Reading time: 8 minutes
Key takeaways:
- Who this is for: anyone curious how the ultra-wealthy use sports-team ownership to lower their taxes, and, at the edges, investors weighing a minority stake through a private fund. This is not a strategy most people can use, and that is worth saying up front.
- The core idea: the tax code lets a team owner treat a rising asset as if it is losing value, and deduct that paper loss against other income.
- The detail that makes or breaks it: the deduction is only valuable if it is "active" rather than "passive," which depends on how involved the owner is.
- The catch: the benefit is deferral, not free money, the IRS is actively examining these losses, and it only works at a scale almost no one operates at.
When a group led by Josh Kushner and Bob Iger agreed to buy the Los Angeles Lakers for a record $12.5 billion, a lot of people asked the same question: why? The sports world focused on the price. The tax world noticed something else. Beyond the trophy, owning a professional sports team comes with one of the most powerful tax features in the entire code. We are not going to guess at any individual's reasons, and buying a team is obviously about far more than taxes. But the tax strategy the deal put back in the spotlight is real, it is legal, and it is worth understanding, because the principle underneath it shows up in places ordinary investors actually use. Here is how it works, the one detail that separates a real benefit from a useless one, and where the limits are.
The one idea that makes it work
Start with something that sounds backwards. A championship franchise almost always rises in value over time. Yet the tax code lets its owner deduct the purchase price as though the team were slowly wearing out, like a delivery truck. Those deductions are called amortization, and they are the heart of it.
Here is the plain version. When you buy a team, most of the price is not for the arena or the equipment. It is for intangible things: player contracts, media and broadcast deals, the franchise rights themselves, and goodwill. The code lets a buyer write off the value of those intangibles in equal pieces over 15 years. So a large share of the purchase price becomes a deduction spread across a decade and a half, even as the team itself grows more valuable.
The result is a paper loss. The team can be doing fine in real life, even making money, while showing a loss on its tax return. And the write-off is quick: sports-franchise intangibles come off over 15 years, faster than the 27.5-year schedule that applies to residential rental real estate, so the deductions land in bigger annual chunks.
The detail that separates a real deduction from a useless one
This is the part the casual takes miss, and it is where "done correctly" actually lives.
A deduction is only as good as the income it is allowed to offset. The tax code sorts business losses into two buckets: passive and active. A passive loss can generally only offset passive income, which is not much use to someone whose real income comes from a business or investments they actively run. To make the loss active, and therefore able to offset a far wider range of income, the owner has to "materially participate" in the business. That is a specific test under the tax code (Section 469) for being genuinely involved in running the thing, rather than a silent check-writer.
For most minority investors, including those who come in through a fund, the material-participation test is not met, and the losses stay passive. That is the usual outcome, not the exception.
So the whole strategy hinges on structuring ownership so the losses count as active. Get that right and the paper losses can offset meaningful income. Get it wrong and they sit stranded, only able to offset other passive income. This is the difference between a headline strategy and a disappointment, and it is exactly why this is professional territory, not a do-it-yourself move.
The difference between a strategy that works and one that backfires is almost always in the structure, and in coordinating the right tax and legal specialists around it. That's the kind of planning a Lumida advisor can help you organize. Talk with a Lumida advisor →
The supporting pieces
Amortization is the main event, but a few features stack on top.
The building depreciates too. If ownership includes a stadium or arena, that physical property can be depreciated on its own, adding more deductions.
The debt is deductible. These deals are often financed, and interest on the money borrowed to buy the team is generally deductible, like interest on a business loan.
The losses can flow to the owner. Teams are usually owned through pass-through structures, so the paper losses can pass through to the owners' own returns, where, within limits, they can offset other income. This is why the strategy appeals to people with large incomes from other sources, and why it is most powerful for someone anticipating a big jump in income, since a deduction is worth most against a large tax bill.
