Sheryl Ring looks at how the new tax law might impact trades and free agency. This was the most fascinating bit:
It used to be that trading players was considered a “like kind exchange.” That’s a technical way of describing a swap for items of the same kind — as opposed to one party using money to acquire an item from another party. You can find like-kind exchanges in Section 1031 of the Internal Revenue Code — or, you could find them there until tax reform made like-kind exchanges of non-real property assets taxable. In other words, teams now have to pay taxes on trades they make, depending on whether or not they realized a “taxable gain” from the trade. And if you’re talking about deals for stars on big contracts, that matters, but potentially not in the way you think.
According to the tax law firm of Seward and Kissell,
[t]he value of a player rests in his or her future performance, which is difficult to predict. Teams may have to adopt or develop a method of valuing player contracts for tax purposes, such as actuarial values based on player age and the average length of a professional sports career. Teams trading players would then recognize gain or loss on a contract when a player is traded equal to the difference between the contract’s actuarial (or other) value and the team’s basis in the contract.
That’s right: the contract value isn’t the thing. The asset value is.
The article is interesting throughout, as both players and owners will need to adjust to the new tax law in myriad ways.
Didn’t Charlie Finley at some point try to lower his taxes by claiming players as depreciating assets?
Theron » That would not surprise me.
#1. Teams are doing that now. They are depreciating player assets over a 15 yr period after purchase. Its called the Roster Depreciation Allowance. Teams are allowed to call 95% of the purchase price as player assets. So Jeters group with a 1.2 billion purchase price gets to deduct 70 million a year in depreciation for 15 years in addition to players expenses 90 million and other expenses. Rest assured, Marlins will not pay a dime in taxes for the next 15 years and beyond (assuming losses are carried forward). The owners will also be able to take the losses and offset personal taxes owed due to their profitable ventures if they choose
As for the tax consequences on trades, it seems to me that a trade between 2 teams, each team thinks they are getting as much as they are giving up. You can bet not many teams are going to value their trades as significant gains.
Using the example of a veteran star for prospects. The former has less surplus value for an average team, but that surplus value depends on where you are on the win curve. More for a competitive team and less for a bad team. The prospects have more surplus value potentially, but thats in the future and subject to prospect bust rates. If you look at
Katoh even top prospects have rather modest WAR projections.Too bad we probably never see how teams are handling these trades.
Also, even if a trade shows a gain, it does not necessarily mean a team pays taxes as they likely have losses to
carry forward or are showing a loss in the present year.
So much is unseen with MLB finances we can only say their tax accountants will be the clear winners
Katoh by the way has gone private. Me thinks MLB bought out the algorithm for this reason
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