A Republican-backed tax proposal aiming to restrict tax benefits for team owners may lead to higher costs for sports fans and potentially reduce the appeal of investing in new leagues, tax experts suggest.
Introduced on Monday by the U.S. House of Representatives` main tax committee, the bill includes a specific provision targeting professional sports franchises. It would limit the tax deductions owners can take on their teams, capping the amount new owners can write off for intangible assets such as team names, media rights, and player contracts.
How does this proposal affect sports teams?
When a team is purchased, the deal usually involves tangible assets like a stadium or real estate. However, the largest part of the purchase price consists of intangible assets, including the value of the team`s brand, broadcast revenue, sponsorships, and similar items.
Currently, owners can deduct the value of intangible assets – often worth hundreds of millions or billions of dollars – as a business expense over a 15-year period. This rule, applicable to sports teams since 2004, is designed to help businesses depreciate assets that lose value over time, such as machinery or vehicles.
However, team valuations, primarily driven by the value of their intangible assets, have dramatically increased over the last twenty years. For instance, in March, a group headed by Bill Chisholm agreed to purchase the Boston Celtics for $6.1 billion, which would set a record for a North American sports franchise. The existing law has permitted owners to write off assets that are generally appreciating, not depreciating.
“This is an area where owning a team can effectively serve as a tax shelter,” stated Steven Bank, a business law professor at UCLA.
What the proposal states?
The Republican tax bill proposal would only permit owners to write off 50% of the value of intangible assets for teams bought after the bill is enacted. If the bill is passed by Congress and signed into law, current team owners would retain their existing tax benefits.
The NBA Board of Governors might approve the Celtics sale this summer. Meanwhile, the estate of former Portland Trail Blazers owner Paul Allen has officially listed the team for sale, and the new rule could impact a potential buyer if it becomes law.
Andrew Appleby, a tax and business law professor at Stetson University, noted that the proposed bill aims to stop taxpayers from subsidizing billionaires` purchases of sports franchises. He added that some owners utilize these deductions to reduce or even cancel out the taxes due on team profits.
What would be the consequences for owners and fans?
Appleby suggested the bill might make teams more costly for interested buyers.
“I`m not sure that`s necessarily a deterrent,” he said, “because there`s a limited number of professional sports franchises, and their values have grown dramatically due to that scarcity.”
Robert Boland, a sports law professor at Seton Hall University, stated that owners might transfer the impact of higher tax burdens onto fans through increased prices for tickets, merchandise, and streaming services.
“Team owners are already quite skilled at maximizing revenue from a franchise,” Boland commented. “I`m unsure if they can extract much more from that, but ultimately, costs incurred by owners are typically transferred to fans or consumers in some way.”
Higher taxes might also lower the price that prospective buyers are willing to offer for teams.
“If the deductions are smaller, it means they might need to invest more of their own money into the team,” Bank explained. “In theory, this could result in less funding for player contracts, stadium improvements, or overall investment in the team.”
While new owners in major leagues like the NFL and MLB could probably manage the impact, the proposal could create greater difficulties for new and women`s sports franchises. For these leagues, reduced tax benefits might make investment justifications harder, according to Chris Mumford, an entrepreneurship professor at the University of North Carolina.
“That could significantly cool interest in new and innovative sports franchises,” Mumford added, especially where intangible assets form an even larger part of a team`s value. “It`s potentially very harmful to new leagues or their franchises.”
What Happens Next?
The proposed tax bill is part of a broad economic plan from the Trump administration. It needs to undergo several procedural steps before votes in the House and Senate. The Trump administration has previously stated its desire to eliminate “all special tax breaks for billionaire sports team owners.”
