The NBA’s Board of Governors approved the sale of the Dallas Mavericks from Mark Cuban to Dr. Miriam Adelson and family for a reported 3.5 billion dollars. She is estimated to be the fifth richest woman in America, with a net worth of $32.8 billion, as of November 2023.
Mr. Cuban bought the Mavericks for 285 million in and is selling all but a 27% stake in the team for a reported 3.5 billion. Assuming his tax basis remains at original cost a general estimation of profit is 3 billion. In theory he is facing a tax liability at favorable capital gains of $700 million. It is certain he has employed the best tax professionals to minimize this potential tax liability.
We believe the real tax story belongs to the Adelson family. The U.S. tax code contains provisions allowing a purchaser to buy a business and deduct almost the entire sale price against their income during the ensuing years. Section 13261 of the Omnibus Budget Reconciliation Act of 1993 enacted Internal Revenue Code section 197 and radically changed the tax law on the amortization of acquired intangibles. The bottom line is huge tax savings in future years for the Adelson family.
Upon purchase the buyer can allocate the purchase price to assets such as — buildings, equipment, patents, players contracts and more — that are depreciated through a tax deduction over time. The concept is valid in the case of tangible property such as a truck with a definitive useful life.
In this situation, this tax treatment defies logic in the sense that tax deductions are based upon purchase price although the business that was purchased is not losing value but is in fact appreciating. A similar script occurred when Steve Ballmer purchased the Clippers and reportedly deducted almost $2 billion from his taxable income.
If we assume the Adelson’s have the same tax advisors and can deduct at least 3 billion, they effectively will save at the highest tax bracket for federal theoretically 1.1 billion in future federal taxes. If this is the case, one could conclude that the USA taxpayers paid approximately 27% of the purchase price. So now that the dust has settled, are we to conclude that the US taxpayers are now silent partners in the Dallas Mavericks sans any ownership interest nor even a game ball?
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