The Proposed “Big Beautiful Bill” May Disrupt Sports Team Investment Strategy

What’s at Stake: Section 197 and Franchise Intangibles
Under current law, Section 197 allows for the straight-line amortization over 15 years of acquired intangibles, including trademarks, goodwill, broadcasting rights, employment contracts, league memberships and franchise rights—collectively, a significant portion of a team’s value in an acquisition. The BBB draft proposes a limitation on amortization deductions for certain sports-related intangibles.

Specifically, under this provision, a taxpayer that acquires a specified sports franchise intangible would only be permitted under IRC Section 197 to amortize 50% of the adjusted basis. A “specified sports franchise intangible” is any amortizable Section 197 intangible which (1) is a franchise to engage in professional football, basketball, baseball, hockey, soccer or other professional sport, or (2) is acquired in connection with such a franchise. This change would apply to property acquired after the date of enactment.

If enacted, this modification could mark a fundamental shift in deal modeling: investors actively involved in the trade or business (i.e., controlling owners) would see 50% reductions in their annual deductions tied to intangible amortization. Minority investors may also see reduced returns, depending on their ability to utilize offsetting amortization against current income.

Deal Implications: Valuation, Leverage and Structuring
The current treatment under Section 197 enables owners to claim significant annual tax benefits, potentially enhancing free cash flow and improving annual returns and distributions. The removal of this benefit would:

• compress enterprise-value-to-taxable-income ratios, making some acquisition targets less attractive under traditional valuation models; and
• create headwinds for leveraged acquisitions, as reduced deductibility could strain debt-service-coverage ration (DSCR) covenants and reduce the appetite of credit funds to finance sports assets.

While the draft language is preliminary, this signals an ideological shift in how Congress views the tax treatment of high-value-entertainment assets.

Strategic Considerations

• Valuation Impacts. Limiting amortization of intangible assets could reduce the tax benefits of sports franchise ownership and could put downward pressure on valuations. Sports franchise investors should reconsider proposed valuations and proformas to consider this potential limitation on amortization of intangibles.
• Investment Timing Considerations. With meaningful changes potentially on the horizon, buyers and sellers would be well-advised to act under the current tax regime while it remains in effect. Transactions completed prior to the bill’s enactment may preserve more favorable treatment under existing law.

Outlook
Although passage of the BBB is uncertain and likely subject to multiple rounds of compromise, its proposed tax provisions—especially concerning Section 197—represent a material change to the foundational assumptions driving sports team investment. Should the bill advance in its current form, firms will need to retool underwriting models, reassess hold-period economics, and prepare for a possible repricing of marquee assets in the next acquisition cycle.

Pillsbury continues to monitor the status of BBB and its potential impact on sports investments. If you would like to discuss the implications of these proposed changes on a current or contemplated transaction or require assistance with portfolio-level modeling under alternative tax scenarios, please contact any of the authors.