Series: The Secret IRS Files
Inside the Tax Records of the .001%
In the latest installment of “The Secret IRS Files,” ProPublica delved deep into tax information for dozens of team owners across the four largest American pro sports leagues. Here’s what we found:
1. Billionaire team owners often pay lower federal income tax rates than their millionaire players — and sometimes even lower rates than low-paid stadium workers.
Take Steve Ballmer, owner of the Los Angeles Clippers and former CEO of Microsoft. For 2018, Ballmer reported making $656 million to the IRS. His federal income tax rate was just 12%. Compare that with Lakers star LeBron James, who reported making way less than Ballmer, $124 million, but whose tax rate was significantly higher than Ballmer’s: 35.9%. Ballmer’s tax rate was lower even than that of Adelaide Avila, a concession stand worker at Staples Center. Her rate was 14.1% — higher than Ballmer’s even though his income was almost 15,000 times greater than hers. (A Ballmer spokesperson told ProPublica that he “has always paid the taxes he owes, and has publicly noted that he would personally be fine with paying more.”)
2. The tax rates for team owners are so low, in part, because the tax code allows them to write off almost the entire purchase price of their teams, a system experts say is detached from economic reality. This is called “amortization.”
When someone buys a business, they’re often able to deduct almost the entire sale price against their income during the ensuing years, which allows them to pay less in taxes. The underlying logic is that the purchase price was composed of assets — buildings, equipment, patents and more — that degrade over time. But in professional sports, teams’ most valuable assets, such as TV deals and player contracts, are virtually guaranteed to regenerate because sports franchises are essentially monopolies. There’s little risk that players will stop playing for Ballmer’s Clippers or that TV stations will stop airing their games. Nonetheless, team owners get to amortize, or write off, those assets, even as they actually rise in value.
3. Owners across the NFL, NBA, NHL and MLB reported incomes for their teams that are millions below their real-world earnings, according to ProPublica’s review of tax information, previously leaked team financial records and interviews with experts.
Ballmer’s Clippers reported a whopping $700 million in losses in a recent five-year span. Shahid Khan, an automotive tycoon, made use of at least $79 million in losses from a stake in the Jacksonville Jaguars even as his football team has consistently been projected to bring in millions a year. Leonard Wilf, a New Jersey real estate developer who owns the Minnesota Vikings with family members, has taken $66 million in losses from his minority stake in the team. (A Khan representative said “we simply and fully comply” with all IRS rules; Wilf did not respond to questions.)
4. These amortization benefits allow team owners to transform real-world profits into losses for tax purposes, allowing them to avoid taxes not just on their team profits, but also on income from other ventures.
Before hedge fund magnate David Tepper bought the Carolina Panthers, the team had exhausted its amortization write-offs and regularly reported millions in profits. But after Tepper bought the team, allowing amortization write-offs to begin anew, the Panthers swung from a large taxable profit to a tax loss of about $115 million, according to a ProPublica analysis of IRS records. While it’s not known whether the team had real-world profits that year, there’s no evidence that anything significant about the Panthers’ real-world revenue and expenses changed between 2017 and 2018. (A spokesman for Tepper did not respond to a request for comment.)
5. The losses team owners get to report because of their stakes in pro sports teams allow them to dramatically reduce their personal tax bills.
ProPublica’s analysis found that Ballmer has saved about $140 million in taxes because of the Clippers. William Foley, owner of the Las Vegas Golden Knights, saved more than $12 million in taxes over two years because of his stake of the hockey team. (The chief legal officer for the Golden Knights didn’t respond to tax questions but noted that a key revenue stream is used “to pay rent, to employ hundreds of people, provide outstanding entertainment and create a source of pride for our community.”)
6. Even the team owner who pioneered the depreciation of player contracts in the mid-20th century called the maneuver a “gimmick.”
Bill Veeck, owner of the Cleveland Indians in the 1940s and later the Chicago White Sox, said in his memoir: “Look, we play the Star Spangled Banner before every game. You want us to pay income taxes too?” Veeck got it so new owners could deduct player salaries as a regular expense, the standard practice, but also add a second deduction: to amortize the value of contracts for players already signed to the team. The value a new owner assigned to those contracts when he bought the team could be used to offset taxes on team profits, as well as any other income he might have.
7. The tax code has evolved to allow team owners to write off a wide variety of assets beyond just player contracts.
The law now allows new owners of teams to also write off television media deals and league franchise rights. Before the rules around amortization were loosened in the 1990s and 2000s, the IRS often insisted that assets could only be amortized if they had a real, finite lifespan and actually lost value over time. Now, that isn’t the case.
8. Advocates for team owners point out that when owners sell their teams, they have to pay back the taxes they avoided by using amortization. The reality is more complicated.
Even if owners ultimately repay the taxes they skipped, deferring payment of those taxes for years, sometimes decades, essentially amounts to an interest-free loan from taxpayers. An owner could reap huge gains by investing that money. More significantly, if owners die while holding their stake, as many do, the tax savings may never be repaid. And their heirs can generally restart the amortization cycle anew.