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It's super confusing: > the purchase price was composed of assets... that degrade over time ... in few industries is that tax treatment more detached from econ

It's super confusing: > the purchase price was composed of assets... that degrade over time ... in few industries is that tax treatment more detached from economic reality than in professional sports ... Ballmer still gets to deduct the value of those assets over time I'm reading this and thinking, wait are they just talking about depreciation? That's not something special about sports teams, it's also very common in real estate. Calling it a "financial magic trick" only makes the obfuscation worse.

belorn 5y ago
With a physical building, that make sense. They do get old, and in theory, should have its value degrade over time. I would hope that land ownership however does not get to enjoy the same tax cut. Do a sport team have it value degrade, and if so, by how much each year?
- notahacker 5y ago
  Sports players need replacement much earlier than buildings...
dalbasal 5y ago
Depreciation related accounting standards vary quite a lot, depending on what's depreciating and how it's valued in the first place.
treis 5y ago
Yeah but they are depreciating things that aren't expected to depreciate. Like the brand and value of player contracts. Effectively, they are saying the value of the franchise nears 0 after 7 years or whatever that time frame is. Clearly that's not what's happening. It's just a hand out to rich people.
- caminante 5y ago
  > Yeah but they are depreciating things that aren't expected to depreciate. You need to be more precise with "depreciate." These assets (tangible/intangible) have a limited useful life and generate revenues beyond the current period. For sports franchises, there's no guarantee that they'll be around forever, and they also require continuous working capital maintenance and capex to continue operating. There are limits to what can be depreciated. Generally, IP needs to be purchased (not self-built) in order to be depreciable.[0] [0] https://www.investopedia.com/ask/answers/061715/intellectual-property-considered-form-capital-asset-within-company.asp https://www.investopedia.com/ask/answers/061715/intellectual...
- hattmall 5y ago
  Depreciating things for tax purposes isn't about their actual value dropping, that's not always relevant, other than figuring out the timeline of how they can be deducted. It's about being forced to gradually deduct the expense of capital assets. (As opposed to all at once) We tax income, because that's the actual money you make. So if I buy a business for $500 and only make $100 a year, I'm not really making money until after 5 years. If I have to depreciate that asset over 10 years then I can deduct $50 a year and have to pay taxes on $50. Depreciation is a handout to the tax man honestly. The reality is that until you have made more money than the purchase price you are not really making money.
tomp 5y ago
Is real estate actually treated as depreciation, or is it an asset with associated maintenance costs? Depreciation is just an accounting trick, e.g. if you buy a laptop, you can’t put it in costs immediately (in the profit = sales - costs equation), it depreciates over say 4 years (i.e. only 25% of the purchase price can be accounted as cost each year). Does this really happen with property? There’s no fundamental reason why a 100 year house wouldn’t be worth just as much as a new one, with proper maintenance (which can, and IMO should, be accounted separately).
- ErikVandeWater 5y ago
  In Japan houses depreciate quickly because there isn't a restrictive housing code that prevents new housing from being built. Also, houses built today have better design and better safety. I wouldn't want to live in a 100 year old house in LA.
  - tomp 5y ago
    You’re using the word “depreciate” in the common usage (“value of an asset goes down”) not in the accounting usage (“a line in the P&L statement used to offset the profit and pay less tax”)
    - ErikVandeWater 5y ago
      Are you saying landlords in Japan cannot use depreciation against profits made?

belorn 5y ago

With a physical building, that make sense. They do get old, and in theory, should have its value degrade over time. I would hope that land ownership however does not get to enjoy the same tax cut. Do a sport team have it value degrade, and if so, by how much each year?

notahacker 5y ago
Sports players need replacement much earlier than buildings...

dalbasal 5y ago

Depreciation related accounting standards vary quite a lot, depending on what's depreciating and how it's valued in the first place.

treis 5y ago

Yeah but they are depreciating things that aren't expected to depreciate. Like the brand and value of player contracts. Effectively, they are saying the value of the franchise nears 0 after 7 years or whatever that time frame is. Clearly that's not what's happening. It's just a hand out to rich people.

caminante 5y ago
> Yeah but they are depreciating things that aren't expected to depreciate. You need to be more precise with "depreciate." These assets (tangible/intangible) have a limited useful life and generate revenues beyond the current period. For sports franchises, there's no guarantee that they'll be around forever, and they also require continuous working capital maintenance and capex to continue operating. There are limits to what can be depreciated. Generally, IP needs to be purchased (not self-built) in order to be depreciable.[0] [0] https://www.investopedia.com/ask/answers/061715/intellectual-property-considered-form-capital-asset-within-company.asp https://www.investopedia.com/ask/answers/061715/intellectual...
hattmall 5y ago
Depreciating things for tax purposes isn't about their actual value dropping, that's not always relevant, other than figuring out the timeline of how they can be deducted. It's about being forced to gradually deduct the expense of capital assets. (As opposed to all at once) We tax income, because that's the actual money you make. So if I buy a business for $500 and only make $100 a year, I'm not really making money until after 5 years. If I have to depreciate that asset over 10 years then I can deduct $50 a year and have to pay taxes on $50. Depreciation is a handout to the tax man honestly. The reality is that until you have made more money than the purchase price you are not really making money.

tomp 5y ago

Is real estate actually treated as depreciation, or is it an asset with associated maintenance costs? Depreciation is just an accounting trick, e.g. if you buy a laptop, you can’t put it in costs immediately (in the profit = sales - costs equation), it depreciates over say 4 years (i.e. only 25% of the purchase price can be accounted as cost each year). Does this really happen with property? There’s no fundamental reason why a 100 year house wouldn’t be worth just as much as a new one, with proper maintenance (which can, and IMO should, be accounted separately).

ErikVandeWater 5y ago
In Japan houses depreciate quickly because there isn't a restrictive housing code that prevents new housing from being built. Also, houses built today have better design and better safety. I wouldn't want to live in a 100 year old house in LA.
- tomp 5y ago
  You’re using the word “depreciate” in the common usage (“value of an asset goes down”) not in the accounting usage (“a line in the P&L statement used to offset the profit and pay less tax”)
  - ErikVandeWater 5y ago
    Are you saying landlords in Japan cannot use depreciation against profits made?