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11-22-2012, 01:25 AM
Redgren Grumbholdt
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The Roster Depreciation Allowance and the NHL

A peculiarity of the tax code related to owning a professional sports team is the Roster Depreciation Allowance, which allows those who purchase professional sports teams to depreciate the entire cost of the franchise over 15 years\. When talking about owners "hiding" profits during this lockout, this should be the first topic being brought up.

Introduced by Bill Veeck when he purchased the Cleveland Indians in the 1940s, the logic was that when he purchased the team, he assigned the vast majority of value of the team to "intangible player assets", their players. Because this is an intangible asset, he depreciated this value over a number of years. This argument is flawed at best, assuming that the intangible value of players only declines when one purchases a team, and never increases. In the paper linked below, it is compared to how farmers are apparently allowed to depreciate livestock as they become less useful. Again, the analogy is flawed, livestock arent people, and players have choices. Free agency and trades muddle the idea even further.

If you still follow me, this argument means that owners are allowed to double count (at least with regards to tax liability) costs related to players' salaries, as an actual expense (what the owner pays the players in any given year) and as a depreciation of the initial cost of the franchise.

This scholarly article details the RDA much better than I can, and it has some (dated, and frankly, ********) comments from Caps owner Ted Leonsis on the topic. He claims that the Caps make no money and doesnt have to worry about this. But losses and gains are passed through to the owner with regards to tax liability/benefit, so it can offset other income the owner has. The comparative static analysis in the paper isnt an easy read, but the introduction and conclusion are easy enough understand.

Some questions I have
1) An interesting note in the paper was that the NHL and NBA didnt lobby for/against it when it was amended in 2005, although the NFL and MLB did. Was this a case of letting the bigger leagues take the lead or is Leonsis right in that it doesnt really affect teams that lose money?
3) Is there any comparable tax benefit for Canadian teams? I assume not.
4) The paper only talks about this with regards to tax implications, but when teams report that they are losing millions, is this included in that calculation? I guess it is impossible to tell without owners opening up their books, but is this something an auditor for the NHLPA can call ******** on?
4) Any other comments or insight on the topic? BoH is pretty good about being knowledgeable about this stuff.

From what I have read on the topic, it is complete bull. They are essentially depreciating a cost that simply does not exist. As a taxpayer (albeit, a small one), I am annoyed as this is just another way the uber-rich shelter their taxable income, especially where Americans just came off of a political season filled with debates on closing tax loopholes. It should be noted that the RDA allowed was INCREASED in 2005 to allow 100% depreciation of the purchase price over 15 years from 50% of the purchase price over 5 years, thanks again George W!

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