Feb 23, 2022
7 mins read
...Or, 'How Don Garber Can Save You Millions On Your Tax Liability'
Way back in the halcyon days of October 2021, before Omicron swept through like Russia into an eastern-Ukraine oblast, I did some tweets relating how Newcastle's recent purchase could maybe help explain to folks the way MLS was using its franchise valuations as a tax avoidance vehicle. This, of course, upset MLS people, some of whom failed to grasp basic ideas like "depreciation" of an asset or "money".
A common response was to tell me how much a certain MLS franchise had sold for at some time in the near past. Some Orlando City fans were adamant that their MLS outlet store was not simply being used by billionaires to rack up tax breaks over the next decade and half, allowing them to offset income from other areas of their portfolio. No, OCSC is worth goddamn $450 million because that's what MLS said when it was bought by DeVos and Wilf families!
I tried to explain a bit how this works in a series of tweets but couldn't really get all the way through it. Certainly not in a way that committed MLS fans (which is still just the weirdest goddamn thing, fans of a league) would choose to understand. It's just impossible to extend the idea that OCSC or the Salt Lake City brand or whatever is simply a means to an end for owners of teams in other sports leagues to cover up even more assets, even though they're the ones (or their friends) that have propped up MLS for nearly three decades now.
Since I pissed off the MLS fans lot again on Tuesday by simply pointing out that CBS was showing a Champions League tie on free-to-air TV in the middle of the afternoon while the MLS Cup is so important to Disney they preempted its ABC broadcast for a non-conference women's college basketball game, I thought I'd spend an extra 10 minutes and actually put this down. Plus, I need to write more than I do. Problem solved.
Franchise valuations and other magic numbers
As I said, all this bullshit started because I pointed out that the sale of Newcastle was representative of market value and available to be analyzed because its value actually exists in a model you can see: shares. X-number of shares were bought for Y-price and here's how that stacks up against other similar-sized clubs, either in the same league or others throughout Europe and the world. If you're one of those ridiculous people that care about industry-water-carrying pubs like Forbes, they make nice big lists every year trying to show what sports franchises in the US and individual clubs around the world are supposedly worth.
So you can sit there and have some discussion and maybe understand where the Newcastle price came from. Plus, you can see that like every other billionaire plaything, the value of sports teams went up during the pandemic. You pretty much can't lose once you reach that spot. I'm sliding away from the topic here now, though.
My point and a generally accepted concept among people not blinded by shiny things like aluminum foil or a lost birthday balloon drifting away into the setting sun is that US sports franchises, and MLS ones now in particular, are used as a means to dodge tax burdens for very wealthy people. MLS helps this by declaring franchise valuations upon purchases, whether for new majority/outright ownership or as a smaller percentage of the teams.
This is why we get numbers anywhere from $400-800 million when we ask the league what a specific outlet is worth. This is how Orlando City, who did $49 million in revenues in 2019, have a MLS-touted evaluation of $450 million at their time of purchase of an undisclosed price while Newcastle, whose annual EPL TV revenue alone is about four times that amount, is worth $414 million in actual money that we can see in terms of a share purchase.
Why the madey-up numbers? Because the people from other sports and wider business ventures can use a lovely bit of the tax code former MLB owner and 1.25-term governor of Texas George W. Bush got for all his sports franchise owner buddies. To keep it very simple, it works like this:
You buy your MLS franchise for an undisclosed total and the league sticks a valuation of $450 million on your purchase.
You can take around 90 percent of that price and treat it like a business expense to be written off, in this case, $405 million.
You have 15 years to spread out that total to claim as an expense on your taxes, or $27 million per year.
You own a bunch of other shit that makes a lot of money in your portfolio, like say other professional sports franchises in leagues that are very profitable (or your dad's car dealership or some child slave labor camp or whatever).
You end up making $50 million during the year and you would pay around 40 percent tax on that if you didn't have friends in MLS who also own teams in the other league you own a franchise in and they got you in on this side hustle.
You now take that $27 million annual amortization rate from your purchase of the MLS franchise and knock that off the $50 million total, meaning you're only getting taxed on $23 million now.
You do this again every year for 14 more years, saving around $12 million in taxes per year or $180 million over a decade-and-a-half.
So if you're the Wilfs and already own the Minnesota Vikings and are writing off that purchase in the same way listed above, or you're the DeVos clan and already own the Orlando Magic and are writing off that purchase in the same way listed above, now you have another vehicle to avoid even more taxes with. You can bundle your grifting like a Progressive Insurance customer bundles their homeowner and auto insurance.
The rest of the MLS bullshit
The scheme doesn't just work for the big owners, either. Part of the MLS grift nowadays is to inflate these valuations and then sell off minority stakes in the single-digit percents to folks who aren't rich enough to already own a franchise in one of the Big Four North American leagues but still want to duck some tax liability and get the perks and notoriety of being in the ownership group of a pro sports team. Because the nice thing is, you can use this simple plan to duck taxes on income you make wherever for 15 whole damn years.
There is also the whole expansion fee nonsense stolen from the legacy leagues, one of the great schemes of its time. Because whatever that number is, whatever made-up figure Garber and SUM decide to stick on the next franchise in Omaha or Sioux City, the owners of the brand new outlet can use that amount in the same fashion.
Or say a franchise already owns its stadium when you buy it: there are loads more tricks your very-well-paid accountant can do to depreciate the value of that and hide even more income away, or use it to jack up local and state tax breaks by putting more dates on the calendar of your taxpayer-funded stadium.
And because you're buying into a closed shop, there are no stock purchases to worry about filing with the SEC or wherever. There's no independent audit provided by USSF because they're so far in bed with all this the entire organization is dependent on it. How else are they going to pay $35 million in fees for lawyers every couple years?
Now, you may say this is all a cynical view of MLS. It is. But MLS is a very cynical organization that does not invite outside scrutiny. The league reported the loss of a billion dollars in revenue due to covid near the end of the 2021 season, but it was PRing right around a billion dollars in revenue annually before covid. So who the fuck really knows? Outside the ownership group, at least.
It's not the pyramid scheme so many like to say, but it has become one massive tax avoidance machine for the obscenely wealthy, particularly those already invested in other professional sports. It also happens to organize an annual sporting competition.
Presumably, there is money to be made somewhere in there via the actual operations of the franchise, be it via the stadium, be it via the league merchandising pool, be it via using the club to write off expenses from your other businesses via advertising contracts or whatever. MLS via SUM will make a lot of noise to those ends. But it's really all just a big sucking noise of tax avoidance.