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Once Major League Baseball’s pandemic-shortened 2020 season came to an end, the financial leaks began. MLB wanted you to know they had lost money, so much money, and that it was going to impact them in so many ways for years to come — just something to keep in mind as collective bargaining came closer to center stage, you know? You couldn’t trust MLB crying poor back in October, and you couldn’t trust it in December, either, when team sources kept leaking unbelievable figures to journalists like Bill Madden, in the hopes of convincing everyone that these folks were truly going through something because there were fewer games played and no tickets sold for the 2020 season.
As I said at the time to counter Madden’s doom and gloom:
Revenue from attendance (which includes tickets, parking, concessions, and in-stadium merchandise purchases) accounts for around 40 percent of the revenue in a given season, and player salaries were scaled down to just 37 percent of their usual size since that’s the percentage of a regular season that was played. Where, exactly, are these losses coming from? Certainly not from “TV and radio” or “merchandising” as Madden says, not when the other 57 percent of the season was played and broadcasted, not when MLB.com still had a shop that takes orders. Are all of the numbers smaller than usual? Yes, including how much MLB teams had to pay out in order to have a shortened season.
MLB isn’t going to reveal the math behind their reported losses, so you can’t trust what they report. Franchise values are still going up in spite of the pandemic, with Forbes saying investing in MLB remains “a sure bet.” The debt they speak of isn’t debt like you and I deal with: their debt comes from a desire to invest, and thanks to the low interest rates inherent in this kind of capital-based borrowing, they’re going to make much more money than they would have if they hadn’t taken on the debt in the first place. There is no money for free agents, though, nor time to let teams know whether or not they are going to need to sign a designated hitter or not for 2021.
My pointing out that MLB won’t reveal the math behind their reported losses is based on the league’s own history, in which they have, for decades and decades, found ways to spin their numbers so that a profit actually looks like a loss, and since they don’t need to reveal the full range of their figures to even the Players Association, there is rarely a way to call them out on it with evidence instead of just “we know you are full of shit.” We’ve got one of those rare opportunities right now, though, thanks to reporting by ProPublica on how the rich and powerful handle their taxes (spoiler: dishonestly, and for profit). The most recent entry in the series is on billionaire sports owners, which is right up this newsletter’s alley.
As explained by ProPublica’s trio of reporters, the origins of the tax loopholes owners exploit in order to be able to report that to the government that they’re losing money when they’ve actually turned a profit can be found in MLB, through Bill Veeck. Veeck figured out a way to get a second tax deduction on player contracts, through depreciation, by setting up a system where the contracts were treated as a separate asset from the club itself, which in turn allowed owners to assign a huge percentage of a team’s value to the player contracts themselves. Things escalated from there:
Following lobbying by Major League Baseball, in 2004, sports teams were granted the right to use this deduction as part of a tax bill signed by President George W. Bush, himself a former part owner of the Texas Rangers. Now, team owners could write off the price they paid not just for player contracts, but also a range of other items such as TV and radio contracts and even goodwill, an amorphous accounting concept that represents the value of a business’ reputation. Altogether, those assets typically amount to 90% or more of the price paid for a team.
That means when billionaires buy teams, the law allows them to treat almost all of what they bought, including assets that don’t lose value, as deteriorating over time. A team’s franchise rights, which never expire, automatically get treated like a pharmaceutical company’s patent on a blockbuster drug, which has a finite life span. In reality, the right to operate a franchise in one of the major leagues has in the last few decades been a license to print money: In the past two decades, the average value of basketball, football, baseball and hockey teams has grown by more than 500%.
This is how you end up in a situation where a team owner making tens or hundreds of millions in profit can claim that they’ve actually lost money. A team’s assets are essentially misclassified, used to abuse the tax system, with the results all going into the pockets of owners. They deduct and deduct some more until they pay a significantly lower tax rate than the players or even concessions workers, despite the fact they make enough money in a year to pay a team full of players, staff, the company the concessioners work for, and so on, with plenty of profit left at the end.
It’s absolutely worth reading the entire ProPublica piece, especially since they have a better grasp on the specific tax language than I do, as well as specific examples that walk you through the process and the problem. At the least, it’s something to keep in mind next time you see the owner of a baseball team — or any professional sports team, really — start complaining about losses and crying poor. That’s all an act, a part of the bogus accounting that lets them avoid paying their fair share not just to players and staff,, but to the government, which, in theory, anyway, is supposed to be using that money for all of us, for roads and schools and hospitals and, I don’t know, helping stop the spread of a pandemic that’s ravaging the country, and so on. You know, the little things.
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