IRS provides safe harbor for valuing pro sports team rights

Apr 16, 2019
Apr 16, 2019
0 min. read

Revenue Procedure 2019-18 provides a safe harbor method for sports teams to treat certain personnel contracts and rights to draft players as having a zero value for determining gain or loss recognized for federal income tax purposes if such contracts and rights are traded.


The IRS writes in IR-2019-70, professional sports teams have historically struggled to assign a monetary value to contracts or draft picks due to the fluctuating nature of the performance of players and staff members, and market conditions.  The IRS cites a dizzying list of factors that affect the value of a personnel contract in Rev. Proc. 2019-18, including: player performance, the changing needs of a team, the changing needs of other teams, a player’s effect on fan attendance, and the number of years until a player becomes a free agent, the size of a team’s market, the cost of player development, and the impact of injuries and slumps. The fact that teams trade personnel contracts on a small, private market also adds difficulty to assigning value.

The IRS notes that a team does not make these types of trades unless the team believes it will receive something of equal or greater value to what it is giving up under the team’s circumstances at the time.  Accordingly, this valuation is highly subjective and virtually impossible to determine relative to a third-party.

How the safe harbor works

A trade qualifies for the safe harbor if:

  • All parties to the trade use the safe harbor;
  • Each party transfers and receives a personnel contract or draft pick;
  • Transfers may only include personnel contracts, draft picks, or cash;
  • No property transferred is treated as an amortizable section 197 intangible; and
  • The teams’ financial statements do not reflect assets or liabilities resulting from the trade other than any cash.

If all of the above criteria are met, a team needs not recognize any gain or loss on a trade other than any cash transferred in the trade because the contract value of each personnel contract or draft pick is treated as zero.  If a team receives cash in the trade, the cash is treated separately and the team does not include the cash value in the basis of the assets.  A team providing cash to another team receives basis in the personnel contract or draft pick acquired equal to the cash the team provides in the trade.  For cash a team provides in a trade for two or more assets, the team must allocate its basis to each asset equally.  The Rev. Proc. provides that a team may recognize gain or loss based on the amount received over the unrecovered basis of the personal contract, subject to the rules of sections 1231 and 1245.  A team’s unrecovered basis in a personnel contract or draft pick is the team’s basis in such contract or draft pick as determined under section 167(c).

The IRS notes that teams must retain books and records to substantiate all the requirements of Rev. Proc. 2019-18, and, pursuant to section 6001, must furnish records of compliance to the IRS.

Effective date

The Rev. Proc. applies only to agreements involving trades of personnel contracts or draft picks entered into after April 10, 2019.  The team, however, may choose to apply the Rev. Proc. to any open taxable year.


Rev. Proc. 2019-18 simplifies the process by which professional sports teams account for trades.  Teams no longer need to weigh a near-infinite list of considerations for assigning values to personnel contracts and draft picks.  However, record keeping and adherence to the rules are crucial, and the requirement that both teams use the safe harbor for either team to qualify makes communication and agreement essential.  Teams are urged to consult with a tax professional to plan and comply for future trades.

RSM contributors

  • John Charin

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