A small provision in the GOP tax law could soon become a nightmare for the NBA and MLB

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March 19, 2018 8:16 PM

Trade in professional sports leagues like the MLB and NBA are now subject to taxes, but no teams know exactly how much to pay the government.

A tweak to the tax code as part of the new GOP tax law is causing problems for professional sports teams.
The change makes trades of assets subject to capital gains taxes.
This is a problem because leagues like the MLB and NBA aren't sure how to exactly value assets like players and draft picks.

A small tweak to the tax code as part of the new Republican tax law could cause headaches for the US's major sports leagues — and none of them are sure how to address the issue.

A new report from the New York Times' Jim Tankersley highlighted a small shift in the tax law's treatment of asset trades between businesses:

The change helped to mitigate the large cost of the tax bill's cuts and will raise billions of dollars in revenues over the next decade, but it also leaves professional sports teams in a bind.

Determining the value of different assets in a sports trade, from players to prospects to draft picks, can be difficult.

For instance, what is the fair value of an older player on a large contract compared to two promising young players and an extra draft pick? Is a large contract really a player's "fair value" if the player is injured and won't be able to play for part of that contract? Is trading a big contract for future flexibility under salary cap rules valuable even if a team takes on nominally cheaper contracts in a trade?

MLB chief legal officer Daniel Harlem told the Times that there is no way to determine the exact value of player in, and the change is perplexing the league.

Read the full report at the New York Times »

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