This could work for your house too. you can get up to 85% of the value of your home out in a refinance. Do the math, it may be more profitable for you to default on a loan than sell!

Ralphs heirs may not be planning on selling, they may be planning on defaulting!

 

Generally this is not true - you would have income from "forgiveness of debt" - unless you went bankrupt - in which case you would have to prove you legitimately do not have the assets to pay back the loan AND even in that case if you have not been very diligent it is possible to pierce the corporate veil and go after your personal assets.

[jo39416]

Heirs' tax basis becomes the market value at time of Ralph's death, instead of Ralph's tax basis of $25k. Ralph's heirs would avoid paying 15% capital gains on the sale price less $25k, saving approximately $150m.

 

The Heirs tax basis will be stepped up after the estate taxes are paid on the transfer of wealth. The family is not wealthy enough to pay the taxes, which is why the team will be sold.

 

UNLESS there has been some significant tax planning done starting in the mid 90's. If Ralph had the foresight to put his interest in a flow through - preferably an LLC and started gifting his membership interests then he could have effectively transferred a significant portion without significant (relatively) tax cost.