Why Ralph Sold 30% Of The Bills In 2010...

[BiggieScooby]

http://sportsillustrated.cnn.com/vault/article/magazine/MAG1138367/6/index.htm

http://forums.twobillsdrive.com/topic/117087-sale-of-30-interest-in-an-nfl-team-to-launch-in-910/

http://video.cnbc.com/gallery/?video=1564983737

http://wills.about.com/b/2010/09/15/death-taxes-and-nfl-football-which-team-is-going-on-the-market-to-plan-for-estate-taxes.htm

 

After digging around and number crunching I conclude Ralph sold a 30% minority share of Bills in the Fall of 2010. Due to the Federal Estate Tax sunsetting at the end of 2010, Ralph needed to hedge against his heirs having to take on debt to retain or sell the Bills. This is taking into consideration Ralph's estimated estate value, cash on hand, and the value of the Bills franchise, and what M&A guru Sal Galatioto said on CNBC in August 2010.

 

Let's analyze the facts and the numbers that support what is going on:

 

In September 1993 Sports Illustrated reported Ralph's Net Worth was $150 million, at a conservative 6.5% annual rate of return Ralph would be worth roughly $481 million in cash today. Presently the Bills Team value is $700 million. With an estate valued at $1.181 billion Ralph's heirs would have been forced to pay a 35% estate tax or $413 million. With only $313 million after tax cash on hand, Ralph's heirs would have been forced to pay $100 million out-of-pocket to cover the cost of the cost of retaining the franchise. Purchasers would have gotten the franchise at a bargain basement price as suitors would have known what a cash-strapped position they were in.

 

NOW, let's assume Ralph did sell 30% of the franchise via private equity deal through Sal Galatioto in Sept 2010. That would be $210 million more cash to his estate. Now Ralph's estate has $691 million cash-on-hand & $490 million in the non-liquid Bills franchise, same total but better allocated to making a deal or holding on to the team. In this scenario Ralph's heirs would have $36 million cash on hand after paying the Estate tax on the cash and franchise. And they'd also own 70% of a $700 million dollar franchise.

 

I am not a conspiracy theorist but I am confident the 30% equity sale Sal Galatioto was referring to on CNBC involved the Bills. The question has been raised why would one purchase something when they wouldn't have total control? I answer with 2 points, #1 Ralph is 92 fast approaching 93 the team will be available soon, #2 By having buy-in now acquiring the additional 21% becomes much easier when the time comes. Additionally owning 30% means you are entitled to 30% of the profit. In this situation, both parties in this transaction are left satisfied. A devil's advocate would say Ralph has no loyalty and a group from Toronto or LA has already acquired 30% of the franchise, I don't think if this deal involved our team Ralph would have sold to outside interests. A likely scenario is Ralph sold this to Jim Kelly & Co. I assume their group to be 24 individual owners. Doing so would prevent a joint ownership group from buying out the remaining 70%. The NFL caps total franchise ownership at 25 owners where a controlling owner must have a 30% minimum share.

 

Hopefully Ralph publicly comes out with a succession plan, but I understand the economic reasoning not to do so, which is to maximize his profit. If this deal has happened regardless of franchise I am surprised this hasn't leaked out to the press.

[sfbillsfan2]

Interesting hypothesis. Sal was very clear that he was working with an NFL team to sell a minority stake and that the purpose behind the sale was estate planning. While there are other possible candidates (Raiders for example), I would not be surprised if it was the Bills. Especially given there seems to be an underlying optimism about the Bills staying in Buffalo from some potential buyer groups.

 

Even if it is not the Bills, this is a nice find and a well constructed argument. Well done

[DrDawkinstein]

Very interesting post. Will have to go through all the articles once I get home. But you definitely make some interesting points. I hope it was a move that helps keep the Bills in Buffalo...

[KollegeStudnet]

I think I remember Sal talking about a team on CNBC last year selling minority or majority share during pre-season... he also mentioned it would be a shock when released--if I recall!

 

This could be reffering to the Chargers--Spanos family.

Edited May 17, 2011 by KollegeStudnet

[Scrappy]

50 year owner selling would be a shock as well.

[stony]

Awesome and interesting hypothesis you lay out here. Thanks!

[papazoid]

Sal said "there's monster value in some NFL franchises"

 

i say its the JETS......Woody Johnson has serious cash flow issues......needs to pay huge signing bonuses to key players like Revis etc...and build a winner fast for their new stadium.

 

 

could just as easily be the Rams, Raiders or Chargers.

Edited May 17, 2011 by papazoid

[San Jose Bills Fan]

Could be Richardson in Carolina. He had heart replacement two years ago and cut his sons from the team's administration.

