The Lakers Brought a Record Price. The Surprising Benefit for Iger and Kushner.

Cameron Carr of the Lakers shoots in a summer league game against the Golden State Warriors. (Thearon W. Henderson / Getty Images)

The nosebleed prices for pro sports teams are driven by a couple things. The obvious is ego—billionaires looking for trophy assets. And the not-so-obvious: tax benefits

Former Disney CEO Bob Iger and investment manager Josh Kushner just bought a majority stake in the Los Angeles Lakers at a valuation of $12.5 billion, a record for an NBA franchise and $2 billion more than the transaction value of the Lakers only a year ago.

“As lifelong NBA fans, we are deeply honored for the opportunity to become stewards of the Los Angeles Lakers, one of the most iconic sports franchises in the world,” Iger and Kushner said in a statement.

That’s admirable, but sports teams generally don’t make much money relative to prices paid for them because of high player salaries. For example, the highest-paid Laker for the coming season is Luka Dončić, who could earn up to $51 million.

But the tax deductions that the teams generate can be used by their uberwealthy owners to offset other income that they may generate. They’re tax shields.

Since 2004, pro sports franchises have been considered to be “section 197 intangibles,” New York tax expert Robert Willens told Barron’s.

The upshot is that virtually the entire purchase price of the team is considered an intangible, which can be amortized over 15 years.

“Sports franchises, inevitably, are operated through ‘pass-through entities,’ such as partnerships and ‘S’ corporations,” Willens said.

“If the amortization deductions lead to a taxable loss for the year, each partner’s distributive share of such loss can be deducted by him on his income tax return and, effectively, shelter from taxation other forms of income the partner may generate.”

Willens says that if the nearly all the Lakers purchase price is deemed to be section 197 intangibles—‘’not an unrealistic assumption”—the $12.5 billion purchase price value would be recovered over 15 years, about $800 million a year.

Joe Pompliano, who writes on business and sport s, posted on X that Iger and Kushner can use losses from the Lakers to “shield hundreds of millions of dollars in outside personal income, such as capital gains from VC investments, from being taxed.”

Billionaire Steve Ballmer used losses from the Los Angeles Clippers NBA team that he owned to reduce his taxes, ProPublica reported in 2021. Ballmer reported earning $656 million in 2018 and paid $78 million in federal income taxes, a low 12% rate, the nonprofit news outlet reported.

The owners can claim the deduction even though sports teams have been going one way in value—up.

For the Lakers, that $800 million, which assumes 100% ownership, probably dwarfs the profits that the Lakers generate. The team is privately owned without public financials.

Madison Square Garden Sports , which owns the NBA’s New York Knicks and the NHL’s New York Rangers, is public and it didn’t make a lot in its fiscal year that ended in June—despite some of highest ticket prices in pro basketball and hockey, plus revenue from the Knicks’ championship run this past season.

MSG Sports had adjusted operating income of $59 million, up from $38 million in the previous year. That’s not much relative to its current market value of close to $10 billion.

MSG Sports stock is up almost 60% this year—to $405—because of higher values for NBA teams and a narrowing of its discount relative to its estimated current asset value of $14 billion or more.

One shareholder-friendly move is th e company’s plans to create separate companies for the Knicks and Rangers in the fall.

MSG Sports doesn’t pay a regular dividend or currently buy back stock.

Charles Dolan, the patriarch of the Dolan family, which controls MSG Sports, orchestrated the purchase of the teams and Madison Square Garden arena, where they play, for about $1 billion in the 1990s. At the time, the price was deemed high.

Today, Dolan’s son, James Dolan, is CEO of MSG Sports. Charles Dolan died in 2024.

Write to Andrew Bary at andrew.bary@barrons.com

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