Baseball Teams Aren’t Really In The ‘Athletics’ Business And So Shouldn’t Have To Pay Taxes: Baseball

Can anything Bartolo Colón does at age 45 really qualify as a sport?
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By Terry Foote (Batrolo Colon) [CC BY-SA 2.0 ], via Wikimedia Commons

By Terry Foote (Batrolo Colon) [CC BY-SA 2.0 ], via Wikimedia Commons

Baseball as we know and don’t really love it couldn’t exist without the active connivance and assistance of governments from Capitol Hill to City Hall. There are all those shiny new stadiums paid for by taxpayers that benefit the teams’ billionaire owners but essentially no one else. There are congressmen eager to let minor leaguers be treated as wage slaves. And, of course, there’s baseball’s antitrust exemption underlying all of it, barring people from suing baseball over team relocations and—combined with a 1998 law codifying the 1922 Supreme Court ruling that gifted baseball, and only baseball, that exemption—giving Major League teams control over their minor leaguers even in absence of a contract.

This, however, is not enough for the MLB. They’d like to be exempt from most taxes, as well, and who wouldn’t? The only problem is that Congress was a little hasty and a little sloppy in throwing together the 1,000-page tax heist that no one read before voting on it. This extended to the 20% deduction for pass-through businesses, but Republicans wanted to make sure to maximally screw over workers, and so added them to the list of potential pass-through business owners ineligible for the full deduction, along with lawyers and doctors and hedge fund managers, under the theory that only true corporations should get a break, and not anyone doing something so crass as selling their labor for money. Unfortunately for MLB, rather than specifically write “physically-gifted minorities who play games for a living,” or even just the word, “athletes,” Paul Ryan’s crack team used the word “athletics.” And to the IRS, baseball teams sure look to be in the athletics business.

Not so, says baseball commissioner Rob Manfred. As it turns out, baseball is such a small part of the baseball business as to be essentially irrelevant. In fact, Manfred seems to posit, baseball teams could stop playing baseball today (an outcome that, after last night, I am heartily in favor of) and no one would even notice. All those billions would keep rolling in anyway, at the vastly reduced rate to which they are entitled.

Baseball owners are pushing back. Mr. Manfred argues that a baseball team’s income isn’t just profiting from players’ on-field performance and that the regulation runs counter to Congress’ intent.

“In fact, in most cases, the activities of a major league professional athlete make up a de minimis amount of the total activities of all employees of a professional sports franchise,” he wrote.

Unfortunately for Manfred & co., the people who threw the word-salad tax law together in a series of all-nighters don’t really remember what they were thinking while doing it.

Mark Prater, who was the lead Senate staff author of the provision, said he doesn’t recall explicit conversations about whether pro teams would qualify.

Baseball, Inc., is gonna keep trying, though. Manfred promised to follow up with a more complete explanation of how little baseball matters to baseball. Perhaps a discussion about how standing on grass or sitting on a bench for three-and-a-half hours a night can’t really be described as “athletic,” anyway. Or that the law really only intended to cover the Oakland Athletics, which is fine, since they don’t make any money. Oh, and while we’re talking about handy exemptions, baseball could really use one from human-trafficking laws. Quickly.

Sports Illustrated has learned that the U.S. Department of Justice has begun a sweeping probe into possible corruption tied to the recruitment of international players, centered on potential violations of the Foreign Corrupt Practices Act….

One particularly remarkable document shows that Dodgers executives in 2015 went so far as to develop a database that measured the perceived “level of egregious behavior” displayed by 15 of their own employees in Latin America. That is, using a scale of 1 to 5—“innocent bystander” to “criminal”—front-office executives assessed their own staff’s level of corruption. Five employees garnered a “criminal” rating.

MLB’s Pitch to IRS: Let Us in on Tax Law’s New Break [WSJ]
The Evidence That Persuaded U.S. Department of Justice to Investigate MLB Recruitment of Foreign Players [SI]

