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ESOPs for Sports Companies in San Diego

Posted by Corey F. Schechter | May 07, 2018

In a Union-Tribune article, San Diego was listed as number 2 in employment in active lifestyle-oriented businesses in the country. There are now more than 1,200 such companies in the area employing more than 23,000, making an economic impact of over $1.4 billion. Some of these sporting and lifestyle companies may be able to take advantage of the unique benefits of employee ownership, offering incentives to owners and employees alike.

Active lifestyle and sporting goods are growing industries in San Diego. From sandal brands like Reef to alternative sports apparel brand Bad Boy to golf company leader Callaway, a number of sporting goods companies have found a home among San Diego's active communities. The proximity to the ocean, mountains, and desert provide a natural landscape for businesses focused on outdoor activities.

The corporate culture that helps these lifestyle companies thrive often match up with the benefits offered by employee ownership. This includes support of the local community, taking care of employees, and providing workplace benefits that go beyond a simple paycheck. In return, the companies may see lower rates of turnover and higher productivity.

Similarly, employee-owned companies report similar findings. Employees who take an ownership interest in their work have, on average, higher rates of productivity, are less likely to leave the job after a few years, and report higher job satisfaction.

An Employee Stock Ownership Plan (ESOP) is a qualified retirement plan that invests primarily in employer company stock. Participating employees are plan participants with company shares held in the ESOP trust until the employee retires. When the employee retires or leaves the company, the employee's shares are bought back by the trust from the employee.

For some, the most enticing benefit of an ESOP is the significant tax advantages provided for businesses and their owners. A company can deduct the principal and interest paid on the loans used to buy ESOP stock. Certain shareholders can also defer capital gains tax on stock acquired by the ESOP, depending on the percentage of stock offered and reinvesting the proceeds in qualified replacement property (QRP) within 12 months.

Many lifestyle sporting goods and apparel brands were started in the ‘80s by people who broke away from traditional businesses to start companies centered around what were then simply recreational activities.

Now that many of those companies have grown into worldwide brands, many of the baby-boomer founders may be looking for an exit strategy that will not compromise the company. In some cases, the founders have a business interest that goes beyond selling to the highest bidder. Many of these companies are named after the founders who have an interest in maintaining the business' reputation they worked so hard to build.

Transferring ownership to an ESOP allows the owners to transition control of the company over time, based on the owner's schedule. This allows the owners to oversee the transfer of ownership until a time when they are comfortable handing over the reigns.

If you have any questions about how an employee stock ownership plan can benefit your company, the law firm of Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm focusing its law practice on employee benefits law. Contact our office today with any questions on how we can help you and your business succeed.

About the Author

Corey F. Schechter

Corey Schechter practices in the areas of Employee Benefits, Employee Stock Ownership Plans, Pension and Profit Sharing Plans, ERISA, ERISA Litigation, Business Law, Qualified Domestic Relations Orders (QDROs), and Employment and Labor Law.


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