Owners like Steve Ballmer can take the kinds of deductions on team assets — everything from media deals to player contracts — that industrialists take on factory equipment. That helps them pay lower tax rates than players and even stadium workers.
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Ballmer pays such a low rate, in part, because of a provision of the U.S. tax code. When someone buys a business, they’re often able to deduct almost the entire sale price against their income during the ensuing years. That 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 and should be counted as expenses.
But in few industries is that tax treatment more detached from economic reality than 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. But Ballmer still gets to deduct the value of those assets over time, almost $2 billion in all, from his taxable income.
This allows Ballmer to perform a kind of financial magic trick. If he profits from the Clippers, he can — legally — inform the IRS that he is losing money, thus saving vast sums on his taxes. If the Clippers are unprofitable in a given year, he can tell the IRS he’s losing vastly more.