Tax experts say a new Republican-backed tax plan designed to curb tax breaks from team owners could lead to higher costs for sports fans and reduce investment in emerging leagues.
The bill was proposed by the U.S. House Chief Tax Writing Committee on Monday and includes a provision that specifically targets professional sports franchises that restrict owners from deducting their taxes from their teams. The bill would limit the amount new owners can cancel for intangible assets such as team names, media rights and player contracts.
Here’s what we know about the rule and what it means to fans.
When someone buys a team, the transaction usually includes physical or tangible assets of a stadium or stadium (such as real estate). However, the vast majority of the purchase price is composed of intangible assets, such as the value of the team brand, broadcast income, sponsorship, etc.
Currently, the law allows owners to deduct the value of intangible assets (usually worth hundreds of millions or billions of dollars) over 15 years. The law has been applied to sports teams since 2004 and aims to help business owners write off assets that have declined over time - such as machinery or automobile fleets.
However, team valuations (mainly driven by the value of intangible assets) have soared over the past two decades. In March, a group led by Bill Chisholm, managing partner of Symphony Technology Group, agreed to buy the Boston Celtics for $6.1 billion, which would be the most franchise in North American sports history. Current laws allow owners to write off assets that significantly increase value rather than lose value.
"This is one area where having a team can essentially be a tax shelter," said Steven Bank, a UCLA business law professor.
Proposals in the Republican Tax Act will allow owners to write off only 50% of their intangible assets as the bill becomes the team acquired after the law. If the bill passes Congress and is signed into law, the current team owner will maintain their existing tax deductions.
(The NBA committee immediately approved the Celtics’ sale after this summer. On the other hand, the legacy of late Portland Trail Blazers owner Paul Allen officially puts the team on sale, and the new rules could affect buyers if voted as law.)
Andrew Appleby, a professor of tax and business law at Stetson University, said the bill was intended to prevent taxpayers from subsidizing billionaires to buy sports franchises. He said some owners use these deductions to reduce or even eliminate the tax they owe in their team’s profits.
Appleby said the bill could make potential buyers more expensive.
"I don't know that this must be a deterrent because there are limited professional sports franchises and these values are growing exponentially because of this scarcity," he said.
Robert Boland, a sports law professor at Seton Hall University, said owners can pass on the impact of an increased tax burden to fans through more expensive tickets, merchandise and streaming costs.
“Team owners are already very good at making every dollar stand out,” Boland said. “I don’t know if they can squeeze out more there, but in the end, the owners usually transfer to fans or consumers in one form or another.”
Higher taxes may also reduce the price potential buyers are willing to pay for their teams.
"If the deduction is small, it means they may have to fund more teams, which means less money is obtained from player contracts, less money from stadium amenities, and less money is theoretically farmed," Bank said.
While new NFL and Major League Baseball owners may absorb the success, the proposal could pose a greater challenge for upstarts and women’s sports franchise, where fewer tax breaks may make the investment rationale harder to justify.
"This could have a real cooling effect on the new innovative sports franchise," Mumford said, with a larger share of the team's value being intangible assets. “This can be very unfavorable for new league or new league franchisees.”
The proposed tax bill is part of President Donald Trump's comprehensive economic plan and must be worked through some procedural measures before facing votes from the House and the U.S. Senate. The Trump administration has previously said it hopes to end “all special tax breaks for billionaire sports owners.”