The Depreciation Machine: Why a $12.5B Sports Team Is a Tax Shelter

The Million Dollar Question: When someone buys a $12.5 billion sports franchise, roughly how much of that purchase price can U.S. tax law let them write off against their income over the following fifteen years?
A) About 5 percent B) About 25 percent C) About 60 percent D) Nearly all of it

Read on for the answer.

In August 2026, Josh Kushner and Bob Iger agreed to buy the Los Angeles Lakers for $12.5 billion, the largest price ever paid for a sports franchise. It was the second record set on the same team in fourteen months: the NBA had only approved Mark Walter’s purchase at a $10 billion valuation in October 2025. A franchise that generates a few hundred million dollars a year in revenue changed hands twice in a year, and gained $2.5 billion in the interval.

There are honest explanations for prices like that — scarcity, media rights, the fact that leagues are closed systems that never issue new supply. This piece is about a different explanation, one that gets far less attention than it deserves: under U.S. tax law, essentially the entire purchase price of a sports team is deductible. Not the stadium. The team itself.

What it is

The mechanism is amortization, and the specific provision is Section 197 of the Internal Revenue Code. When you buy a business, you allocate the purchase price across the assets you bought, and you recover the cost of those assets over time as deductions. Tangible things get depreciated. Intangible things — goodwill, customer lists, licenses, contracts — get amortized under Section 197 on a straight line over fifteen years, 180 equal monthly slices, regardless of what those assets actually do.

For most of the twentieth century, professional sports franchises were carved out of that rule. Section 197(e)(6) specifically excluded a franchise in professional sports and any item acquired with it. Then Congress repealed the carve-out in the American Jobs Creation Act of 2004, and sports franchises became ordinary Section 197 intangibles like any other. Buyers can now allocate the price to player contracts, media agreements, and league franchise rights, and write the whole thing off over fifteen years.

Do the arithmetic on the Lakers. Twelve and a half billion dollars, spread straight-line across fifteen years, is roughly $833 million a year in deductions. That number has nothing to do with whether the team makes money. It is a function of the price paid, and only the price paid.

The oddity is not the rule. Deducting the cost of a business you bought is the normal treatment of a normal acquisition. The oddity is what the rule is being applied to. Amortization exists because assets wear out — a machine tool degrades, a patent expires, a customer list goes stale. Sports franchises do the opposite. As ProPublica put it in its 2021 investigation, teams’ most valuable assets, such as television deals and player contracts, are “virtually guaranteed to regenerate”, because leagues are effectively monopolies. The asset is written down for tax purposes on the theory that it is wasting away, while its market value roughly doubles every decade.

Who uses it

This is a benefit for buyers, not for holders, and that distinction shapes the whole market.

A family that has owned a team for forty years has long since used up its amortization. The clock ran out decades ago, and the team now reports taxable profits like an ordinary business. A new buyer resets the clock at the new, much larger price. ProPublica documented the before-and-after directly at the Carolina Panthers: before David Tepper bought the team, its amortization was exhausted and it regularly reported millions in profits. After the purchase, with a fresh basis, the Panthers swung to a tax loss of roughly $115 million, with no evidence that anything about the team’s real revenue or expenses had changed.

The buyers who benefit most are the ones with large amounts of ordinary income to shelter. That profile has shifted over three decades from operating-business owners — car dealers, builders, media families — toward finance. Steve Ballmer came from software. Tepper runs a hedge fund. Josh Kushner runs the venture firm Thrive Capital, and Vinod Khosla, whose family group bought the Seattle Seahawks for $9.6 billion in 2026, is a venture capitalist. A buyer whose income arrives as fund fees and carried interest has exactly the kind of income that a very large annual deduction is useful against.

Then there is the minority-stake market, which has grown quickly and which exists partly because limited partnership units carry a proportional slice of the same deductions. According to ProPublica’s review of IRS records, Shahid Khan used at least $79 million in losses from his stake in the Jacksonville Jaguars, and Leonard Wilf took $66 million in losses from a minority stake in the Minnesota Vikings. In August 2024, the NFL voted 31–1 to allow approved private-equity funds to buy up to 10 percent of a franchise as passive, non-voting investors — a different kind of buyer, one that is chasing appreciation rather than a personal deduction, but one more source of demand at prices that keep the whole structure inflating.

