The decision by Dodgers owner Peter O’Malley to sell the team illustrates the problems faced by family businesses trying to compete with corporate rivals.
In short: Families generally don’t have the broad business shoulders most corporations enjoy, and they are particularly susceptible to those two constants in life death and taxes.
“Family businesses are tough,” said John Van de Kamp, the former state Attorney General whose uncle co-founded the namesake bakery and whose immediate family interests in the Lawry’s food/restaurant operation.
Labor problems helped convince the bakery founders to sell the Van de Kamp bakery operation decades ago, he noted, and his extended family sold much of its interest in its Lawry’s restaurant and seasoning business in the 1970s.
O’Malley’s announcement last week that he would sell the Dodgers shocked sports fans, but business analysts said that the decision was not surprising.
Escalating financial costs associated with professional sports teams and the related exposure risks associated with a single-asset business empire already drove other family owners out of baseball. It’s simply easier for a company like Anheuser Busch to weather a losing season by its Cardinals ballclub than it would be for a family whose livelihood is dependent on the turnstiles.
While O’Malley cited estate planning and taxation as key issues in his decision to sell, taxation specialist Louis Reisman with the law firm of Weinstock Manion Reisman Shore & Neumann said the day-to-day business risks that come with owning a baseball team played a greater role.
“I’m more inclined to think O’Malley didn’t want to be involved in the free-agent bidding auctions and having to finance luxury boxes,” Reisman said. “And I think he’s concerned about the exposure they face by keeping their eggs all in one basket.”
The O’Malleys aren’t the first prominent local dynasty to sell off all or part of the family business.
The families that owned the Ralphs Grocery Co. and Hughes Family Markets grocery chains sold off their interests to corporations. Others, such as the Chandler family (of the Los Angeles Times) and the heirs to Walt Disney, took their companies public.
In other cases, family businesses have fallen apart after the death of the founders, noted Thomas D. Seck, practice leader at accountancy/consultancy Deloitte & Touche’s estate, gift and trust group.
“Frequently, a founder’s children don’t have the same entrepreneurial spirit or business savvy as the patriarch,” Seck said. “And heirs tend to have divergent perspectives those who aren’t involved with the business have their own interests, while those who are involved want to pour (inheritances) back into the business.”
A related issue pertains to the firm founder’s business and financial contacts who may not feel as comfortable with the succeeding generation.
“Many financial avenues are tied to a patriarch’s relationships and track record,” said Jeff Lapota, an estate planning specialist with law firm Cox Castle & Nicholson. “Bankers ask different questions when (the key individual) reaches his late-50s than they did when he was in his 40s such as ‘what happens if Peter O’Malley dies?'”
Similarly, family-owned empires must look at a sale’s timing from a market-value standpoint.
Even considering all the potential tax liability a sale might generate, it makes more sense to sell when the franchise’s value has reached a peak it may not be able to maintain indefinitely under a given industry’s changing environment.
“Maybe (O’Malley) is thinking about what he wants to do for the rest of his life and looking at the franchise’s assets and saying he can’t do more to increase the value and it might never be worth more again,” Lapota said.
And then there are the issues relating to the huge estate, gift and/or capital gains tax liabilities valuable family-owned businesses face when assets are passed on to heirs or sold to third parties.
Family business specialists point out that Peter O’Malley and his family are acting early and will likely avoid some of the succession-related crises frequently faced by aging entrepreneurs who have failed to plan ahead.
At 59, O’Malley’s decision to sell is something of an exception today in the world of family-owned business empires.
“You often find that a (business) founder is so focused on the day-to-day business operations that he fails to prepare” a plan for passing the reins to the next generation or otherwise disposing of a business, Seck said.