According to tax professionals, a recent tax proposal supported by Republicans, which seeks to limit tax advantages for owners of sports teams, might result in higher expenses for sports enthusiasts and diminish the appeal of investing in new leagues.
This legislative proposal, introduced by the primary tax policy committee in the U.S. House on Monday, contains a measure specifically aimed at professional sports teams. It restricts the tax deductions available to owners, imposing a limit on how much new owners can deduct for intangible assets like brand names, broadcasting rights, and player agreements.
Let`s explore the details of this provision and its potential impact on fans.
Application of the Proposal to Sports Teams
Team acquisitions typically involve tangible assets like stadiums or property, but the bulk of the purchase price consists of intangible assets, including the team`s brand value, media income, and sponsorships.
Under the current regulations, owners are permitted to write off the value of intangible assets, frequently valued in the hundreds of millions or billions, as a business expense over a 15-year period. This rule, in effect for sports teams since 2004, was originally designed to allow businesses to deduct assets that depreciate, such as equipment or vehicles.
However, the valuation of sports teams, primarily influenced by their intangible assets, has dramatically increased in the last 20 years. For instance, a group headed by Bill Chisholm finalized a deal in March to purchase the Boston Celtics for $6.1 billion, setting a record for a North American sports franchise sale. The existing law enables owners to deduct assets that are appreciating, contrary to the law`s original intent for depreciating assets.
Steven Bank, a business law professor at UCLA, commented that owning a team can effectively function as a tax shelter under the current system.
Key Provisions of the Proposal
The proposed tax legislation by Republicans would permit owners to deduct only half the value of intangible assets for teams purchased subsequent to the bill`s enactment. Should the bill be approved by Congress and enacted, existing team owners would retain their current tax benefits.
(This change could influence potential sales, such as the Portland Trail Blazers, currently on the market, if the law is passed before a buyer is found. The pending Boston Celtics sale this summer might be finalized before the bill takes effect, potentially avoiding the new restrictions).
Andrew Appleby, a professor specializing in tax and business law at Stetson University, stated that the purpose of the proposed legislation is to stop public funds from indirectly supporting billionaires` acquisitions of sports franchises. He noted that some owners leverage these deductions to reduce or entirely negate their tax obligations on team earnings.
Potential Consequences for Owners and Fans
Appleby suggested the bill might increase the cost of teams for potential buyers.
However, he added that this might not significantly deter buyers due to the limited supply of professional sports teams and the exponential growth in their value driven by this scarcity.
Robert Boland, a sports law expert at Seton Hall University, commented that owners might transfer the burden of higher taxes to fans through price increases for tickets, merchandise, and streaming services.
Boland observed that team owners are generally effective at maximizing revenue from their franchises. While unsure how much more they could extract, he concluded that costs imposed on owners are typically eventually shifted to fans or consumers.
Conversely, higher tax liabilities could potentially decrease the amount prospective buyers are willing to offer for teams.
Bank theorized that reduced deductions would require owners to self-fund more of the team`s operations, potentially leading to less investment in player contracts, stadium improvements, and overall team development.
Chris Mumford, an entrepreneurship professor at the University of North Carolina, suggested that while new owners in established leagues like the NFL and MLB might absorb the impact, the proposal could create significant difficulties for emerging and women`s sports leagues. In these leagues, intangible assets constitute a larger portion of value, and fewer tax breaks could weaken the case for investment.
Mumford concluded that this could significantly dampen enthusiasm for investing in new and innovative sports franchises, particularly where intangible assets represent a larger percentage of the team`s value, making it “potentially very disadvantageous for new leagues or new league franchises.”
Outlook and Next Steps
The proposed tax legislation is part of President Donald Trump`s broader economic agenda. It must undergo procedural steps before votes can be held in the House and Senate. The Trump administration has previously expressed a desire to eliminate all “special tax breaks for billionaire sports team owners.”
Rupert Hartwell