Yet another corpulent billionaire is about to spend billions to own a franchise sports club, just so he can avoid spending billions in taxes.
According to FOX Sports reporter Ken Rosenthal, Fred Wilpon's Sterling Partners, the owners of the New York Mets, is in talks to sell up to 80% of the MLB team to billionaire Steve Cohen, who is already an investor in the club.
BREAKING: The Sterling Partners and Steve Cohen are negotiating an agreement in which Cohen would increase his investment in the #Mets, per source. Fred Wilpon will remain Control Person and CEO for five years and Jeff Wilpon will remain COO for five-year period as well.— Ken Rosenthal (@Ken_Rosenthal) December 4, 2019
The transaction, which was confirmed by the club, would value the team at $2.6 billion, according to Bloomberg.
According to the proposed deal, real estate developer and billionaire, Fred Wilpon, the team’s current owner, will remain in his role for at least five years, at which time Cohen will have a path to controlling the franchise. Jeff Wilpon, his son, will remain as the team’s chief operating officer for the five-year period.
Meanwhile Cohen, whose net worth is around $9.2 billion will remain as chief executive of Point72 Asset Management.
Fred Wilpon is making the move as part of estate and philanthropic planning. The Wilpons will retain a stake in the franchise they assumed control of in 2002, Bloomberg noted.
So what's in it for Cohen, who may have a ice rink in his Connecticut house, but has not indicated any interest in baseball so far? The answer is simple, and the same as why Steve Ballmer bought the LA Clippers for $2 billion several years ago: tax benefits. In the Clippers case, Ballmer could seek as much as half of the purchase price of the team in tax benefits over the next 15 years, according to accountants and sports business analysts familiar with the financial aspects of team ownership.
The same logic would apply to Cohen and the Mets.
Buying a team isn’t like buying a factory full of machines; Cohen gets few physical assets for his $2.6 billion. Instead, he pays top dollar to join a successful league and acquire the rights to a star-studded roster. The IRS offers specific tax breaks to any business loaded with such intangible assets.
So, in addition to taking a normal deduction, Ballmer could claim his team is worth additional millions in terms of selling tickets and driving broadcast revenue.
This added value, he could say, was part of the original purchase price. The IRS would then allow him to amortize a significant portion of the $2.6 billion over a number of years in much the same way a factory owner depreciates aging machinery.
It is hard to pinpoint how much Cohen — or the Mets owners — would benefit because of the tax code’s highly interpretive nature. Regardless, sports business analysts and accountants say owners can seek tax benefits equal to about half of the purchase price.
In short, in a time when the "top 1%" are being hounded for their increasingly more original tax-avoidance schemes, one of the world's most prominent billiionaires is about to do just that.