Friday, April 15, 2016

A Tax Shelter for the Rich Sports Fan With 500 Hours to Spare

Ben Steverman explains:

Why would anyone spend $24 million to buy a 1 percent stake in the New York Yankees? Minority ownership seems like a lose-lose proposition: A lot of money for very little power. For wealthy sports fans, though, it’s cool -- and can be one heck of a tax shelter.

Owning a piece of a team can create the kind of on-paper losses that cut a wealthy owner’s bill to the Internal Revenue Service. A sports team “spits out losses that offset other income," says Murray Solomon, a tax partner at the accounting firm EisnerAmper in New York City. “Then at the end of the day, you can sell the investment and make money.”

To get the full tax benefits, many owners need to be actively involved in the management of their team, a requirement that, for IRS purposes, requires 500 hours of attention, or about 10 hours a week. For a sports fan, it’s not onerous. In baseball, with its 162-game season, “You can get to 500 hours during the season just by showing up and enjoying the games,” says Robert Wilson, managing member of Black Diamond Strategic Management, a consulting firm in Calverton, N.Y.

Watching sports and reading about sports can count. So can travel to and from games. Married couples can combine their time spent, doubling investors’ hours whenever they bring their spouses along....

What’s more, sports teams often show losses that don’t actually lose investors any money. Investors are generally allowed to write down the value of the initial investment in a sports team over 15 years. Even though franchise values are rising, IRS rules automatically assume the opposite...

[But]  if your team does badly, it can be more than discouraging. “The whole city can hate you,” ” Bobbi Bierhals, a Chicago-based law partner at McDermott Will & Emery, says


  1. Tax shelters are typically based on non-recourse leverage. Buying something that loses "real" money that has to be funded from somewhere (most likely your pocket) is not much of a tax shelter, even if you sell the team down the road for a profit. Not sure what kind of paper losses that guy is talking about.

    Also, the ownership would also have to be structured as a partnership (Negative: you have to be a general partner to avoid passive income/loss rules and thus personal liability flows through too) or in a flow through corporate entity (Negative: very limited capital structure)to work, otherwise the losses would stay at the corporate level. I think this is a real stretch of an argument.

  2. Someone needs to turn that into a time share