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Buying losing sports teams is still great for business — thanks to the tax breaks

SCOTT SIMON, HOST:

NFL owners are expected to approve the sale of the Washington Commanders next week to a group led by Josh Harris. The Commanders have been a losing and scandal-ridden team in recent years, but they'll still cost $6 billion. Josh Harris knows the sports business. He already owns the Philadelphia 76ers basketball team and hockey's New Jersey Devils. Wealthy sports owners like Josh Harris are familiar with the provision in the U.S. tax code that allows them to essentially write off almost the entire purchase price of their teams.

Robert Faturechi is an investigative reporter at ProPublica, and he has reported on this. Mr. Faturechi, thanks so much for being with us.

ROBERT FATURECHI: Thank you for having me.

SIMON: I think we all got to know, how do these write-offs work?

FATURECHI: So, you know, the tax code is such that when someone buys a business, they're able to deduct almost the entire sale price against their income during the years that follow. The underlying logic is that, you know, the purchase price was composed of assets. And, you know, typically these would be buildings and equipment and patents, and these degrade over time. And so they should be counted as expenses. But in, you know, professional sports, that tax treatment is almost entirely detached from the real economic situation.

You know, teams' most valuable assets are virtually guaranteed to regenerate because sports franchises are essentially monopolies. Their TV deals keep getting bigger. Players keep playing for them. But they're allowed to treat these assets as if they are degrading like a piece of equipment in a factory.

So, you know, to use an example, Steve Ballmer - the owner of the Clippers - he bought the team for roughly $2 billion. And what that means is that's roughly a $2 billion write-off for him in the years that come. You know, every indication we've seen is that they're profitable in real terms. But the IRS records we obtained - you know, Steve Ballmer's tax returns - show that during a recent year period he was able to write off $700 million in income because of his ownership in the Clippers. So not only does - you know, during those years, not only did Steve Ballmer not have to pay any taxes on any real-world Clippers profits, but he can also use the tax write-off to offset his other income. It's a very good deal for him.

SIMON: I mean, you know, people like Steve Ballmer, who are very rich, will point out will, you know, there's a reason why I'm rich. I know how to take advantage of these things. Doesn't every employee - and I'm thinking now, for example, of the players - aren't they able to take advantage of certain loopholes, too?

FATURECHI: In our in our story, we looked at a real-world example based here in Los Angeles, where I am. So first, LeBron James - in 2018, he made $124 million in income. He paid a federal income tax rate of 35.9%. So now take the example of Adelaide Avila. She's a concession-stand employee at Staples Center, or I should say Crypto.com Arena, as it's called now.

SIMON: Whatever it is now, yeah.

FATURECHI: Yeah, yeah. So she reported making $44,000. That same year, the government took a 14.1% cut. So now Steve Ballmer, owner of the Clippers - so that same year he reported making $656 million. And the records we reviewed - his, you know, tax records - show that his tax rate was just 12%. So that's a third of what LeBron paid, even though Ballmer made five times as much as him.

SIMON: And he's paying a lower tax rate than somebody who works at the concession stand.

FATURECHI: Yeah. So that's what's really shocking. So even though Ballmer's income was almost 15,000 times greater than her salary, he paid a lower effective rate than even her.

SIMON: Wow. What about the argument team owners sometimes make that, still, when they sell the team, that makes them liable to a tax crunch there?

FATURECHI: Yeah. So that's a good point. And it's one that advocates for team owners raise. The idea is that once they sell their teams, they have to pay back the taxes that they avoided over the years. But even if owners ultimately repay the taxes that they skipped, they've essentially been deferring payment of those taxes for years, sometimes decades. And what that means is that, you know, they received an interest-free loan, essentially, from taxpayers, from you and me. And, you know, an owner could have reaped, you know, huge gains by investing that money, you know, instead of paying it to the government.

But then there's a catch to that. So if the owners die while holding their stakes - and that's often the case, right? - they just hold on to it - you know, it's in their will to go to their children and grandchildren - the tax savings never have to be repaid. You know, however many hundreds of millions of dollars you would have had to pay if you had sold the team, it disappears. That liability just vanishes.

SIMON: Hasn't always been this way, has it?

FATURECHI: Congress had initially excluded sports teams from its standard amortization rules, which we've been talking about. But following lobbying by Major League Baseball in 2004, sports teams, both, you know, from MLB and other leagues, were granted the right to use this deduction as part of a tax bill that was signed by George W. Bush. So now team owners can write off almost the entire purchase price of the teams that they own.

SIMON: Robert Faturechi is investigative reporter at ProPublica. Thanks so much for being with us.

FATURECHI: Thank you so much for having me. Transcript provided by NPR, Copyright NPR.

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Scott Simon is one of America's most admired writers and broadcasters. He is the host of Weekend Edition Saturday and is one of the hosts of NPR's morning news podcast Up First. He has reported from all fifty states, five continents, and ten wars, from El Salvador to Sarajevo to Afghanistan and Iraq. His books have chronicled character and characters, in war and peace, sports and art, tragedy and comedy.