George M Steinbrenner legacy up in the heir?

Financial experts say news that he has been willing to discuss sale of the team with at least one potential buyer means that at age 68, the Boss - who combines a combative reputation with that of a family man - is coming face to face with his own mortality. "Somebody's getting through to him," says San Diego certified financial planner Peggy Eddy. If he "hangs on to the team now, his heirs are going to be facing a big mess when he's gone." His heirs - including a 29-year-old son and a 43-year-old son-in-law who work for the Yankees but aren't expected to succeed him - would be hit with a 55% federal tax bill on the value of his estate if he dies owning the team. (If he leaves it to his wife, taxes would defer until her death.) Mr. Steinbrenner owns about 60% of the team, which is structured as a limited partnership. With estimates that Charles Dolan of Cablevision would be willing to pay about $500 million for the Yankees, the family would be looking at a tax bill of $165 million on the team alone. Mr. Steinbrenner is saying publicly that he's "reluctant" to sell the Yanks. But he wouldn't be the first independent team owner to cash out or take some other drastic step for estate planning reasons. That was the force behind the O'Malley family's sale of the Los Angeles Dodgers to media magnate Rupert Murdoch earlier this year for $311 million. Like Mr. Steinbrenner, Peter O'Malley, whose father bought a majority interest in the Dodgers in 1950, had no heir apparent as president. None of his children was involved more than part time. The $311 million is the most ever paid for a baseball team. Yet the Yanks could fetch as much as $800 million, according to some reports. Elsewhere, Art Modell in 1995 opted to move his Cleveland Browns to Baltimore - the Maryland city promised a new showcase stadium - to boost the value of the National Football League franchise and provide a cash reserve so that his heirs wouldn't be forced to sell it to meet tax obligations after his death. Although the Yankees have the best record in baseball this year and won the World Series in 1996, Mr. Steinbrenner has maintained that they aren't a big money maker on a cash-flow basis. That gives him all the more reason to sell now, while the bidding is red-hot and running professional teams is increasingly cost-prohibitive for family owners.

Capital gains strategies

Last year's reduction in the capital gains tax to 20% from 28% is another incentive to sell. Mr. Steinbrenner bought the team from CBS in 1973 for $10 million, much of which he borrowed. He's reportedly pondering a deal with publicly-traded Cablevision that would include cash and stock, giving the family more liquidity than holdings in a limited partnership. "Whether it's George Steinbrenner or any other entrepreneur, the problem is that they may be gazillionaires but a lot of their estate is illiquid, which means their balance sheet is not that diversified," says Ms. Eddy, president of Creative Capital Management Inc., which specializes in family-owned businesses. Mr. Steinbrenner's family could be forced to sell the team at a fire sale price. "All the vultures out there will know that his heirs need cash to pay the estate taxes and (the team) will be discounted to some degree," says Los Angeles planner Percy Bolton. Of course, his heirs could sell off other assets in his estate, which is estimated to be worth at least $400 million, to help pay the tax man. They are said to include an 800-acre horse farm in Ocala, Fla., the 257-room Radisson Bay Harbor Inn in Tampa and other real estate. Two years ago, he sold the assets of his family's American Ship Building Co., which had been in bankruptcy. According to planners, his heirs may not have to pay estate taxes on the team all at once if it represents more than 35% of his adjusted gross estate. In that case, executors could defer payment of the taxes for five years, dishing out only interest on the amount owed. After that, the taxes would be due in equal installments over the next decade. That assumes, of course, that the team would generate enough cash for 15 years to cover all the payments.

'Until his toes curl under'

Presumably, Mr. Steinbrenner mapped out his estate plan a long time ago, but who knows? If he goes through advisers at the rate he goes through team managers, settling his affairs could be messy. If the goal has been to minimize taxes, then he ought to have transferred his assets before their value increased, figures Jonathan Rikoon, a lawyer with New York's Debevoise & Plimpton. He'd have been wise to set up what is called a grantor trust, in which capital gains are not taxed. Of course, there are a number of other ways to lessen the estate tax burden should Mr. Steinbrenner insist, as Peggy Eddy puts it, "on holding on until his toes curl under." And he may do just that. "I'm naive enough to believe that he really loves the game," says Merrill Melnick, a sports sociologist at the State University of New York at Brockport. First, Mr. Steinbrenner could buy a life insurance policy to cover the estimated taxes on his assets and transfer ownership of the policy to a trust, removing it from his taxable estate, says Ms. Eddy. Or he could transfer most of his team stake to his heirs now, paying the lower gift tax. Another alternative: transfer a large part of his stake in the club to a trust, removing it from his estate while he continues to run the team. A charitable lead trust, for instance, would allow him to designate a charity to receive income from the trust and provide his heirs with a tax deduction. The principal - and any investment returns - could ultimately revert to his family. Not surprisingly, a Yankees spokesman says Mr. Steinbrenner isn't granting interviews, so as not to distract himself from the playoffs. But Arthur Richman, a senior adviser to Mr. Steinbrenner, says: "I'm sure he thinks of his kids and his family and the possible taxes."