The sports team roster depreciation allowance lets the buyer of a professional sports franchise write off most of the purchase price as a tax deduction by treating the player contracts, media rights, brand, and league membership as intangible business assets that wear out over time. Under Section 197 of the Internal Revenue Code, the buyer amortizes the value assigned to those intangibles in equal amounts over 15 years.1Office of the Law Revision Counsel. 26 USC 197 – Amortization of Goodwill and Certain Other Intangibles The resulting deduction often produces a paper loss large enough to offset income from the owner’s unrelated businesses. A 2025 law change roughly halved this benefit for future buyers, but the core mechanism still delivers one of the largest tax advantages available to any individual investor.
How the Purchase Price Gets Split Among Assets
A franchise sale is a bundle, not a single item. The buyer is paying for equipment and facilities, but also for the roster, the media contracts, the brand, the arena lease, and the right to operate as a league member. Federal law requires both buyer and seller to file IRS Form 8594, which divides the total price into seven asset classes using the residual method under Section 1060.2Internal Revenue Service. About Form 8594, Asset Acquisition Statement Under Section 1060 Tangible items get valued first. Everything left flows into the intangible categories, including workforce in place and goodwill.
Section 197 specifically lists “workforce in place including its composition and terms and conditions of its employment” as an amortizable intangible.1Office of the Law Revision Counsel. 26 USC 197 – Amortization of Goodwill and Certain Other Intangibles Because the roster and related contracts are usually the biggest piece of what a buyer is really paying for, purchasers and their accountants have pushed to allocate as much of the price as possible to this bucket. Allocations of 90% or more to intangibles became common after 2004. Buyer and seller must report identical numbers on Form 8594, and the IRS can challenge valuations it considers inflated.
The 15-Year Write-Off in Practice
Once the intangible allocation is set, the buyer deducts that amount on a straight-line basis over 15 years. The math is simple. Take a $3 billion purchase with 90% allocated to intangibles. The amortizable base is $2.7 billion. Divide by 15 years and the annual deduction is $180 million.
Mid-year closings get prorated. A deal that closes on March 1 produces 10 months of amortization in the first tax year. After that, the schedule runs on autopilot. Trades, retirements, injuries, and new signings do not change the tax calculation. The 15-year clock starts when the deal closes and keeps ticking on the same amount regardless of what happens on the field.
Before 2004, sports franchises were carved out of Section 197 and stuck with a less generous framework that capped the roster allocation at 50% and allowed only a five-year write-off. The American Jobs Creation Act of 2004 struck that exception and repealed the old rules, letting sports buyers use the same amortization treatment as any other business acquiring intangibles.3Congress.gov. Public Law 108-357 – American Jobs Creation Act of 2004
The 2025 Change That Cut the Deduction in Half
The One Big Beautiful Bill Act, passed in 2025, roughly halved the benefit for new buyers. Under the new rules, only half of the intangible value can be amortized over 15 years. The other half is non-deductible. On a $2.7 billion intangible allocation, the amortizable base drops to $1.35 billion and the annual deduction falls from $180 million to $90 million.
Owners who bought their teams before the effective date generally keep their existing amortization schedules under the prior rules. For future purchases, a $90 million annual deduction is still an unusually large tax benefit, but the subsidy is meaningfully smaller than what buyers claimed during the twenty years the full 15-year write-off was available.
How Paper Losses Offset Unrelated Income
The point of the deduction is not that the team is losing money. Most franchises generate real cash from ticket sales, sponsorships, and media deals. The amortization deduction is a tax-only expense stacked on top of actual operations. A team with $60 million in cash profit that claims a $180 million amortization deduction reports a $120 million loss for tax purposes, even as the franchise itself is likely appreciating in market value.
Most professional teams are organized as partnerships or LLCs rather than corporations. Those pass-through structures push profits and losses onto the individual owners’ personal returns instead of taxing them at the entity level.4Internal Revenue Service. Intangibles An owner whose share of the team’s loss is $30 million can, in principle, apply that against $30 million of income from real estate, private equity, or another active business. The franchise ends up sheltering income earned somewhere else.
