Steve Cohen finds 'last great tax shelter' in New York Mets sports deal
Hedge fund manager Steven A. Cohen is in talks to acquire a majority ownership stake in Major League Baseball’s New York Mets – and while he may be looking for a winner on the field, he may also win big beyond the white lines with a potential for massive tax savings.
While the Mets did not publicly disclose the size of the stake Cohen was in discussions for, it has been widely reported that he is after 80 percent of the franchise.
The deal could value the team, which had an operating income of $30 million in 2018, at $2.6 billion.
But regardless of how the team performs, Cohen is likely to come out a champ.
N.Y. METS SALE: BILLIONAIRE STEVE COHEN TO BUY MAJORITY OWNERSHIP
“Buying a sports team is [considered] the last great tax shelter out there,” Michael Breit, partner-in-charge of EisnerAmper’s Sports and Entertainment Group, told FOX Business, adding that billionaires are often able to write off the billion-dollar team purchase values over the course of 15 years.
As noted by the IRS, typically 90 percent – sometimes even more – of the assets of a sports franchise are considered intangibles, including player contracts, media rights and the franchise itself.
The value of intangible assets can be lowered through amortization over a period of 15 years per a 2004 law (the American Jobs Creation Act).
WHY PRO SPORTS INVESTMENTS ARE WALL STREET'S NEWEST PLAY
This allows owners to write off a large portion of the purchase price of their teams against earnings. Tangible assets can also be depreciated.
The benefits don’t stop there, either. Many sports franchises are structured as limited liability companies, or pass-through entities, allowing income to flow through to personal tax returns. Further, some franchises report losses that exceed revenue each year. Little is known about the financials of sports teams, however, since it is largely not public information.
Breit explained to FOX Business that a $2 billion franchise purchase could result in the buyer getting an estimated $125 million tax deduction every year.
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If $2.3 billion of Cohen’s purchase were considered intangible assets, he could amortize them for far more than enough – potentially more than $150 million per year – to write off the team’s annual operating earnings and a chunk of his personal taxable income. Given the fact that this income would have been taxed at the top rate – 37 percent – the savings would be substantial.
The trade-off? Since most franchises appreciate in value over time – sellers are subject to capital gains taxes.
As previously reported by FOX Business, the team confirmed on Wednesday that Fred and Jeff Wilpon are in negotiations to sell a significant stake of the franchise to Cohen through their firm Sterling Partners. Wilpon will remain on as CEO for five years, while Jeff will stay on as COO.
The Wilpons have owned a stake in the New York franchise since 1980.
According to Forbes, Cohen is worth an estimated $13.6 billion. He became entangled in an insider trading investigation about 10 years ago at S.A.C Capital Advisors, though he was never convicted of any wrongdoing. He coughed up $1.8 billion to settle charges with the SEC and was unable to manage other people’s money for two years.
Meanwhile, the Wilpons were central figures in Bernard Madoff’s Ponzi Scheme. The Mets owners invested a significant amount of money with notorious Madoff and when the Ponzi scheme collapsed in December of 2008, they had reportedly lost about $700 million. However, for years, they reaped profits from Madoff's "investments" and a lawsuit was filed against the owners by a trustee representing a collection of Madoff victims. The Mets owners wound up paying more than $50 million to the trustee fund in 2016-17.
Cohen already owns about 8 percent of the Mets, multiple news outlets have reported.
Sports franchise owners lost out on a separate tax savings provision earlier this year, with the IRS ruled that they didn’t qualify for a 20 percent income tax deduction.
Cohen's purchase of the Mets is just the latest example of private equity's deeper and deeper involvement of major league sports franchises. Read the FOX Business special series, "Changing the Game: Wall Street's Newest Play" for more.
PART 1 OF 'CHANGING THE GAME': WHY PRO SPORTS INVESTMENTS ARE WALL STREET'S NEWEST PLAY
PART 2 OF 'CHANGING THE GAME': NFL PLAYBOOK FOR PRIVATE MONEY HAS LIMITED OPTIONS AND NO AUDIBLES
PART 3 OF 'CHANGING THE GAME' : NEW MAJOR LEAGUE BASEBALL RULE PUTS PRIVATE EQUITY IN SCORING POSITION
PART 4 OF 'CHANGING THE GAME' : HOW THE NHL MAY BE SKATING TOWARDS A NEW FINANCIAL REALITY
PART 5 OF 'CHANGING THE GAME' : NBA TEAMS AND OWNERS EYE NEW FINANCIAL GAME
CLICK HERE FOR MORE SPORTS COVERAGE ON FOXBUSINESS.COM