Common Issues with Revenue Generated from Broadcasting Right
February 12, 2025
The Price Earnings Growth (PEG) Ratio is one of the first variations that were made to the Price to Earnings Ratio to make it more meaningful. The full form of the PEG Ratio is Price Earnings Growth ratio. Instead of being a two way comparison between price and earnings, the PEG ratio makes a three […]
The primary function of investment banks is to help their clients raise equity capital. This is often done by initial public offerings. This is where investment banks provide their biggest service i.e., underwriting. Most people have a basic understanding of underwriting. They know that when an investment bank underwrites a share issue, they guarantee to […]
In the past module, we concentrated on calculating the returns part of the project. All our articles were focused on calculating cash flows and we saw the various special cases that arise while determining cash flows and determined how we must deal with them. This module is all about the other component i.e. risk. The […]
Annuities can be divided into two types based on the exact time when the payments occur in a given period. The payments could either occur at the beginning of every period or the payments could occur at the end of every period. For instance when you take a house on rent, the rent is usually […]
In the previous articles, we have learned that the money market is a very important market in our financial system. However, it is also important to note that the money market can have an impact on almost all other financial markets. Central banks all over the world try to control the monetary policy of their […]
Over the years, the sporting business has quietly metamorphosized into a big business. The amount of money changing hands in the sports business today would have been considered unthinkable even a few years ago.
It is common for franchises to be valued in billions of dollars. Star players also make millions of dollars while playing in the league.
There is one thing that hasn’t changed through the years. The amount of income shown by sporting franchises as taxable incomes has almost stayed constant. The sporting franchises pay so less in taxes that many critics have stated that the billionaire owners of sporting teams pay the smallest percentage of their income in taxes.
The millionaire players also pay a significantly small percentage of their income in taxes. It is the lower echelons of stadium workers and other administrative staff working in these sporting franchises that end up paying the largest chunk of taxes.
In this article, we will have a closer look at some of the reasons why sporting franchises try to understate their income and pay lower income taxes. We will also have a closer look at some of the common methods that are deployed by sporting franchises in order to evade taxes.
Sporting franchises understate their income for two primary reasons:
The main reason that sporting franchises are able to understate their income is that most of these franchises are structured as private corporations. Hence, they are under no compulsion to reveal their financial data to the public at large.
There are several complex creative accounting practices that billionaire owners of sporting franchises around the world use in order to understate their income. The details about the most prominent ones have been explained below:
For instance, in the United States, the acquisition price of a sporting franchise can be written off over a period of 15 years. The taxation authorities believe that the vast majority of the value of the franchise is made up of intangible assets such as player contracts as well as broadcast rights and hence allow them to be amortized over time.
In fact, intangible assets such as brand value are also allowed to be amortized! The end result is that the expenses start appearing very high in relation to the income. Hence, even if the franchise has a high income, it ends up showing a loss to the taxation authorities. This loss does not exist in reality since the entire valuation has been written off over 15 years.
However, the value of the franchise will not be zero after 15 years, instead, it will have grown several times! Hence, owners of sporting franchises are able to claim depreciation over assets that never actually depreciate in value.
Also, since the franchise is structured as a private corporation, these losses flow to their personal income statement and they are able to offset their high income in other businesses using these tax laws. In fact, these losses can even be rolled over for a few years in order to offset profits that happen in different years.
It is common for the franchise owners to use their own group companies which provide services to the franchise. These services may or may not be required by the franchises. Since the sporting franchise is not a listed company, they do not have to extensively report related party transactions to the tax authorities.
The accounting for both these businesses is combined so that the earnings can be reallocated between the highly profitable business and not so profitable business.
It needs to be understood that over a period of time, the government as well as the athletes have become more vigilant. However, the owners of these franchises continue to come up with creative accounting schemes that help them lower their earnings on paper and avoid paying taxes.
Your email address will not be published. Required fields are marked *