San Diego Union-Tribune
Owners of pro sports teams find lots of ways to win
September 29, 2002
Despite all the poverty pleas you read, professional sports owners make oodles of money operating a team and oodles more selling it taking advantage of juicy tax writeoffs along the way.
It's all spelled out carefully in an excellent textbook published by Prentice Hall, "Sports Economics," by Rodney D. Fort, professor of economics at Washington State University.
Just how profitable is pro sports ownership? San Diegans were not surprised to learn that two of their tax-subsidized team owners are on the Forbes 400 list of the richest Americans: Alex Spanos, Chargers, worth $850 million, and John Moores, Padres, worth $740 million.
A full 26 of the Forbes 400 are owners or part-owners of major baseball, football, basketball and hockey teams, not including the defrocked Eddie DeBartolo, suspended from the San Francisco 49ers after pleading guilty in a felony bribery and gambling case.
Several other cities are like San Diego having two major teams whose owners are on the Forbes 400 list.
Among them: the Miami Heat and Dolphins, St. Louis Blues and Rams, Atlanta Braves and Falcons, Tampa Bay Lightning and Buccaneers, Houston Astros and Texans, Minnesota Twins and Vikings, Dallas Mavericks and Cowboys, and Detroit Lions and Red Wings.
Most of these owners are on the dole that is, their stadiums are heavily or entirely subsidized with tax dollars.
Some own more than one team: Paul Allen, worth $21 billion, owns the Seattle Seahawks and Portland Trail Blazers; Philip F. Anschutz, Qwest entrepreneur worth $4.3 billion, owns the Los Angeles Kings and one-third of the Lakers, and Stan Kroenke, worth $1.4 billion, owns the Colorado Avalanche and Denver Nuggets, along with a significant piece of the St. Louis Rams.
Pro sports attracts fat cats because it brings fat profits, says Fort.
"Our guiding assumption is that team owners maximize profits," says the textbook, explaining in detail the various methods of making income top outgo.
But, of course, sports owners are always pleading indigence, explains the text. But that's often posturing for labor negotiations or begging for a public subsidy. "If their claims of losing tons of money are convincing, then chances for a stadium subsidy or favorable lease contract may increase," explains the textbook.
In an interview, Fort notes that a classic case of bringing out the billionaires' crying towel was the congressional testimony by Major League Baseball Commissioner Bud Selig in December. Selig complained that major league teams had suffered $232 million in operating losses last season, and all but a handful of teams were losing money.
It was completely misleading, says Fort. "It's like asking me what kind of car I drive, and I say it is a red car. It's not a lie my car is red but it's not the information you need to know," says the economist.
Selig had left out key items such as depreciation and the special tax status teams enjoy. "On balance, collectively, they (major league teams) are making money," says Fort. (Forbes reported that the teams made $75 million, and 20 of 30 were profitable; Selig then denounced the publication.)
But the values of franchises would not be soaring if owners were actually losing money, points out Fort. And what owners don't like to discuss are the special tax advantages of team ownership.
For example, as the textbook explains, net operating revenue may be negative. But the corporation may be organized as a pass-through firm say, Subchapter "S" or partnership for tax purposes. In such cases, the owner can take the losses off his own individual 1040 forms.
Also, as the textbook explains, the legendary sports team owner Bill Veeck convinced Congress that roster depreciation should be tax deductible. Players are depreciated like cattle. If the depreciation is large enough to cause a loss, that comes off the owner's 1040, too.
It was Veeck who said that you buy a team to make bucks selling it. Moores bought the Padres in 1994 for $80 million, and two years ago Forbes said the team was worth $197 million. Since then, the subsidized ballpark deal has been finalized. Also, Fort says the team will be worth even more if the recent move toward revenue sharing succeeds.
Spanos bought the Chargers in the 1980s for $72 million; Forbes recently put the value at $393 million, but according to San Diego Magazine, Spanos boasted to Rush Limbaugh that he could get $500 million to $800 million for the team.
If he gets the massive handout he now seeks on bended knee, the value would be much more than that.
Don Bauder: (619) 293-1523; email@example.com
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