A ruling last month by Denver’s Second District Court has paved the way for the sale of the Denver Broncos, whose ownership future has been in flux since Pat Bowlen died without naming a successor in 2019. It is expected to be the most expensive team sale in U.S. sports history, topping the $3.3 billion Joe Tsai paid for the Brooklyn Nets and the rights to operate Barclays Center in a deal completed in 2019. Sportico valued the Broncos at $3.8 billion in September.
Another likely milestone: The biggest tax write-off ever for a team owner, expected to exceed $3 billion, based on the current tax code.
The IRS treats sports teams like any other business when they are purchased. Through amortization, the new business owner can write off intangible assets over 15 years. But the big difference between a typical business and a sports team, is nearly the entire value—90% or more in some cases—is made up of intangible assets, from player contracts, media rights, goodwill and more.
The write-off slashes the team’s income tax burden and also can offset an owner’s personal tax liability from non-team income, according to Robert Raiola, director of the Sports and Entertainment Group at accounting firm PKF O’Connor Davies.
Representatives for the Broncos started interviewing sell-side bankers in November, and many NFL insiders think the Broncos could fetch $4 billion on the open market. That price would generate $240 million in depreciation annually for each of the next 15 years for the new owner or $3.6 billion overall, based on 90% of the purchase allocated to intangibles.
“The tax break is clearly an issue when people think about what they’re going to pay for a team, but it’s not the major factor of whether or not someone bids on these clubs,” said one veteran sports investment banker, who points to scarcity value, media content value and owning a non-correlated asset to the market as bigger business drivers. A new owner’s source of wealth could also impact the desirability of the tax break. Energy billionaires can get tax offsets through depletion allowances, while real estate investors use deprecation to cut taxable income. A tech billionaire, however, might find the amortization from a team purchase more desirable. The tax break is limited to the general partner in one of these transactions.
The first case of an owner depreciating a portion of a team purchase dates to 1946, when Bill Veeck—one of the most innovative owners in baseball history—was buying the Cleveland Indians. The IRS accepted Veeck’s logic to write off the value of player contracts over five years at a time when the top individual tax rate was 91%, albeit with much more liberal deductions. The ruling changed the economics on sports team ownership forever.
The IRS eventually capped the write-off for team owners at 50% of the purchase price in what was known as the Roster Depreciation Allowance, but the American Jobs Creation Act of 2004 expanded the provision to all intangible assets, which pushed the write-off to 90% or greater in some cases.
As franchise valuations have soared, new owners have enjoyed bigger write-offs. A 2021 ProPublica feature detailed the benefits for high-profile owners David Tepper and Steve Ballmer.
Hedge fund titan Tepper bought the Carolina Panthers in 2018 for $2.28 billion, the current record NFL sale price. The deal would produce an annual amortization expense of nearly $140 million. ProPublica found that the Panthers swung from a large annual profit to a loss of roughly $115 million after Tepper’s purchase.
Ballmer shocked the sports world with his $2 billion purchase of the Los Angeles Clippers in 2014. It was perceived as an inflated price at the time, but Sportico recently valued the team at $3.16 billion, and the value will continue to move up, as the team opens its $1.8 billion privately financed home, the Intuit Dome, in 2024. Forbes currently tabs the former Microsoft CEO as the 10th richest person in the world, with a net worth of $95 billion.
The $2 billion Clippers sale price produces an annual tax write-off of roughly $120 million, and ProPublica says Ballmer reported a total of $700 million in losses from his Clippers ownership between 2014 and 2018, offsetting a portion of his massive income from Microsoft dividends and other business income. Ballmer has publicly stated he’s open to paying more taxes, telling Andrew Ross Sorkin, “Because I’ve been very fortunate, I can say to you I’d be happy personally to pay more taxes.”