An extensive report from ProPublica documents how sports franchises are uniquely valuable to their owners due to how they are able to deduct almost the entire sales price against their income during the ensuing years and pay less in taxes.
"Teams’ most valuable assets, such as TV deals and player contracts, are virtually guaranteed to regenerate because sports franchises are essentially monopolies," writes ProPublica.
While a team's franchise rights never expire, they get treated as though they have a finite life span for taxes purposes. In the past two decades, the average value of basketball, football, baseball and hockey teams has grown by more than 500%.
IRS records obtained by ProPublica show the Los Angeles Clippers, owned by Steve Ballmer, have reported $700 million in losses for tax purposes from 2014 until 2018. Ballmer is able to not pay tax on any profits made by the Clippers and he can also use the write-off to offset his other income.
Ballmer’s spokesperson declined to answer specific questions, but said “Steve has always paid the taxes he owes, and has publicly noted that he would personally be fine with paying more.”
Ballmer's $2 billion purchase price for the Clippers was shocking at the time, but he thought it was a sound investment.
“It’s not a cheap price, but when you’re used to looking at tech companies with huge risk, no earnings and huge multiples, this doesn’t look like the craziest thing I’ve ever acquired,” he said at the time. “There’s much less risk. There’s real earnings in this business.”
Two years later as the league negotiated a new collective bargaining agreement, Ballmer was more bearish about the NBA's finances.
“I’m a new owner and I’ve heard this is the golden age of basketball economics. You should tell our finance people that,” he told a reporter in 2016. “We’re sitting there looking at red ink, and it’s real red ink. I know, it shows up on my tax returns.”
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