They say the only sure things are death and taxes. In Donald Sterling’s case the saying could be amended to death or taxes.
Capital gains taxes could be the biggest financial hit taken by Sterling if the NBA forces him to sell the Clippers. Or his heirs might avoid the taxes should Sterling, 81, die before the team is sold.
According to sports tax expert Robert Raiola and as first reported by SI.com, that’s Sterling’s best reason for contesting the sale and dragging out the process as long as possible, likely through court proceedings. Another reason is that Sterling has a lifelong history of making life difficult for business foes and using legal action to do so. It’s what he does.
Because the Clippers have a new local TV rights deal looming, they are estimated to be worth about $1 billion. If Sterling is alive when the team is sold and simply puts the proceeds in the bank, Raiola says he would owe about 33 percent in taxes (20 percent federal capital gains plus 13 percent state taxes) on the amount over the $12.5 million he paid for the team. To simplify the math, let’s say the Clippers are sold for $1.0125 billion, so Sterling would clear $1 billion and pay $333 million in taxes.
Forbes presents a scenario in which Sterling could avoid taxes by claiming this is an involuntary conversion of property (the NBA is forcing him to sell), which would give him two years to purchase another sports team of equal value. No U.S. sports league would allow him as an owner, leaving only an overseas $1 billion soccer franchise as a possibility.
Clipper employees could cobble together an offer with a third party utilizing an Employee Stock Ownership Plan (ESOP), but would Sterling even consider selling the team to current players and employees of the Clipper organization and would the league allow it? Unlikely, according to Raiola.
The last scenario is Sterling stalling a sale until he dies. His family would inherit the team at its value at time of death, with zero tax consequences except for estate taxes. If the family sold the team, it would pay capital gains only on the difference of the “stepped-up value” and the sale price. So if the value is determined to be $1 billion at Sterling’s death, and the team is sold for, say, $1.2 billion, the tax bill would be 33 percent of only $200 million.
Death or taxes, Donald. And only yourself to blame.
Steve Henson is a senior editor with the USA TODAY Sports Media Group.