A new taxation plan supported by the Republicans which aims to limit tax alternatives for team owners could result in an increase in costs for sports fans and make investments in less attractive emerging leagues, according to tax experts.
The bill, proposed Monday by the main committee of the tax entry of the Chamber of Representatives of the United States, includes a provision which specifically targets professional sports franchises by limiting the amount that owners can deduct from their taxes on the team. The bill would limit the amount that new owners can dear for intangible assets, such as team names, media rights and players’ contracts.
Here is what we know about the layout and what it could mean for fans.
How does this proposal apply to sports teams?
When someone buys a team, the agreement often includes physical assets – or tangible -, such as a stage or a property. But the vast majority of the purchase price is made up of intangible assets – such as the value of the team brand, diffusion income, sponsorships, etc.
Currently, the law allows owners to deduce the value of intangible assets – of often hundreds of millions or billions of dollars – in commercial expenditure over 15 years. The law, which has applied to sports teams since 2004, aims to help business owners to raft assets that decrease value over time – like machines or a fleet of cars.
But team assessments – largely motivated by the value of their intangible assets – have soaked in the past two decades. In March, a group led by Bill Chisholm, director of the Symphony Technology Group, agreed to buy the Boston Celtics for $ 6.1 billion, which would be paid for a franchise in the history of North American sport. The current law has enabled owners to raft assets that increase largely of value, not value.
“This is one of these areas where the possession of a team can essentially be a tax refuge,” said Steven Bank, business law professor at the UCLA.
What does the proposal say?
The proposal in the republican tax bill would allow owners to raft only 50% of the value of their intangible assets for teams acquired after the bill. If the bill goes through the congress and is promulgated, the current team owners would retain their existing tax reductions.
(The Council of Governors of the NBA could approve the sale of the Celtics this summer. On the other hand, the succession of the owner of the late Portland Trail Blazers, Paul Allen, officially put the team for sale, and the new provision could affect a buyer if it was elected right.)
Andrew Appleby, professor of tax and commercial law at Stetson University, said that the proposed bill is designed to prevent taxpayers from subsidizing the purchases of sports franchises from billionaires. Some owners use these deductions to lower or even eliminate the taxes they owe to the team’s profits, he said.
What would be ramifications for owners and fans?
Appleby said the invoice could make the teams more expensive for potential buyers.
“I do not know that it is necessarily a deterrent factor because there is a finite number of professional sports franchises, and these values have increased exponentially because of this rarity,” he said.
Robert Boland, professor of sports law at Seton Hall University, said that owners could adopt the effects of the increase in fans on fans via tickets, goods and more expensive streaming costs.
“The team owners are already good enough to get each dollar out of a franchise,” said Boland. “I do not know if they can tighten much more there, but ultimately, the costs that come to owners are generally transmitted to fans or consumers in one form or another.”
Higher taxes could also lower the price that potential buyers are ready to pay for teams.
“If the deductions are less, it means that they might have to finance more of the team themselves, which means less money for players’ contracts, less money for amenities in stadiums, less money to penetrate the team, in theory,” said Bank.
While the new owners of the NFL and the MLB could probably absorb the blow, the proposal could pose larger challenges for advanced and female sports franchises, where fewer tax lightening could make investment strings to justify, said the entrepreneurial teacher at the University of Caroline Chris Mumford.
“This could have a real cooling effect on new and innovative sports franchises” where an even greater share of the value of a team is intangible assets, said Mumford. “It is potentially very disadvantageous for new leagues or new league franchises.”
What is the next step?
The proposed tax bill is part of the radical economic plan of President Donald Trump and must make his way through certain procedural measures before facing a vote in the Chamber and the American Senate. The Trump administration previously said that it wanted to end “all special tax lounges for the owners of billionaire sports teams”.