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In the latest edition of The Secret IRS Files, ProPublica delved into tax information for dozens of team owners in America’s four largest professional sports leagues. We found the following:
1. Billionaire team owners often pay lower federal income tax rates than their millionaire players – and sometimes even lower rates than poorly paid stadium workers.
Take Steve Ballmer, owner of the Los Angeles Clippers and former CEO of Microsoft. For 2018, Ballmer reported bringing the IRS $ 656 million. His federal income tax rate was only 12%. Compare that to Lakers star LeBron James, who at $ 124 million earned significantly less than Ballmer, but whose tax rate was significantly higher than Ballmer’s: 35.9%. Ballmer’s tax rate was even lower than that of Adelaide Avila, a concession employee at the Staples Center. Their rate was 14.1% – higher than Ballmer’s, even though his income was nearly 15,000 times more than hers. (A Ballmer spokesman told ProPublica that he “always paid the taxes he owed and publicly stated that he personally would be okay with paying more.”)
2. The tax rates for team owners are so low, among other things, because the tax code allows them to write off almost the entire purchase price of their teams, say system experts, detached from economic reality. This is known as “payback”.
When someone buys a business, they can often deduct almost the entire sale price from their income in the years that follow, which means they have to pay less tax. The logic behind it is that the purchase price is made up of assets – buildings, equipment, patents, and more – that will degrade over time. But in professional sports, teams’ most valuable assets such as TV deals and player contracts are virtually guaranteed to regenerate, since sports franchises are essentially monopolies. There is little risk that players will stop playing for Ballmer’s Clippers or that TV networks will stop broadcasting their games. Nonetheless, team owners can write off or write off these assets even if they actually increase in value.
3. Owners in the NFL, NBA, NHL, and MLB reported income for their teams that was millions below their real-world earnings, according to ProPublica’s review of tax information, previously leaked team financial records, and interviews with experts.
Ballmer’s Clippers reported a whopping $ 700 million loss over the past five years. Shahid Khan, an automotive tycoon, took advantage of losses of at least $ 79 million from a stake in the Jacksonville Jaguars, despite the fact that his soccer team was repeatedly forecast to be worth millions a year. Leonard Wilf, a New Jersey real estate developer who owns the Minnesota Vikings with family members, has incurred losses of $ 66 million from his minority stake in the team. (A Khan representative said, “We simply and completely abide by all IRS rules; Wilf did not respond to questions.)
4. These payback benefits allow team owners to convert real profits into losses for tax purposes, thereby avoiding taxes not only on their team profits but also on income from other companies.
Before hedge fund magnate David Tepper bought the Carolina Panthers, the team had exhausted its write-offs and regularly posted profits in the millions. But after Tepper bought the team, which allowed depreciation to restart, the Panthers went from a large taxable profit to a tax loss of about $ 115 million, according to a ProPublica analysis of the IRS records. While it is not known if the team made real profits this year, there is no evidence that anything material changed in the Panthers’ real income and spending between 2017 and 2018. (A Tepper spokesman did not respond to a request for comment.)
5. The losses that team owners can report due to their stakes in professional sports teams enable them to drastically reduce their personal tax bills.
ProPublica’s analysis found that the Clippers saved Ballmer approximately $ 140 million in taxes. William Foley, owner of the Las Vegas Golden Knights, saved more than $ 12 million in taxes over two years due to his involvement with the ice hockey team. (The Golden Knights’ chief legal officer did not respond to tax questions, but noted that an important source of income is being used “to pay rent, employ hundreds of people, provide great entertainment, and create a source of pride for our community “.)
6. Even the team owner, who pioneered the devaluation of player contracts in the mid-20th century, described the maneuver as “gimmick”.
Bill Veeck, owner of the Cleveland Indians in the 1940s and later the Chicago White Sox, said in his memoir, “Look, we play the Star Spangled Banner before every game. You want us to pay income taxes too? ”Veeck got it so new owners could deduct players’ salaries as regular expenses, the common practice, but also add a second deduction: the value of contracts for players already on the team are signed to amortize. The value that a new owner assigned to these contracts when purchasing the team could be used to offset taxes on team profits as well as any other income they might have.
7. Tax law has evolved to allow team owners to write off a variety of assets beyond pure player contracts.
The law now also allows new team owners to write off TV media contracts and league franchise rights. Before the amortization rules were relaxed in the 1990s and 2000s, the IRS often insisted that assets could only be written off if they had a real, finite lifespan and actually depreciated over time. Well that is not the case.
8. Proponents of team ownership point out that when owners sell their teams, they must pay back the taxes avoided through amortization. The reality is more complicated.
Even if the owners eventually repay the lost taxes, deferring those taxes for years, sometimes decades, is essentially the equivalent of an interest-free loan from the taxpayer. An owner could make huge profits by investing this money. More importantly, if the owners die while on their stake, as many do, the tax savings may never be paid back. And their heirs can usually restart the payback cycle.