If you adore the world of sports or are in interested in diversifying your investments, one option that you may choose to explore is purchasing a professional sports team. Some may also decide to buy a sports franchise to improve their tax situation. Here are a few important things you need to know about owning a professional sports team.
1. Consulting With a Sports Franchise Valuation Service is Essential
Like any purchase, you want to make sure that you do not overpay for the sports franchise. Working with a professional sports franchise valuation expert can help you ensure that you pay an appropriate price.
A sports valuation expert will use a few different factors when deciding what to value the team at. Some of the factors include the team's revenue, cash flow, current and future expenses, and any events that may influence the team's future ability to play (such as an impending labor strike).
You should make sure you work with a valuation service who has experience valuing the exact type of sports team you are interested in purchasing. For example, the process for valuing a minor league baseball team varies from the one used to value a major league baseball team.
2. You May Not Realize a Profit Until You Sell the Team
Due to the high operating expenses, some franchise owners do not realize a profit on their purchase until they sell the team. Keep this in mind if you expect the purchase to increase your overall net worth. To increase the value of the team, you may need to incur considerable expenses, such as taking on debt to build a new stadium or renovate an existing stadium.
3. It is Best to Hold the Team for a Long Period of Time
To get the most from your purchase, you should be prepared to own the team for an extended period of time. This allows you to take the necessary steps to make the team as profitable and popular as possible. Time is essential if you are purchasing a new sports team that does not have an established fan base.
4. Use Losses from to Offset Your Overall Income Tax Obligation
Current IRS laws permit the owners of a sports team to write off the cost of the purchase against the team's losses. Even if the team has a profitable year, on paper, the team will show a loss due to these regulations. Sports team owners can also use the loss to offset other types of taxable income, decreasing the amount that they have to pay in taxes.
Contact a company like Sports Value Consulting, LLC for more information and assistance.