[Ed_Formerly_of_Roch]

I'm no tax expert, but estate tax only comes into play when the person dies. RW didn't die so he couldn't take advantage of the 2010 no limit. On the other hand selling a share, he would end up paying tax on the 30% sale now, so would it be worth it?? RW doesn't know what future estate or capital gains tax laws will be so would it be worthwhile selling a share and paying the taxes now based on something that is unknown as to what the tax implications will be in the future?

[ICanSleepWhenI'mDead]

Interesting analysis - - thanks for sharing your thoughts. FWIW, I've tried to Google Sal Galatioto about 30 times since posting the original CNBC video clip, but I've never been able to find anything else about the sale he was discussing. He did say during the interview, though, that most partial ownership sales are made quietly, or words to that effect.

Edited May 18, 2011 by ICanSleepWhenI'mDead

[yungmack]

If Ralph really cared about his heirs (And why should he? He'll be dead.) he would have taken the pipe in 2010 and solved all the problems.

[RTW2012]

If Ralph did sell 30%, wouldn't that be made public?

[Tbone]

http://sportsillustrated.cnn.com/vault/article/magazine/MAG1138367/6/index.htm

http://forums.twobillsdrive.com/topic/117087-sale-of-30-interest-in-an-nfl-team-to-launch-in-910/

http://video.cnbc.com/gallery/?video=1564983737

http://wills.about.com/b/2010/09/15/death-taxes-and-nfl-football-which-team-is-going-on-the-market-to-plan-for-estate-taxes.htm

 

After digging around and number crunching I conclude Ralph sold a 30% minority share of Bills in the Fall of 2010. Due to the Federal Estate Tax sunsetting at the end of 2010, Ralph needed to hedge against his heirs having to take on debt to retain or sell the Bills. This is taking into consideration Ralph's estimated estate value, cash on hand, and the value of the Bills franchise, and what M&A guru Sal Galatioto said on CNBC in August 2010.

 

Let's analyze the facts and the numbers that support what is going on:

 

In September 1993 Sports Illustrated reported Ralph's Net Worth was $150 million, at a conservative 6.5% annual rate of return Ralph would be worth roughly $481 million in cash today. Presently the Bills Team value is $700 million. With an estate valued at $1.181 billion Ralph's heirs would have been forced to pay a 35% estate tax or $413 million. With only $313 million after tax cash on hand, Ralph's heirs would have been forced to pay $100 million out-of-pocket to cover the cost of the cost of retaining the franchise. Purchasers would have gotten the franchise at a bargain basement price as suitors would have known what a cash-strapped position they were in.

 

NOW, let's assume Ralph did sell 30% of the franchise via private equity deal through Sal Galatioto in Sept 2010. That would be $210 million more cash to his estate. Now Ralph's estate has $691 million cash-on-hand & $490 million in the non-liquid Bills franchise, same total but better allocated to making a deal or holding on to the team. In this scenario Ralph's heirs would have $36 million cash on hand after paying the Estate tax on the cash and franchise. And they'd also own 70% of a $700 million dollar franchise.

 

I am not a conspiracy theorist but I am confident the 30% equity sale Sal Galatioto was referring to on CNBC involved the Bills. The question has been raised why would one purchase something when they wouldn't have total control? I answer with 2 points, #1 Ralph is 92 fast approaching 93 the team will be available soon, #2 By having buy-in now acquiring the additional 21% becomes much easier when the time comes. Additionally owning 30% means you are entitled to 30% of the profit. In this situation, both parties in this transaction are left satisfied. A devil's advocate would say Ralph has no loyalty and a group from Toronto or LA has already acquired 30% of the franchise, I don't think if this deal involved our team Ralph would have sold to outside interests. A likely scenario is Ralph sold this to Jim Kelly & Co. I assume their group to be 24 individual owners. Doing so would prevent a joint ownership group from buying out the remaining 70%. The NFL caps total franchise ownership at 25 owners where a controlling owner must have a 30% minimum share.

 

Hopefully Ralph publicly comes out with a succession plan, but I understand the economic reasoning not to do so, which is to maximize his profit. If this deal has happened regardless of franchise I am surprised this hasn't leaked out to the press.

 

 

Stop it already! No- Ralph didnt sell 30% of the team in 2010- why because doing so would suject the sale to a double tax- once with capital gains, and again at death. Ralph's plan is simple- if he sells ANY of the team prior to death he will be subject to capital gains tax, and the amount that he realizes will be taxed again through his estate- so his estate will sell the team after his death thereby subjecting the sum to taxation once. The thing to remember is were are talking about 10's of millions of dollars- EACH time the value of the team is taxed.

 

For some reason people are resistant to listening what Ralph has said- he has an estate plan- it is to sell the team at death to the highest bidder. Sorry but it makes NO sense to sell ANY part of the team before death.

[BuffaloRebound]

Stop it already! No- Ralph didnt sell 30% of the team in 2010- why because doing so would suject the sale to a double tax- once with capital gains, and again at death. Ralph's plan is simple- if he sells ANY of the team prior to death he will be subject to capital gains tax, and the amount that he realizes will be taxed again through his estate- so his estate will sell the team after his death thereby subjecting the sum to taxation once. The thing to remember is were are talking about 10's of millions of dollars- EACH time the value of the team is taxed.

