PLAYER VALUATION

On December 22, 2017, the tax reform bill known as the Tax Cuts and Jobs Act (TCJA) was passed, resulting in an alteration to Section 1031 -- or like-kind exchanges -- of the Internal Revenue Code. What does this change to like-kind exchanges mean for professional sports franchises, trade contracts, player valuations, and subsequent tax considerations?

 

It's enough to cause confusion for every professional sports franchise; however, Sports Value Consulting, LLC can navigate every step quickly and affordably. We will work directly with a team's tax advisors to present an independent valuation of the players involved in a trade while providing thorough tax documentation. No work is outsourced and all information is kept confidential.

 

The specific change to the wording of like-kind exchanges replaced "property" with "real property." This law now refers exclusively to real estate rather than intangible assets or personal property. As a result of the elimination of player trades in Section 1031, traded players, as well as draft picks, must be properly documented, which includes recognizing the fair market value of each player involved. Professional franchises now need to report income and capital gains and establish a new tax basis in the assets acquired -- assets that are amortizable over the life of a contract -- in order to compute the tax consequences of the trade.

 

In less than a week, Sports Value Consulting will:

 

  • gather contract terms and all pertinent information on the players involved in the trade. Player strengths/weaknesses, market potential and overall rating will be ascertained via communications with a team's general manager or designated source.
  • prepare valuations supported by extensive research and team documents, which will be reviewed with the team.
  • issue a draft and final report that will include the client and the asset valued, the scope of the work and calculations employed to develop the appraisal, appraisal procedures, value opinions and conclusions, and all extraordinary assumptions and hypothetical conditions.

 

Sports Value Consulting will utilize a hybrid market approach when providing a valuation. We will calculate the cost of the player and make adjustments based on quality and performance.

 

Predicting the hypothetical value of a player is an extremely difficult process that takes into consideration numerous variables. Very few traditional financial metrics should be employed, especially when there is a notable disparity between a player's talents and a team's needs. Sports Value Consulting utilizes proprietary models, public information and team input as well as all of the data collected in preparing player valuations.

 

Although an independent valuation is not required under the tax reforms, Sports Value Consulting, an industry leader in valuation of sports franchises, believes teams put themselves at risk if processes remain internal. Providing quick and accurate valuations at the best cost for sports franchises remains our goal. For more information, contact Michael Rapkoch, ASA, at (972) 248-9374 or (817) 368-0952 to discuss team valuations.

 

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