At a concession stand at Staples Center in Los Angeles, Adelaide Avila was ping-ponging between pouring beers, wiping down counters, and taking out the trash. Her Los Angeles Lakers were playing their hometown rival, the Clippers, but Avila worked too hard to follow the March 2019 game.
When she filed taxes for her previous year’s labors at the arena and her second job driving for Uber, the 50-year-old Avila reported making $44,810. The federal government took a 14.1% cut.
On the court that night, the players were also hard at work. None more so than LeBron James. The Lakers star was suffering a painful strained groin injury, but he still put up more points and played more minutes than any other player.
In his tax return, James reported making $124 million in 2018. He paid a federal income tax rate of 35.9%. Not surprisingly, it was more than double the rate paid by Avila.
The wealthiest person in the building that night, in all likelihood, was Steve Ballmer, owner of the Clippers. The evening was decidedly less arduous for the billionaire former CEO of Microsoft. He sat courtside, in a pink dress shirt and slacks, surrounded by friends. His legs were outstretched, his shoes almost touching the sideline.
Ballmer had reason to smile: His Clippers won. But even if they hadn’t, his ownership of the team was reaping him massive tax benefits.
For the prior year, Ballmer reported making $656 million. The dollar figure he paid in taxes was significant, $78 million, but it was tiny as a percentage of what he made. Records reviewed by ProPublica show his federal income tax rate was just 12%.
That’s a third of the rate James paid, even though Ballmer made five times as much as the superstar player. Ballmer’s speed was also lower than Avila’s — even though Ballmer’s income was almost 15,000 times greater than the concession worker’s.
Ballmer pays such a low rate, in part, because of a provision of the U.S. tax code. When someone buys a business, they’re often able to deduct almost the entire sale price against their income during the ensuing years. That allows them to pay less in taxes. The underlying logic is that the purchase price was composed of buildings, equipment, patents, and more than degrading over time and should be counted as expenses.
But in few industries is that tax treatment more detached from economic reality than in professional sports. Teams’ most valuable assets, such as TV deals and player contracts, are virtually guaranteed to regenerate because sports franchises are essentially monopolies. There’s little risk that players will stop playing for Ballmer’s Clippers or that TV stations will stop airing their games. But Ballmer still gets to deduct the value of those assets over time, almost $2 billion in all, from his taxable income.
This allows Ballmer to perform a kind of financial magic trick. If the profits from the Clippers, he can — legally — inform the IRS that he is losing money, thus saving vast sums on his taxes. If the Clippers are unprofitable in a given year, he can tell the IRS he’s losing vastly more.
Glimpses of the Clippers’ real-world financial results show the business has often been profitable. Those include audited financials disclosed in a Bank of America report just before Ballmer bought the team, as well as NBA records that were leaked after he became an owner.
But IRS records obtained by ProPublica show the Clippers have reported $700 million in losses for tax purposes in recent years. Not only does Ballmer not have to pay tax on any real-world Clippers profits, but he can also use the tax write-off to offset his other income.
Ballmer isn’t alone. ProPublica reviewed tax information for dozens of team owners across the four most significant American pro sports leagues. According to the tax records, previously leaked team financial records, and interviews with experts, owners frequently report incomes for their teams that are millions below their real-world earnings.
They include Shahid Khan, an automotive tycoon who made use of at least $79 million in losses from a stake in the Jacksonville Jaguars, even as his football team has consistently been projected to bring in millions a year. And Leonard Wilf, a New Jersey real estate developer who owns the Minnesota Vikings with family members, has taken $66 million in losses from his minority stake in the team.
In a statement, Khan responded: “We’re a nation of laws. U.S. Congress passes them. In the case of tax laws, the IRS applies and enforces the final regulations. We simply and fully comply with those very IRS regulations.” Wilf didn’t respond to questions.
Ballmer’s spokesperson declined to answer specific questions but said: “Steve has always paid the taxes he owes and has publicly noted that he would personally be fine with paying more.”
These revelations are part of what ProPublica has unearthed in a trove of tax information for the wealthiest Americans. ProPublica has already revealed that billionaires are paying shockingly little to the government by avoiding the types of income taxing.
The records also show how some of the wealthiest people on the planet use their membership in the exclusive club of pro sports team owners to lower their tax bills.
The records upend conventional wisdom about how taxation works in America. Billionaire owners are consistently paying lower tax rates than their millionaire players — and often lower even than the rates paid by the workers who staff their stadiums. The massive reductions on personal tax bills that owners glean from their teams come on top of the much-criticized subsidies the teams get from local governments for new stadiums and further deplete federal coffers that fund everything from the military to medical research to food stamps and other safety-net programs.
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