Related

Former Major League Baseball Union Rep Is Sickened By Wall Street Pay

Last month, Rochedale analyst Dick Bové sent out a note to clients that began with what he dubbed "some interesting stats." Said stats were salaries of the New York Yankees' top infielders ("not including promotional deals"!) versus those of JPMorgan's Jamie Dimon, Wells Fargo's John Stumpf, Citigroup's Vikram Pandit, and Bank of America's Brian Moynihan. The baseball players' compensation totaled about $80 million, the CEOs' $65 million. Fair? Bové didn't think so, noting that while the talentless hacks in the Bronx have won but single World Series in the last 10 years, the banks run by the aforementioned CEOs "impact virtually every American household" (and if pressed to, could surely bring home at least a few Major League Baseball championships). "Clearly, society values the New York Yankees infield above that of the leaders of the banking industry even without a World Series ring,"  Bové concluded sarcastically, shouting "nailed it" at Mr. Giraffe. Obviously, Bové is of the mind that it's a crock how little these chief executives are paid considering all they do compared to noncontributing zeroes like Alex Rodriguez and Co. It's unclear if the former head of MLB's players' union caught Bové's riff or if not but last night he offered something of a rebuttal and, spoiler alert, he thinks Wall Street pay is bull shit. Appearing at the New York University School of Law on Tuesday night to discuss the 40th anniversary of the first baseball strike and the rise of the players' association, Marvin Miller, the 95-year-old former union head, spoke for 68 minutes and delivered a blistering criticism of corporate pay. He also said collusion by owners in the mid-1980s was worse than the Black Sox scandal in 1919 and claimed the first baseball commissioner, Kenesaw Mountain Landis, may have been a member of the Klu Klux Klan. "Let's take chief executive officers of important corporations, or the stock exchange or Wall Street firms," he said. "The typical way that compensation is set is for the board of directors, most of whom if not all of whom have been appointed directly by the CEO, decide what the CEO's salary should be, or they have a committee, a compensation committee composed of board members. "The first thing about that is that here you have a direct conflict of interest, because sitting on a board are executives of other corporations, and what they are doing is adding ammunition to their own quest for higher salaries. And it's such an obvious conflict of interest that it's awful. Of course they're going to vote for higher salaries." He said the directors are at fault because "they don't pay for it. It's paid for by stockholders, who have had no voice on what the salaries and compensation and perks of the chief executive should be." He then compared the system to baseball, where the average salary on opening day this year was $3.4 million and the Yankees' Alex Rodriguez topped players at $30 million. "There always has been and is a rule that no contract of a player is valid unless it is signed by the franchise owner or somebody designated by the franchise owner in his place," Miller said. "In other words, no salary is put on paper and becomes valid until the man who is going to pay for it, the owner of the franchise, has signed the contract. A better check and balance you can't find anywhere." According to Miller, "the more democratic thing is to require the approval of a majority of the stockholders." Whose Pay Is More Deserved: CEOs or Ball Players? [Real Time Economics] Marvin Miller Blasts Corporate Pay [AP] Earlier: Dick “Fire A-Rod” Bové: Underpaid Bank CEOs Should Seek Yankees Tryout

Bookie Confessional, Early Baseball Edition

Mike is my best baseball client. He bets three or four grand a night, spread out over the whole card. He can't possibly win over time. Sadly, such golden geese occasionally shit on the lawn. That's what Mike did Friday, when he called and asked me to give him another bookie's number. Nobody in particular—just anybody's. He wanted a second place to bet. Basically he was sitting at his regular table and asking the Maitre d' where ELSE he should go to dinner. I told him to call me back Saturday. Well, I fumed awhile, then it came to me. Mike had rarely talked to Faithful Assistant. I summoned Faithful Assistant and told him his dreams were about to come true: he was opening his own shop, with exactly one disposable cell phone, and exactly one very good customer. Turns out that wasn't Faithful Assistant's dream. His dream involves some newly single woman with expensive tastes: the weasel told me that if he was going to play this charade it was going to cost me a full 15% of Mike's losses on both phone numbers. I was outraged and we started negotiating and by the time we were done 15% had become 20%. After making a mental note never to negotiate with Faithful Assistant again, I picked up the phone to hire the new book's collection agent. Melody, a good customer's wife, asked me for a job a couple months back. I offered and she accepted this part-time gig as an audition. Mike had his new place to play, Faithful Assistant was angling for a raise to 30%, and I set up a Monday meeting with Melody to tell her how all this would go down. Melody was a quick study. Faithful Assistant was her boss-and-contact and she was supposed to pass by Mike's office every Tuesday afternoon to pay or collect. She wanted to know what to do if Mike didn't have the money. She was disappointed to learn she should do nothing, just call us. I don't think she wanted to break his legs, but I think she wanted to give him a serious telling off, preferably in front of people. Too bad—that's not the way it works. It's a non-issue anyway: Mike pays. Turns out the 20% I'm paying Faithful Assistant is money well spent: he quickly put together that Mike is betting the same teams with both our places. That might be the stupidest piece of betting I've ever laid my eyes on. He calls one number, bets the Yanks, then calls the second number and bets the Yanks again. His second price is almost always worse—how much worse, well, it depends on how greedy we feel. There is no logic to this—he ought to put his whole bet in at the first place he calls, or better yet call both joints for prices and put the bet in at the shop with the better price. (Faithful Assistant is routinely varying prices on the Mike Phone by a penny or two anyway.) The only way Mike's current plan would make sense is if Mike was putting in maximum sized bets and needed to get down two max bets whatever the cost – but that's not happening: Mike's just putting down a few hundred at each place. Aspiring MBA-er Faithful Assistant says that Mike is trying to spread out his “credit risk," so that if one shop goes bust owing him money, he still has the other. Our shenanigans aside, that helps Mike little: If you think your bookie can't pay, don't spread out your risk—just stop calling him and find someone else you're actually comfortable with. It's a bookie joint, not a bank. So we were a little surprised about this but the final shock was Melody's. Melody showed up on Tuesday at Mike's office to pick up $600. She won't have to bother going downtown anymore: She knows “Mike” well: their kids are best friends since they've been neighbors for nine years.