Maple Leafs 1st NHL team worth $1 billion US
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11-28-2012, 01:10 PM
Join Date: Jan 2012
Some things teams have done or currently do to make income look lower than it is (for tax purposes):
1. Players are considered as 'assets' for teams. In accounting you are supposed to depreciate assets that will generate revenue for more than 1 year to better match their cost with the revenue they generate. What this does is not only do the teams pay the players and list the players salary as 'salary expense', but you also take their salary and make it a depreciation expense. Basically double counting some of the players salary and reducing it from your income to make your income look less than it is.
2. Team Owners have paid themselves a salary.
eg. Say a team gets 100m in revenue and an income of 0, now the owner pays them self a 10m salary. This now reduces the income of the team to -10m, increases the income of the owner from 0 to 10m on their personal income tax (PIT). You can make your team a certain type of corporation that makes it become a 'pass through firm' letting any income from the team go towards your PIT. The team's income is -10m, the owners income is 10m. The teams income gets passed through to the owner and now it appears as if the owner has no income and therefore doesn't pay and PIT.
3. Reserve senior positions in the company to family (fairly similar to #2)
4. Borrow money from the team at a 0% interest rate.
Now the owner can invest the borrowed money and make it look like a loss and again similar to #2 reduce their taxes.
5. Revenue Shifting
eg. Rogers owns the Jays. Rogers broadcasts the Jays game. Rogers doesn't pay the Jays the market value for the rights to broadcast the games. Jays get less revenue because of this, shifting the revenue instead to Rogers. Jays earning less money allows them to get some more money from the league profit sharing (or pay less into the league profit sharing, I'm not sure on how it works in the MLB).
Tricks like these are (or once were) legal. All accounting practices are followed and no rules are broken. These are some examples of how teams make it look like they are losing money when they really aren't.
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