Sports Teams and Clubs Business Guide
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All 2 Documented Cases
Incorrect Amortization Period for Minor League Player Signing Bonuses
Deferred tax deductions leading to $X annually (quantified by bonus amount × (1/1yr - 1/7yr amortization difference))Sports teams amortize minor league player signing bonuses over an average historical contract life (e.g., one year) instead of the full seven-year contract term required by IRS rules. This violates tax regulations under Reg. Sec. 1.167(a)-3(a) and Rev. Rul. 67-379, as the useful life is the period the team controls the player. The IRS Chief Counsel's Office ruled that bonuses must be capitalized and amortized over the seven-year Minor League Uniform Player Contract term.
Expensing Signing Bonuses Immediately Instead of Capitalizing
Overstated annual expenses by full bonus amount (vs. straight-line over contract life)Certain sports franchises expense player signing bonuses when paid rather than capitalizing and amortizing over the contract term, distorting financial statements. This practice, while common in some teams, leads to poor visibility into true asset values and mismatches expenses with revenue periods. It inflates short-term costs and liabilities if paired with contract asset recognition.