Professional Sports Franchises Amortizable under Sec. 197

The purchase price allocated to intangible assets (including franchise rights) acquired in connection with the acquisition of a trade or business generally must be capitalized and amortized over a 15-year period. However, before enactment of the AJCA, Sec. 197(e)(6) specifically excluded professional sports franchises and any item acquired in connection with them from the definition of a Sec. 197 intangible.

New Law

AJCA Section 886 extends the 15-year recovery period under Sec. 197 to professional sports franchises and any intangible acquired in connection with the acquisition of the franchise (including player contracts). Thus, it repeals the special rules under Sec. 1245(a)(4) for player contracts and makes other conforming changes to the statute.

Effective Date

This provision is generally effective for property acquired after Oct. 22, 2004. The amendment to Sec. 1245(a)(4) applies to franchises acquired after Oct. 22, 2004.

Implications

Because the Service viewed the professional sports franchise and associated media rights as having no ascertainable useful life, considerable controversy arose over allocating the purchase price of these franchises. This was particularly the case in recent years, when a disproportionate value in the transactions was allocated to the franchise and media rights, rather than the player contracts. This provision eliminates this controversy and provides a uniform treatment.

From Jane Rohrs, Washington, DC