A proposed change in tax law designed to increase revenue from professional sports teams over the next decade could enhance the value of some sports teams by simplifying their long-term tax bill.
"It's one more factor in favor of buying a team," said Steve Greenberg, managing director specializing in media and sports at the investment banking firm of Allen & Company.
The legislation, contained in a giant trade bill making its way through Congress and first reported by the New York Times yesterday, could make a team such as the Montreal Expos worth more to a would-be buyer who held on to the team for many years, allowing the buyer to take full advantage of the proposed legislation's long-term tax benefits.
But a buyer looking to hold the Expos for a shorter term, such as five years, might see his tax bill rise significantly under the new law, according to representatives of the major sports leagues.
The issue centers on this: Current tax legislation allows businesses to deduct from their taxes 100 percent of their intangible assets on an evenly divided basis over 15 years. But sports teams were allowed to deduct only half of the assets, and spent millions in legal and accountants' fees fighting the Internal Revenue Service each year.
Sports teams want the same standard as other businesses, according to representatives of the league.
"It slightly affects the value of the franchises, maybe up to 5 percent, but I don't think it's enough to affect anybody's decision on whether or not to buy a team," said Sal Galatioto, head of sports finance for Lehman Brothers. "Most people don't buy [teams] as purely business decisions."
Aside from the NFL, many professional sports teams lose money. Most owners recoup years of losses and turn a big profit by selling their teams for much more money than they paid for them. Any tax benefit that could enhance a team's value would likely be prized by sports team owners.
And that benefit comes to about 5 percent of the team's value, according to Robert Willens, managing director and tax and accounting analyst for Lehman.
"Every major league franchise will benefit," said Willens. "It's just a matter of arithmetic."
Andy Friedman, tax counsel to the NFL, disputes Willens's analysis, saying that it does not take into account the fact that owners are allowed to write off the rest of their assets when they sell the team.
"Whether a team benefits depends on how long that team is held," Friedman said.
Friedman pointed to a congressional report that showed that teams will be paying greater taxes overall for the next 10 years. After that, he said, it's up for grabs on who benefits.
U.S. Treasury Department spokesman Tara Bradshaw said yesterday that Treasury has not taken a position on the provision contained in the proposed legislation, but said "it simplifies the law and eliminates disputes between the IRS and taxpayers about appropriate amortization periods."
The Clinton administration proposed allowing sports teams to deduct all of their assets in return for spreading the deductions over a longer period of time. The effect is to present the government with more revenue over a 10-year term.