The GOP tax bill reportedly could have an impact on MLB and NBA trades
Unintended or intended consequence? You decide
Normally in this space we would not concern ourselves with matters such as the recent GOP tax bill, but as it turns out there are some sports implications therein.
The bill expands a previously little known sliver of the tax code that, in a consequence that may be unintended or fully intended, could complicate trades in MLB and perhaps the NBA. Basically, the exchange of player contracts for several decades had not exposed the teams in question to capital gains taxes. Now, that appears likely to change. Jim Tankersley of the New York Times explains:
Until this year, the "like-kind" provision allowed owners of similar types of property, such as machinery or fleet vehicles, to swap their assets without paying taxes on either party's gains until the asset was sold. In a baseball or basketball trade, the assets aren't players, they are the players' contracts — and the I.R.S. was allowing them to be exchanged without fear of taxation.
The new law breaks that peace, by limiting like-kind exchanges to "real property," which is shorthand for land or other real estate.
The example Tankersley provides is the Astros' acquisition of Justin Verlander from the Tigers last season in exchange for prospects and the offloading of salary obligations. To levy a tax on the Astros, though, you have to apply a taxable dollar figure to the value that Verlander brings to the club. And how do you value the future, long-term assets going back to Detroit? Wait five years to see how those prospects turn out?
It's a complicated situation, and as Tankersley's story makes clear, teams are amply confused by it.
Clarity is needed. To be sure, MLB and NBA franchises aren't hurting for money, so a relatively modest bump in their tax liabilities doesn't amount to a crisis. It will, however, potentially serve as an impediment to deal-making, and that, by extension, could make off-the-field/court happenings less compelling for fans. For that reason, let's hope teams get some guidance on this matter very soon.
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