Why they use it

It would be too simple, and wrong, to say that people buy sports teams for the tax treatment. They buy them for the reasons everyone assumes: the asset is scarce, the media rights keep repricing upward, and owning one confers a kind of standing that money cannot otherwise purchase. We wrote about that side of it in Sports Teams: Investing in Prestige, Passion, and Power.

The tax structure does something subtler. It changes the price at which overpaying is still rational.

If you are a buyer in the $1B+ band with hundreds of millions a year of ordinary income taxed at the top federal rate, a deduction stream is not a rounding error — it is a second return on the same purchase. You are buying an appreciating trophy asset and, alongside it, fifteen years of shelter against income earned somewhere else entirely. That combination supports a bid that pure cash-flow analysis would never justify. And because the size of the deduction is set by the price, a higher price produces a bigger shelter. The feedback loop runs in one direction.

It is worth being precise about who this actually reaches, because “the wealthy” is not one group here. Below roughly $30M in net worth, none of this is available at any meaningful scale — the entry ticket for even a small limited-partnership slice of a major franchise now runs into the tens of millions, and the deduction is worthless without large ordinary income to point it at. In the $100M+ band, minority stakes become plausible, and the tax benefit is a genuine part of the pitch. Controlling ownership of a top-tier franchise is a $1B+ activity and, increasingly, a multi-billion one; the Lakers deal required a consortium. The shelter, in other words, is not a wealthy-person benefit. It is a benefit that begins to function at the very top of the range and grows more valuable the higher you go, because its value scales with both the price paid and the ordinary income available to absorb it.

This is also why the structure attracts scrutiny. The deduction is not sheltering team income primarily — teams do not generate $833 million a year in profit. It is sheltering other income. That is the design feature, and it is the reason the losses matter.

How it works

The mechanics are unglamorous, which is part of why they stay out of the conversation.

Allocate the price. In an asset acquisition, buyer and seller file Form 8594 and allocate the purchase price across seven asset classes using the residual method, with the two sides required to report the same allocation. For a franchise, the tangible assets are a small share; most of the value lands in Section 197 intangibles.

Hold it in a pass-through. Teams are typically owned through partnerships or LLCs, so the entity itself pays no federal income tax and the amortization deductions flow out to the owners’ individual returns in proportion to their stakes. This is what converts a corporate write-off into a personal one.

Clear the passive-loss wall. Losses from an activity in which you do not materially participate are passive, and passive losses can generally only offset passive income — they cannot shelter salary, fund fees, or carried interest. Material participation is defined by seven tests in the regulations, and the practical dividing line is between owners who are genuinely running the business and investors holding a certificate. Controlling owners typically clear it. Pure limited partners frequently do not, which is one reason minority-stake deals are structured and papered as carefully as they are.

Then the other limits. Even for a materially participating owner, the at-risk rules and the excess business loss limitation under Section 461(l) cap how much business loss can be used against non-business income in a single year. Excess losses are not lost — they carry forward as net operating losses — but they are deferred, which reduces their present value.

Repay, or don’t. When the team is sold, the amortization taken is generally recaptured, meaning the gain on sale is larger by the amount previously deducted. That is the argument team owners’ advocates make: the deferral eventually reverses. ProPublica’s rejoinder is the one worth sitting with — deferring tax for fifteen or twenty-five years is, in economic substance, an interest-free loan, and if the owner dies holding the stake, the basis steps up and the deferred tax may never be paid at all. The heirs can then begin the cycle again.

What it costs

Put a number on the shelter. At the top federal ordinary rate of 37 percent, $833 million a year of deductions is worth up to roughly $300 million a year in reduced tax — but only for an owner with enough other income to absorb it, and only within the limits above. Most owners are not absorbing the full amount every year. The realistic range is wide, and depends entirely on the owner’s other income, their stake size, and their state of residence.

