Inter Miami owners Jorge Mas and David Beckham announced last week that they intended to close on a $9 million purchase of three acres of county-owned land in Miami’s Overtown that was needed for a soccer stadium — which was only weird in that they decided last year not to build a stadium there, but instead build one at Melreese Golf Course.
Now, the Miami Herald thinks it has an explanation: The Overtown land is part of one of Donald Trump’s “opportunity zones,” which would allow both the land and any businesses on it to be sold after ten years for a tax-free capital gain:
In the case of a soccer stadium, the owners could sell the land and the team after 10 years and any profits would be tax-free.
“When these stadiums get sold, they often come with the franchise,” said Peter Mekras, managing director of Aztec Group, a real estate investment firm. “If you make a major capital investment in an Opportunity Zone and the physical part appreciates in value and it’s a good business venture, you’re allowing a smart decision to be even smarter.”
Given that we’re talking an MLS franchise here, it’s not all that likely there would be much in the way of on-paper profits to get a tax break on — and stadiums tend not to appreciate in value, either. The only way Mas and Beckham could really score big would be if they can avoid capital gains taxes on the entire increased value of the franchise since Beckham bought it; remember, Beckham got an option to buy the team for a cut-rate $25 million, and expansion teams now go for $200 million a pop. Would the IRS let the team owners get away with claiming that Inter Miami was still only worth $25 million when it moved to Overtown, and the entire appreciation came while the team was playing there? I’ve been reading way too much about opportunity zones, and I couldn’t tell you for sure — this is ripe for further investigation by someone with more research time on their hands. (Hint, hint, Miami Herald.)
Of course, it’s also possible that Mas and Beckham have no intention of building a soccer stadium in Overtown, as they’ve repeatedly said is the case, and are just spending $9 million to finish the rest of a parcel that they can then either develop for something else or sell to another investor, knowing it comes with potential tax breaks. In which case the only real complaint here is that Miami-Dade County maybe should have charged more for the land if it comes with a bonus Trump gift coupon. This is why it’s generally a bad idea to have tax break programs with really confusing rules that were approved without public hearings: You’re very likely to end up with loopholes that investors can drive a truck through.
Here in Raleigh we’re dealing with something similar. The owner of the local USL franchise, Steve Malik, is part of a group that has purchased about 60 acres in an Opportunity Zone. He’s planning to ask the local city-county board to give him money from the hotel tax kitty to help pay for a soccer stadium that would be built on part of that land, in the hopes of luring an MLS expansion franchise. (He’s yet to attach a firm number to this request, although that will probably happen soon, and the number is likely to be quite high.)
Interestingly, the tax breaks from the Opportunity Zone credits are so lucrative that he’s said that if the city-county doesn’t approve the subsidy, he’ll just build something else on the land instead–probably some combination of office space, housing and/or retail. Given that Raleigh has a real use for all of those things, I’m not sure how much that might actually undermine the argument for using taxpayer money to subsidize a stadium.
So I’m curious, did Malik pay a premium for the site because it’s in an Opportunity Zone? That’s how real estate capitalism is supposed to work, right, when a site becomes more lucrative it costs more to buy?
It’s a shame we learn about new federal regulations when millionaires or billionaires announce they intend to exploit them for financial gain.
Although it’s not surprising given that it’s probably the project owner who paid lobbyists to write the regulations and then push/bully/bribe elected officials to pass them.
The Opportunity Zone law was apparently written by the guy who was played by Justin Timberlake in The Social Network. This is now my favorite fact ever.
Unless Sheldon Adelson or Michael Cohen are somehow involved, I don’t see how it can get any funnier…
No expert on Florida tax law…. but it seems to me to make the proposed argument for Beckham/Mas overall asset appreciation work, the team and building would have to be rolled into one entity (or at least have one as a subsidiary of the other).
Otherwise they are separate businesses (which in most sports cases means the “building” bleeds money massively and undergoes 80-90% capital depreciation within three years of opening, while the team reaps the profits of same) and would appreciate/depreciate separately.
Would MLS’ business model cope with a combined building/franchise owner/operatorship? HSG, as I recall, made sure that the stadia they built and the teams that played in them were separate entities.
Most of the stadia built since the Hunt Sports Group construction (Crew and FCD) are at least notionally “publicly owned” (apart from RB Arena and?).
RSL and Rio Tinto Stadium are both owned by Dell Loy Hansen (a person, not an investment bank as I first thought), although it’s unclear if they’re a single company or subsidiaries of his other ventures. I believe the San Jose Earthquakes also own Avaya Stadium.