Why it is back in the news
Two things made this timely. First, the deal was struck at the highest price ever recorded for a sports team, and it remains subject to league approval. A number that size always renews interest in the economics of ownership. Second, and less noticed, the 2025 tax law nearly changed the rules. An early version of the bill would have cut the sports-franchise write-off in half. That limit was dropped before the bill was enacted, and the full write-off survived, a sign the benefit is politically contested and could be revisited.
The catch, and it is a real one
The break is powerful, but it is fenced in.
It is deferral, not a free lunch. When the team is eventually sold, much of what was deducted gets "recaptured," meaning it is taxed at that point. The benefit is the years of deferral in between, and the compounding on tax you did not have to pay yet. One reason these assets are often held for life: if an owner holds until death, a step-up in basis can reduce or erase that eventual bill.
The losses have to be active, and even then they are limited. Beyond the material-participation hurdle, other rules cap how much business loss can offset other income in a single year, with the excess generally carried forward.
The IRS is watching. The agency has an active enforcement campaign specifically examining whether sports-team owners' large reported losses are legitimate. This is a flagged area, not an ignored one.
It only works at enormous scale. Buying a team, or even a meaningful minority stake, runs into the hundreds of millions or billions. This does not scale down to a normal portfolio.
The part that is actually useful to you
If you will never buy a sports team, why does this matter? Because the engine underneath it is not exclusive to billionaires. Using depreciation and amortization to turn a real, appreciating asset into paper losses that shelter income is the same reason real estate can be so tax-efficient for ordinary investors. The sports-team version is just the extreme example, on a 15-year schedule instead of 27.5.
And the deeper lesson is the one worth taking away. The largest tax advantages rarely come from a single clever trick. They come from coordinating investing, tax, and estate planning, working alongside your tax and legal advisors, as one deliberate design: the amortization deduction now, the material-participation structure to make it usable, the hold-until-death plan to handle the recapture later. Treating those as one connected strategy rather than three separate boxes is what we mean by being a Wealth Architect, and versions of it are available far below billionaire scale.
Frequently asked questions
Why did the Lakers sale draw so much tax commentary?
Because team ownership carries a powerful tax feature: large deductions from amortizing intangible assets like player contracts and media rights over 15 years, which can, within limits, offset other income. A trophy franchise is about much more than taxes, and only the buyers can speak to their own reasons.
What makes the deduction "active" instead of "passive"?
Whether the owner materially participates in running the business. A passive loss can generally only offset passive income, so structuring ownership to count as active participation is what lets the losses offset a wider range of income. For most minority investors, that test is not met.
Is it a free tax write-off?
No. It is a deferral. Much of what is deducted is "recaptured" and taxed when the team is sold, though holding until death and a step-up in basis can change that math.
Can a normal investor use this strategy?
Not the sports-team version, which requires enormous scale. But the underlying principle, using depreciation and amortization to shelter income, shows up in more accessible strategies like real estate investing.
Talk it through
Conflicts of interest. Lumida Wealth Management LLC is an SEC-registered investment adviser, and this article is a marketing communication intended to introduce readers to Lumida's advisory services. If you engage Lumida, we are compensated for our services, which gives us a financial incentive to encourage you to become a client. Nothing here is a recommendation of any security, fund, or strategy, or individualized advice. Consider this conflict, and consult your own independent tax, legal, and financial advisors, before acting.
The headline strategies of the ultra-wealthy are interesting, but the useful question is which version of the underlying principle fits your situation, and how your tax, investing, and estate plans fit together. Connect with Lumida to talk through the strategies that actually apply to you.
Disclosure.* This is for education, not tax, legal, or investment advice, and does not include any projection or guarantee of investment results. Nothing here is a recommendation of any particular fund, security, or strategy, or an offer to sell or a solicitation to buy any security. It is not a comment on the tax affairs of any individual. Lumida Wealth Management LLC provides investment advisory and financial planning services and does not provide tax or legal advice; tax and legal matters are handled by your own or third-party professionals. Talk to your own tax, legal, and financial advisors before acting. Information is current as of August 2026 and is subject to change. Lumida Wealth Management LLC is an SEC-registered investment adviser; registration does not imply a certain level of skill or training.