“Steve Ballmer stands to gain as much as $1bn in tax benefits as a result of his $2bn purchase of the Los Angeles Clippers basketball team, helping to explain why the Microsoft billionaire paid a record price for the club,” Arash Massoudi and Alan Livsey report for The Financial Times. “Mr Ballmer paid about four times the next highest price paid for a professional basketball team when he bought the National Basketball Association franchise in May. An FT analysis of US tax laws shows that Mr Ballmer could claim about half of the purchase price in current terms over the next 15 years against his taxable income. The credits can be claimed under a little-known feature of the tax code covering so-called active owners of sports franchises.”
“The exemption for sports teams was brought into law about a decade ago to resolve concerns over how media rights were accounted for, tax experts said. But they also create a powerful incentive for wealthy individuals to indulge in projects they are passionate about, in effect subsidised by the US government,” Massoudi and Livsey report. “Under an exception in US law, buyers of sports franchises can use an accounting treatment known as goodwill against their other taxable income. This feature is commonly used by tax specialists to structure deals for sports teams.”
“Goodwill is the difference between the purchase price of an asset and the actual cash and other fixed assets belonging to the team,” Massoudi and Livsey report. “In this case, Mr Ballmer can spread the goodwill over 15 years and reduce his tax liability on his other income by a certain amount for each of those years
Using a conservative model that assumes Mr Ballmer could account for $1.5bn in goodwill and a re-investment rate of 7 per cent, the potential tax credits equate to about $1bn in current terms.”
Read more in the full article here.
MacDailyNews Take: So, in effect, after 15 years, Monkey Boy will have only overpaid for the Clippers by a factor of two instead of four. He likes his strategy, he likes it a lot.