Episode Overview

Title: Why, for Tax Reasons, You Should Buy a Professional Sports Team
Podcast: How Tax Works
Host: Matthew Foreman (Co-Chair, Falcon Rappaport & Berkman’s Taxation Practice Group)
Date: March 3, 2025
Theme:
Matthew Foreman breaks down the remarkably tax-advantaged world of owning a top-level professional sports team. Using real-world examples and focusing on the recent $6 billion sale of the Washington Commanders, he explains the reasons these teams can be phenomenal investments—especially from a tax perspective. The episode is unscripted, casual, and focused on providing practical tax insights for business owners, investors, and tax professionals.

Key Discussion Points & Insights

1. Why Professional Sports Teams?

• Profitability of Top-Tier Teams:
  • Big-league sports franchises are “phenomenally profitable,” with enormous revenues from media contracts, ticket sales, merchandise, and sponsorships.
  • Foreman dispels the myth that pro teams aren't cash cows: “The notion that they may not be profitable or it’s hard to turn a profit, belies one incredible fact—that the Washington Commanders, just the team that’s been not very good for 20, 30 years now, just sold for $6 billion.” (05:47)
• Example Used: The Washington Commanders’ recent sale is used to illustrate scale.

2. Revenue Is Boring—Expenses Are the Real Tax Story

• “From a tax perspective, it really isn’t that interesting...that’s just the revenue. Expenses are the more complex and nuanced thing.” (08:14)

Major Deductible Expenses and Structures:

• Plant, Property & Equipment (PP&E):
  • Stadiums and major equipment can be depreciated, with significant annual deductions (e.g., $1 billion stadium depreciated over 39.5 years equals about $50 million/year).
• Goodwill and Going Concern (Amortization):
  • The largest deduction is often the amortization of goodwill and going concern over 15 years.
  • “Let’s just lazily say it’s worth $3 billion...$3 billion divided by 15 is a gigantic, gigantic number. $200 million per year...That’s how much you’re amortizing every year.” (13:05)
  • These deductions can far exceed what most businesses can reasonably use in a given year.

3. Tax Loss Limitations—Why Owners Rarely Pay Current Tax

• There are four main limitations to consider with deductions:
  1. Basis (Sec. 752): Owners typically have ample basis after a purchase.
  2. Amount at Risk (Sec. 465): Often hits a ceiling, but most of a team’s value is at risk.
  3. Active Trader Business Limitation (Sec. 469): Most team owners are active participants, so can deduct losses.
  4. Limitation on Losses (Sec. 461L): Prevents shifting losses across businesses, but often not an issue for owners.
• “You are never going to use those losses, okay? You’re just never going to use them. Maybe you will, right, but...it’s going to sit there unused anyway until you have income from it.” (14:50)

4. Lifestyle Perks & Owner Benefits

• Attendance:
  • Owners often attend games as a legitimate “ordinary, necessary business expense.”
  • “You want to travel with the team? Travel with the team. That’s probably an ordinary, necessary business [expense].” (19:35)
• Networking & Parties:
  • Deductions available for “marketing expenses” related to hosting events, entertaining guests, etc.
  • “There’s a case called Cohan...he used to throw parties and deduct them as a marketing expense, right? Giving tickets…” (20:56)
• Family Employment:
  • Owners regularly employ family in the business, often with reasonable compensation.
  • “If you look at every single professional sports team except for the Packers...there are family members involved.” (23:42)
• Real Example: Jerry Jones’ philosophy of working with his children.

5. Tax-Transparent Insights from Real Team Financials

• Publicly traded teams (e.g., Atlanta Braves) and teams in litigation (Tampa Bay Rays) show profitability in financial disclosures.
• High payrolls (e.g., LA Dodgers) are themselves a sign of massive revenue and therefore substantial tax planning opportunities.

6. Capital Gains, Suspended Losses & Exit Strategy

• Owners often sell franchises when getting older or after death (for estate planning reasons).
• “You then use all your suspended losses, however they’re suspended, doesn’t really matter—they get used. And that’s really important.” (37:10)
• Foreman explains why it’s sometimes preferable to not accelerate losses immediately, given current tax law changes around NOLs (Net Operating Losses).

7. Buying a Team vs. Buying Other Businesses

• Core tax logic applies to any business acquisition—not just sports teams:
  • Buy business assets, not stock, to get depreciation/amortization step-ups.
  • “You buy it, you get to step up in plant, property, equipment...get to step up in goodwill going concern...” (45:20)
• Deductions help offset acquisition costs, but the time value and deal structure are crucial.
• If you just buy stock, you don’t get the step-up until you sell.

8. Quirky Tangents & Tax-Wonky Musings

• Stadium Seat Useful Life:
  • Playful musing on whether a stadium seat is a 5/7/10-year asset or gets the full 39.5-year stadium asset period.
  • “What is the useful life of a seat at a stadium? ... I can tell you that objectively, I did not research this question because I didn’t want to go down a rabbit hole.” (11:00)
• Pop Culture: Slap Shot movie, Jerry Jones TV appearance.

Memorable Quotes

• “First and foremost, if you own a professional sports team, we should hang out. And the reason for that is because you own a professional sports team...” (04:25)
• “From an income perspective, maybe, maybe not income perspective, but definitely cash flow positive. Right?” (07:23)
• “The biggest deduction that you get when you own a professional sports team...is not going to be the actual value of tangible property. It is going to be the amortization of goodwill and going concern over 15 years.” (12:00)
• “You are never going to use those losses...you’re just never going to use them. Maybe you will, right. But there’s limitations on them.” (14:52)
• “You want to travel with the team? Travel with the team. That’s probably an ordinary, necessary business [expense].” (19:35)
• “If you look at every single professional sports team except for the Packers...there are family members involved.” (23:42)
• “You then use all your suspended losses, however they’re suspended, doesn’t really matter—they get used. And that’s really important.” (37:10)
• “People always say, I’d buy a business, but it’s so expensive...but you get deductions to offset the income because you’re getting a step-up in basis from buying it, if structured properly.” (46:17)

Timestamps for Important Segments

• Intro & Premise - [00:09–06:10]
• Why Teams Are Profitable - [06:10–08:30]
• Revenue vs. Expenses - [08:30–12:00]
• Goodwill & Amortization - [12:00–15:30]
• Tax Loss Limitations - [15:30–20:00]
• Owner Perks (Travel, Parties, Family Employment) - [19:00–26:00]
• Public Company Financials as Proof - [27:00–30:00]
• Depreciation & Sale/Exit Strategy - [35:00–39:00]
• Generalizing to All Business Acquisitions - [45:00–48:00]
• Wrap-Up Reflections - [49:00–End]

Tone and Takeaways

Foreman uses a lightly irreverent, conversational style (“looser episode, not as much detail down for me”), combining deep technical insight with plainspoken explanations. The throughline is that massive deductions—especially from goodwill—effectively shelter years of huge profits from tax, and this core strategy can be applied beyond pro sports to any major business purchase. His message is both tongue-in-cheek and practical: “You should (maybe) buy a sports team...for the tax reasons.”

In Summary

• Owning a pro team = tax benefit goldmine due to large up-front amortization and depreciation write-offs.
• The primary benefits: generous deductions, lifestyle perks, and potential for deferred capital gains until exit.
• These strategies are not unique to sports—they’re the underpinnings of all savvy business acquisitions.
• The real-world structure (asset purchase vs stock) and active involvement are key to maximizing tax efficiency.
• If you’re thinking about buying a business—sports or not—think like a tax pro!