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Friday, February 02, 2018

Jeffrey Loria claims he made no profit from Marlins sale, owes nothing to city, county - Sun Sentinel

This is not from The Onion.

Jim Furtado Posted: February 02, 2018 at 10:41 PM | 29 comment(s) Login to Bookmark
  Tags: jeffrey loria, marlins

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   1. PreservedFish Posted: February 02, 2018 at 11:10 PM (#5618466)
Months ago on OT:P we had a rousing discussion on whether or not it was justified and patriotic to punch Nazis in the face. My question is, would I be justified in punching Jeff Loria in the face?
   2. Jose is an Absurd Force of Nature Posted: February 02, 2018 at 11:14 PM (#5618470)
I think that is one area where all political leanings would agree the answer is yes. Hell I think there are Quakers who would be like “dude, don’t punch him in the face, kick him in the nuts then punch him in the face.”
   3. ptodd Posted: February 02, 2018 at 11:55 PM (#5618491)
Sounds like sour grapes. Also, from a earlier Forbes article 5% was in 2014 and it declines gradually to 0 by 2019

Loria actually sold for 800 million with the Jeter group assuming 400 million in debt. At 8% per year the 250 million base should be 460 million and not 370 million. Appreciating Lorias initial contribution of 120 millon to the stadium at the same rate bumps that to 250 million, and what with taxes and closing fees there probably is nothing owed.

Sadly Lorias main crime was selling to an ownership group worse than him
   4. bookbook Posted: February 03, 2018 at 06:34 AM (#5618523)
I doubt, in the fullness of time, this ownership group will end up worse than Loria. By doing all the reprehensible stuff at the get go, they’ve got nowhere to go but up.
   5. bfan Posted: February 03, 2018 at 08:05 AM (#5618529)
Did we read the article? This number was certified by accountants, as reflective of the deal struck. The city/county has 30 days to check the numbers and dispute them. If they dispute, they can go to court. If they do not, he was correct.

He did not provide this on the back of an envelope. $287 million in income tax? That will take a bite out. $30 million in adviser fees; that counts too. When you sell your house, your gross price does not equal your net, you know. You pay off your mortgage; there are recording fees and transfer fees paid to the state; there are closing costs. That house sale does not even include any federal tax payments (which there might not be, if you roll the proceeds into another house).

It looks like in this deal he negotiated a return on investment before you got to "profit", which is different than a house sale, but does anyone here think owning a baseball team does not allow you a return on your investment?
   6. cardsfanboy Posted: February 03, 2018 at 09:03 AM (#5618541)
Months ago on OT:P we had a rousing discussion on whether or not it was justified and patriotic to punch Nazis in the face. My question is, would I be justified in punching Jeff Loria in the face?


If you had a chance and didn't, I think that would be the crime.
   7. AuntBea calls himself Sky Panther Posted: February 03, 2018 at 09:55 AM (#5618545)
Loria actually sold for 800 million with the Jeter group assuming 400 million in debt.
In other words, he sold it for 1.2 billion. Unloading debt is also considered amount realized under any accounting or tax system (including on the contract "schedule" the image of which was in the article). Now, Loria may have also assumed some or all of that debt at the time he first bought the Marlins as well, or the contract with the city may not count the assumption of debt on the team (by the new ownership group) as profit for Loria for some other reason, but that's a different point.

It looks like in this deal he negotiated a return on investment before you got to "profit", which is different than a house sale, but does anyone here think owning a baseball team does not allow you a return on your investment?
Presumably, he's "allowed" to make exactly as much profit (in the form of a preferred return or whatever he negotiated) before sharing any of it with the city as the contract says he is. Without seeing the contract or the relevant Marlines financial it's impossible to know whether his position is accurate or even reasonable.
   8. . . . . . . Posted: February 03, 2018 at 12:07 PM (#5618598)
Contract allows him 8% IRR. Crazily, it sounds like that IRR is calculated after tax. If so, I can see how he ends up with no obligation to profit share.
   9. Misirlou doesn't live in the restaurant Posted: February 03, 2018 at 12:07 PM (#5618599)
It looks like in this deal he negotiated a return on investment before you got to "profit", which is different than a house sale, but does anyone here think owning a baseball team does not allow you a return on your investment?


It's extremely likely that a good chunk of the $400 mil in debt is money that went from the business into his pockets.If he gave the team away he would have made out well overall.
   10. snapper (history's 42nd greatest monster) Posted: February 03, 2018 at 12:38 PM (#5618618)
$287 million in income tax?

