The owner’s box could soon be less opulent.
A lucrative tax break that sports team owners can use to shelter billions of dollars of income would be halved in value under House Republicans’ draft legislation to enact Donald Trump’s signature tax plan.
The tax break came under fire after a 2021 ProPublica investigation based on leaked returns showed the shelter helped billionaire team owners pay lower effective tax rates than their players or even concession stand workers. Los Angeles Clippers owner Steve Ballmer, a former Microsoft Corp. chief executive officer, used paper losses from his stake in the team to save about $140 million on his taxes over five years, ProPublica found.
The bill itself is the subject of heated negotiations going into the weekend, after the House Budget Committee on Friday failed to advance the legislation over hard-line conservatives’ cost concerns.
The boon for franchise owners has its origins in sweeping tax legislation passed in 2004 under President George W. Bush, a former part-owner of the Texas Rangers major league baseball team.
Trump has a tortured history with sports team ownership that includes failed attempts to acquire the Buffalo Bills and then-Baltimore Colts football teams. He owned a team in the defunct USFL and played a key role in the league’s battle with the National Football League.
His administration set its sights on the sports team break and initially pushed to end it entirely, said Mark Weinstein, a tax-focused partner at Hogan Lovells. Republicans on the House Ways and Means Committee took a middle course, approving a tax bill on Wednesday that would instead cut the value of the break by 50%.
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The reduction would only apply to owners who purchase teams after the law takes effect, though the change could affect teams’ resale values.
One fan of curtailing the break is Steve Ellis, president of Taxpayers for Common Sense.
“The Commanders sold for $6 billion,” he said, referring the the 2023 sale of the NFL’s Washington Commanders to a group led by Apollo Global Management co-founder Josh Harris, who also owns the Philadelphia 76ers basketball team. “They don’t need any help.”
Some sports accountants and lobbyists greeted the scaled-back House GOP provision with a “bit of a sigh of relief” given the White House’s efforts to eliminate it completely, Weinstein said. Owners also dodged other risks such as curbing tax-exempt bonds to finance stadium build-outs, he said.
But one lawyer involved in sports issues before Congress — speaking on condition of anonymity — said clients were calling this week concerned about the change and anticipated a fierce lobbying campaign to strip out the provision when the Senate considers the tax bill.
The tax shelter allows owners active in operating the sports franchises to reduce their taxable income depreciation-like write-offs of “intangible assets,” not just aging physical ones. Those include so-called “goodwill” aspects like a team’s reputation, strong brand recognition such as a logo and other intellectual rights, radio and television rights, and fan loyalty and following, which also contribute to the value of a team.
The reasoning is that a well-known sports team with a loyal fan base is worth far more than the mere value of its physical net assets such as buildings and equipment. In fact, these other, intangible aspects, often represent the largest portion of a team’s purchase value.
“Essentially, whatever you pay for the Dallas Cowboys — I’m just making the team up — the trade name would be a significant part of that, because it’s a high-value asset,” Lynn Mucenski-Keck, Lead of Federal Tax Policy at Withum, explained.
As a result, owners are permitted to amortize costs assigned to those items over a 15-year period — even if most of those assets do not actually depreciate like physical buildings and other property — to cut as much as billions of dollars from their taxable income.
The ability to do that — even if the franchise has been profitable — has been one of the main tax shelter-draws to owning sports teams for wealthy people or billionaires. They, like private equity firms, are increasingly being involved in sports franchise ownership, seeking investment opportunities, and returns.
Weinstein, whose firm was hired this week to assist with the sale of the Portland Trail Blazers National Basketball Association team, said he expects the potential tax law change to have only a limited impact on professional sports team valuations.
“It could be a disincentive to buy,” offered Helen “Nellie” Drew, a University of Buffalo law school professor specializing in sports who was on a legal team that handled National Hockey League transactions involving several teams, including the San Jose Sharks and the Tampa Bay Lightning.
“But there will always be something to be said about being part of an exclusive country club of, say, 32 NFL owners — even if certain tax breaks are no longer there,” Drew said. “There will always be people wanting to buy.”
This story was originally featured on Fortune.com