Who Actually Qualifies to Use the Losses
Not every owner gets to apply team losses against outside income. Section 469 of the tax code splits owners into two groups: those who materially participate in the team’s operations and those who are passive investors.5Internal Revenue Service. Publication 925 – Passive Activity and At-Risk Rules Passive owners can only use their share of losses against other passive income, which is rarely the bulk of a wealthy investor’s earnings.
The IRS uses seven tests for material participation, and satisfying any one of them is enough.5Internal Revenue Service. Publication 925 – Passive Activity and At-Risk Rules The most common path is spending more than 500 hours a year on team operations. Reviewing quarterly reports and other investor-type oversight does not count. A controlling owner involved in hiring, negotiating deals, and running the business generally clears the bar. A minority investor who bought a small stake and stays out of operations usually does not, and their share of losses sits suspended until they either generate passive income or sell.
Annual Caps That Limit the Deduction
Even material participants face three separate limits on how large a deduction they can claim in a single year.
Basis Limitation
A partner or LLC member cannot deduct losses that exceed their adjusted basis in the partnership interest. A $200 million stake starts with a $200 million outside basis. Each year’s deduction reduces that basis. Once it hits zero, further losses are suspended until the owner contributes more capital or the partnership generates income that rebuilds the basis. Suspended losses carry forward.
At-Risk Rules
Section 465 limits deductions to amounts the owner has genuinely at risk: money and property contributed, plus borrowings for which the owner is personally liable.6Office of the Law Revision Counsel. 26 U.S. Code 465 – Deductions Limited to Amount at Risk Nonrecourse loans and stop-loss arrangements do not count. Losses blocked by this rule also carry forward.
Excess Business Loss Limitation
Section 461(l) caps how much business loss an individual can use to offset non-business income in a single year. For 2026, the limit is roughly $256,000 for single filers and $512,000 for joint filers, indexed annually for inflation.7Office of the Law Revision Counsel. 26 USC 461 – General Rule for Taxable Year of Deduction Anything above the threshold becomes a net operating loss carried into the following year, subject to an 80% taxable income limitation there.
In practice, this is the binding constraint for most owners. A $180 million paper loss sounds enormous, but only about $512,000 of it can reduce non-business income in the current year for a joint filer. The rest rolls forward and still delivers value over time, though the annual benefit is much smaller than the headline amortization number.
What Happens When the Team Is Sold
Every dollar of amortization claimed during ownership creates a potential tax bill at sale. Section 1245 forces the seller to “recapture” prior amortization as ordinary income, taxed at rates up to 37% rather than the 20% long-term capital gains rate that applies to the rest of the gain.8Office of the Law Revision Counsel. 26 U.S. Code 1245 – Gain From Dispositions of Certain Depreciable Property When a seller disposes of multiple Section 197 intangibles in a single transaction, the law treats them as one asset for recapture purposes. High-income sellers also owe a 3.8% Net Investment Income Tax on top, pushing the effective rate on the recaptured portion above 40%.
The math still tends to favor the owner. The deductions came steadily over many years and reduced taxes on income earned and reinvested along the way. The recapture arrives once, and much later. Deferring a large tax bill by a decade or more is a real financial benefit in itself.
The Step-Up at Death
If the owner dies still holding the team, Section 1014 gives heirs a new basis equal to the franchise’s fair market value on the date of death.9Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent The recapture liability tied to the prior amortization effectively disappears. Heirs inherit as if they had purchased the team fresh at current value.
For partnerships and LLCs that make a Section 754 election, the entity can adjust the inside basis of its assets under Section 743(b) to match the stepped-up value of the deceased partner’s interest. That adjustment can produce a new round of amortization deductions on the same roster the original owner already wrote off. Claim 15 years of deductions, shelter outside income along the way, and pass the team to heirs who receive both a clean basis and a fresh amortization schedule: the recapture that Section 1245 is designed to collect can, in this sequence, never get paid at all.