 

For some reason people are resistant to listening what Ralph has said- he has an estate plan- it is to sell the team at death to the highest bidder. Sorry but it makes NO sense to sell ANY part of the team before death.

 

I agree with what you are saying, but one more factoid to consider is that the long term capital gains rate was set to go up to 20% from 15% in 2011 until Obama extended the lower rate in December 2010 until 2012.

[jumbalaya]

It was Jerry Jones.

[JTO]

The Jaguars are in deep financial chaos. They should have drafted Tebow.

[NC Buffalo Fanatic]

The Jaguars are in deep financial chaos. They should have drafted Tebow.

Wow; that came out of left field. What does that have to do with Ralph potentially unloading 30% of the Bills?

[Hplarrm]

Stop it already! No- Ralph didnt sell 30% of the team in 2010- why because doing so would suject the sale to a double tax- once with capital gains, and again at death. Ralph's plan is simple- if he sells ANY of the team prior to death he will be subject to capital gains tax, and the amount that he realizes will be taxed again through his estate- so his estate will sell the team after his death thereby subjecting the sum to taxation once. The thing to remember is were are talking about 10's of millions of dollars- EACH time the value of the team is taxed.

 

For some reason people are resistant to listening what Ralph has said- he has an estate plan- it is to sell the team at death to the highest bidder. Sorry but it makes NO sense to sell ANY part of the team before death.

The whole hypothesis is off-season interesting since there is no "real" football action which would render any speculation as a distraction.

 

This hypothesis becomes even a more attractive waste of time as due to the lockout the owners have triggered a series of events that has denied us fans even the distraction of offseason moves.

 

Yet even with this near perfect storm of events making even a cockeyed hypothesis legit for consideration, the initial post in this thread has such internal inconsistencies as to render the analysis in internally contradictory and renders the hypothesis silly.

 

In order to believe the presented hypothesis one has to assume Mr. Rslph is such a smart mind that he can predict the changes in the economy down to amazing detail, but then is so stupid he makes decisions and handles the Bills to an over 0 for a decade playoff less streak.

 

In fact he then makes radical moves to prepare for the estate tax switch and then fails to die in a timely way to take advantage of estate tax switch.

 

He sees things coming that no one else knows and also proves to be an idiot.

 

Any theory which is quite upfront in making huge speculative assumptions and then quickly follows these leaps of faith with a pretty detailed description of what happened simply contradicts itself.

[BiggieScooby]

Stop it already! No- Ralph didnt sell 30% of the team in 2010- why because doing so would suject the sale to a double tax- once with capital gains, and again at death.

 

I understand your argument, however you need to stop it! And you need to think outside the box for a minute. The facts are there's a 1/32nd chance it was us. Realistically you can cut out 75% of the teams from this list. Think of the teams that are the most cash-strapped and/or facing a likely transition. Mergers & Acquistions are now the norm in the NFL & Sal Galatioto is the guy who brokers these deals. Someone recently sold 30% of an NFL franchise, quietly, and not a peep who it was - sounds familar. Too bad the players didn't get the NFL owners to open their books.

 

If Ralph did sell 30% of the team it's because he does not intend on leaving it entirely in the hands of his 3rd wife Mary Wilson. See it from this perspective, Mary as his wife would not incur any estate taxes being his wife. In fact she'd only pay capital gains when she sold. There's one problem with this logic, it leaves out Ralph's 2 surviving biological daugthers. To solve this problem Ralph needed to add more liquidity to his estate. If he died in 2010 the 2 daugthers would have received 35% more money. The reason why he sold 30% was to makeup for this loss of liquidity in 2011 moving forward.

 

The argument I'm trying to makes is if Ralph intends to leave the team in Buffalo this strategy makes sense. Ralph wants to lessen the estate tax bill on the folks he leaves the team to, so he needs to boost the liquid cash value of his estate. Ralph is a very schrewd businessman, frugal, stubborn, and intelligent. Ralph's legal team and estate planner would have advised him to change his estate plan to take advantage of the 0% estate tax in 2010.

 

Using the financial model I developed Ralph could leave Mary Wilson with 19% of the franchise ($133 million) and an additional $100 million cash tax free. That would leave Ralph's daughters 21.5 million cash & 25.5% ($178.5 million) each of the franchise. The remaining 30% minority owner effectively would in effect control the franchise if it was turned over to 1 individual.

 

I don't see any other way this transition can go any smoother. Getting involved in a bidding war against Los Angeles and Toronto would be an uphill battle.

[sweatpantsjoe]

I thought it was San Diego that ended up being the team that the CNBC story was about. I love the conspiracy though......you must be bored now that Obama showed his birth certificate.