New Tax Law could discourage Sports Team Player Trades

Changes in the rules for like-kind exchanges under the Tax Cuts and Jobs Act may lead professional sports teams to trade fewer players, according to tax experts.

It has been long established in the past that player contracts are treated as business assets. Assuming there was no cash involved in the trade, teams would recognize no gain or loss when they traded players. They were just trading the business asset that was their contract. The Tax Cuts and Jobs Act that was passed in December amends 1031 to only certain real estate deals now. Since professional athletes’ contracts aren’t considered real property, some tax experts believe that 1031 exchange treatment will no longer apply to professional sports teams trading players after 2017. Starting this year, sports teams might need to begin recognizing a taxable gain when they trade players, though so far that hasn’t slowed the pace.

While taxes are probably never going to drive sports teams’ trade decisions, they may become a factor in their decisions, considering every time a team traded a player it would be treated as a taxable event, affecting the economics of the trade.

The change in 1031 exchange treatment could prompt several reactions from pro sports teams. Team owners might do fewer overall trades, fewer player-for-player trades, more cash-for-player or player-for-draft picks deals, or the development of an alternative trading procedure that allows trades without triggering adverse tax consequences.

Our assessment of the Tax Cuts and Jobs Act is that it is the most impactful tax law enacted in the last 30 years. Talley welcomes the opportunity to discuss with you the current opportunities available to you and your family. For more information, contact us here.