Paul L. Caron

Monday, November 29, 2010

Why Aren't Sports Stars Beating the Tax Man by Demanding Ownership Stakes?

Wall Street Journal op-ed, Albert Pujols's Capital Opportunity, by Fay Vincent:

Why aren't sports stars beating the tax man by demanding ownership stakes as part of their compensation, as executives do?

It's often said the key to getting rich in our society is to figure out how to convert ordinary income, taxed heavily, into capital gains income, taxed at a much lower rate.

So I was surprised when the three basketball superstars LeBron James, Chris Bosh and Dwyane Wade joined together earlier this year to negotiate as a unit and then make their unique deal to play for the Miami Heat without getting any ownership—or capital—in the franchise. Clearly their agreement to play for the Heat made the team much more valuable. In my view, they missed a golden opportunity. ...

My question is why sports figures are not taking steps to generate tax-favored income by bargaining to get ownership interests in their teams. ... IIf modern stars are smart they will soon begin to emulate highly paid business executives and improve greatly their compensation by adopting more sophisticated tax planning. In the business and entertainment worlds, top executives and talent do not work exclusively for salaries. They want and get a piece of the action. They want to create and own assets, defer income and control their tax exposure. ...

Mr. Pujols will in all likelihood negotiate a salary of around $35 million annually in a four- or five-year agreement. He and his agent will surely notice the enormous bite the tax collectors will take of that income. Why not take some of the pay in the form of a piece of the Cardinals franchise? Who would argue the Cardinals are not more valuable if they can keep him?

Celebrity Tax Lore, Tax | Permalink

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If I recall correctly, most leagues prohibit players from owning the team. Thus, MJ gave up his stake when he played for the Wizards. Cf. Mario Lemieux playing for Pittsburgh.

Posted by: Brian | Nov 29, 2010 3:37:24 PM

Huh??? The business interest given as compensation is ordinary income, only appreciation is capital gain. Athletes are free to take their earnings and put it into a capital investment. However, maybe he could figure out a way to exchange his "brand" for a team stake in some tax advantaged way?

Posted by: Matt | Nov 30, 2010 9:45:41 AM