What we have instead of theory is one documented case. ProPublica, working from leaked IRS files, reported that Steve Ballmer’s Clippers produced roughly $700 million in losses over a recent five-year span, that those losses saved him about $140 million in taxes, and that in 2018 he reported $656 million of income at a federal rate of 12 percent. LeBron James, on $124 million, paid 35.9 percent. A concession worker at the same arena, Adelaide Avila, paid 14.1 percent on an income roughly fifteen thousand times smaller. A Ballmer spokesperson told ProPublica he “has always paid the taxes he owes” and has said publicly that he would be fine paying more. William Foley, the owner of the Vegas Golden Knights, saved more than $12 million over two years from his hockey stake, per the same reporting.

Against all of that sit real costs that have nothing to do with tax: capital calls, league assessments, stadium contributions, and operating losses that are genuinely losses. The shelter is large. It is not the whole picture.

Hidden costs and tradeoffs

Recapture is real when a sale happens. Walter’s fourteen-month round trip on the Lakers is exactly the scenario in which the deferral does not run long enough to matter much, and a very large gain gets taxed.

Deductions can strand. An owner without enough offsetting income watches the write-offs pile up as carryforwards, useful someday, worth less every year they wait.

The illiquidity is severe. Selling requires league approval and a buyer at a price that is, by construction, enormous. There is no partial exit without the other owners’ consent.

And the scrutiny has arrived. In September 2023 the IRS stood up a dedicated unit inside its Large Business and International division for large, complex pass-through entities. On January 16, 2024, it announced the Sports Industry Losses campaign, aimed squarely at partnerships in the sports industry reporting significant losses, to determine whether the income and deductions driving those losses comply with the code. The campaign was announced after the ProPublica reporting, and ProPublica itself covered the follow-through. Nothing about the fifteen-year amortization is itself in doubt — it is statutory. What is being examined is the allocation, the valuation, and whether particular owners were entitled to use the losses they used.

What people get wrong

It is not a loophole. It is the ordinary rule for buying any business, written into the statute and expanded on purpose in 2004. Calling it a loophole implies someone found a crack. Congress installed a door.

Reported losses are not operating losses. When a team “loses money,” that figure usually includes a large slice of amortization on a price paid years earlier. Leaked NBA records showed the Clippers in the black as recently as 2017, in the same period they were generating enormous tax losses. This distinction matters well beyond tax — team financials have been cited in labor negotiations and in arguments for public stadium subsidies.

“They pay it all back” is only half true. In form, recapture reverses the deduction at sale. In practice, the value of deferring hundreds of millions for a decade or two is enormous, and death plus a basis step-up can end the story before repayment ever arrives.

And the tax treatment is not why prices are high — it is why they can go higher. Media rights, scarcity, and the arrival of buyers with technology and finance fortunes are doing most of the work. The deduction is the accelerant, not the fire.

The idea is older than any of the current owners. In 1946, Bill Veeck persuaded the IRS that the roster of the Cleveland Indians was a depreciable asset, assigning some 90 percent of the team’s value to player contracts on the argument that ballplayers, like livestock, waste away once bought. Veeck was candid about what he had built. He called it a gimmick, and wrote in his memoir: “Look, we play the Star Spangled Banner before every game. You want us to pay income taxes too?”

Bottom line

The answer to the Million Dollar Question is D — nearly all of it. Since the 2004 repeal of the sports-franchise carve-out, a buyer can allocate essentially the entire purchase price to Section 197 intangibles and amortize it straight-line over fifteen years. On $12.5 billion, that is on the order of $833 million a year in deductions, flowing through a partnership onto a personal return, available — subject to the material-participation and loss-limitation rules — against income earned anywhere else.

The honest way to describe this is not as cheating. It is as a category error that Congress declined to fix: a rule built for assets that wear out, applied to the one class of asset in the American economy that structurally cannot. A team is bought, written down to zero for tax purposes over fifteen years, and sold for double. Both things are true at once, and the tax code only notices one of them.

---

Related reading: Sports Teams: Investing in Prestige, Passion, and Power · Taxes: How Wealth Is Structured and Preserved · Carried Interest: The Most Defended Loophole in American Tax · The Tax-Alpha Industry: The $1 Trillion Business of Manufacturing Deductions · Trusts: How Wealth Is Held, Protected, and Passed On