Monday, July 22, 2013

The Pohlads vs. the IRS

Jim Pohlad, one of Carl Pohlad's sons, in 2010.
I took note today of this piece by Star Tribune business columnist Lee Schafer outlining a complex estate tax dispute over the value of Carl Pohlad's stake in the Minnesota Twins. (While the Schafer piece is behind the Strib's paywall, this earlier one from Forbes is not.)

There is significant money involved: the Pohlad estate puts the value of the stake at $24 million, the IRS says it's $293 million, and that difference equates to $121 million in estate taxes. It's enough to give me reason to be happy I'm not a billionaire.

For both Forbes and the Strib, this is a business story, one that illustrates the techniques and complexities of estate planning — not merely tax avoidance but shifting control of enterprises from one generation to the next. But as a baseball fan, I was struck by the notion that the dispute hinges in large part on who controlled the business.

The Pohlad sons, executors of their father's estate, say that while Carl Pohlad still held most of the stock in the entities that make up the ownership of the franchise, it was non-voting stock; the sons already had all of the voting stock and thus operational control of the Twins.

Legalities are one thing; reality can be something completely different. I reviewed, off the top of my head, the Twins history over the final 15 years or so of Carl Pohlad's life, looking for what I consider "ownership level" decisions and asking myself: Who was in control when this decision was made.

This may not be an exhaustive list. What constitutes an ownership level decision differs from one operation to another. Charles O. Finley, owner of the A's in the 1960s and '70s, was known to dictate starting lineups to his managers. That's one extreme. My take on the history of Pohlad ownership is that Carl (and his sons) have limited their involvement in the operation to the biggest of the big picture decisions: Selecting their upper management, setting budgets, pursuing the new ballpark.

My thus short list:

Keeping Tom Kelly: With the Twins in the doldrums in the late 1990s, Chris Clouser was briefly brought on board as CEO. He didn't last long, and the apparent breaking point came when he pushed to have manager Tom Kelly fired in 1997. The resulting power struggle between Clouser and the basebal people had to be resolved by the owner. Carl Pohlad opted to keep Kelly, and Clouser left.

Purging Pat Meares: The 1998 season didn't go well on any level for the Twins — 70-92 with a roster crammed with aging bounce-around veterans. General manager Terry Ryan was assigned a bare-bones budget that effectively put an end to the era of playing for .500 (and missing the mark). Just before the winter meetings, Ryan nontendered starting shortstop Pat Meares.

In retrospect, this was the single biggest step in the revival of the Twins in the 2000s. The pinch-penny approach forced Kelly and Ryan to rely on such unprovens as Corey Koskie, Cristian Guzman and Torii Hunter, rather than the Otis Nixons and Mike Morgans who populated the 2008 roster. It was a good financial move; it was also the wisest baseball move.

And by all accounts, that decision was pushed not by Carl Pohlad, but by the next generation. This episode points to a changing of the guard.

Contraction: It's now 2001. The Twins are showing some signs of life on the field, but they're still stuck in the Metrodome with no progress on getting a more lucrative facility. When somebody in MLB comes up with the idea of shutting down two franchises (one of them being the essentially ownerless Montreal Expos), the Twins offer themselves as the other team to be sacrificed.

Nothing in Carl Pohlad's biography opens him up to as much scorn as this episode. I don't really know how much of the blame truly belongs to him, or to what extent the sons also favored contraction. Certainly, however, the elder Pohlad was the public face of the decision, and he owned it. The assumption here is that he was still in control at that point.

The Ryan retirement: Near the end of the 2007 season, Terry Ryan stepped down as general manager, citing burnout. Jim Pohlad presided over the press conference at which the reshaped front office was announced. Carl Pohlad was also there, but in the audience. By this time, the son was clearly in charge.

Carl Pohlad died in January 2009, so the obvious ownership-level decisions since then — the Joe Mauer contract, the contracting payroll since 2011, the firing of Bill Smith and the return of Ryan — obviously belong to Jim Pohlad and his brothers.

1 comment:

  1. This is the problem with having a banker owner and sons who only care about money - they tend to rake the fans and those who need the tax money over the coals just to keep a few bucks. They don't seem to understand the concept of 'spending money to make money', as seen recently with lowering the budget when fewer fans came in. This even after getting a new ballpark that was paid in large part by taxes. Hopefully, the Pohlads will soon decide to take their money and run and sell it to someone who sees the ballclub as a fun toy and not some big investment.