How is that possible? It's a long-term capital gain. That's taxed at 20%.

He'd need a $1.435B profit to owe $287M.
   11. puck Posted: February 03, 2018 at 01:31 PM (#5618657)
You guys are too kind to Loria. He should be treated like an Olympic gymnast.
   12. . . . . . . Posted: February 03, 2018 at 06:01 PM (#5618780)

How is that possible? It's a long-term capital gain. That's taxed at 20%.

He'd need a $1.435B profit to owe $287M.


It's not so simple to say that his gain is taxed at 20%. For federal alone, could be a few points higher than that, depending on how its structured. Then there's state and local, which can be weird. Also, it's not right to say his PROFIT is taxed at that amount because that's not how it works. His GAIN is taxed at that amount but gain does not necessarily equal profit. It all depends on structuring.

If you assume $1.05B in gain and a 23.8% federal bracket, that comes out to $250M in federal tax.

Back of envelope, he bought at $158M in 2002. He only needs to repay 5% of net proceeds AFTER tax AFTER repayment of debt IN EXCESS of an 8% IRR over 15 years.

So basically his net proceeds AFTER tax need to be $500M to even trigger a profit sharing obligations. He sold for $1.2B, minus $250 in tax is $950M, minus $280M in debt is $670, minus $30M of advisor fees is $640.

So even in this back of the envelope, there's only $140M you need to account for and Miami-Dade is only entitled to 5% of that, or around $7M. So this is basically a fight over peanuts. How much did Miami-Dade contribute toward that stadium? $350M? What a joke.


   13. snapper (history's 42nd greatest monster) Posted: February 03, 2018 at 06:06 PM (#5618783)
If you assume $1.05B in gain and a 23.8% federal bracket, that comes out to $250M in federal tax.

How could Loria have a $1.05B gain? He only netted $800M.
   14. . . . . . . Posted: February 03, 2018 at 06:26 PM (#5618795)
You are confusing gain and profit.
   15. snapper (history's 42nd greatest monster) Posted: February 03, 2018 at 10:15 PM (#5618855)
You are confusing gain and profit.

He only received proceeds of $800M. Neither his gin nor his profit can be larger than that. The debt assumed was Marlins debt, not Loria personal debt.

If I sell stock for $100 a share, with $50 cost basis, and the corporation also has $30 per share in debt, my gain is $50, not $80.
   16. AuntBea calls himself Sky Panther Posted: February 03, 2018 at 11:18 PM (#5618868)
If I sell stock for $100 a share, with $50 cost basis, and the corporation also has $30 per share in debt, my gain is $50, not $80.
The Marlins are not a corporation, but (I think) a limited partnership. It's more like owning the property directly.


He only received proceeds of $800M. Neither his gin nor his profit can be larger than that. The debt assumed was Marlins debt, not Loria personal debt.
The property sold was encumbered by nonrecourse debt, so the amount realized was $1.2 billion, not 800 million. See the Crane case. Most private real estate also is not really different as it is also usually secured by the property only (non-recourse). Recourse debt is actually a little more complicated because it is not necessarily assumed by a buyer upon sale.

If you buy property and take on nonrecourse debt upon acquisition, like a mortgage, you also include the amount in basis. If you take on nonrecourse debt while already holding the property, you have the cash yourself, so you would normally be selling the property without the cash. (If you sold a house with a bunch of cash in it, sitting on a table, you would include the amount of cash in the basis of the total stuff sold).

What happens, you ask, if the Marlins borrow more money during the time owned by Loria? Unlike a corporation, Loria's basis in his LP interest will rise by his share of the borrowing of the LP even if no cash is distributed to Loria, so, absent any other transactions, his gain would not change.

Most business assets have lots of depreciation though, which reduces basis for the owners holding through an LP. Distributions from the LP also reduce basis. Loria could easily have had a $1 billion gain even if the LP took on $400 million of new debt while he held it.

If a corporation takes on debt, the amount of debt is not added to the stockholder's basis, but the corporation also holds the cash. If the cash is distributed to a shareholder it (depending on the circumstances) would normally be treated as a taxable dividend to the shareholder. If hypothetical MarlinCorp were purchased by Loria for $200m, then MarlinCorp took on $400m of debt and used the cash for business purposes and JeterGroup later purchased the stock for $800m, Loria would only have a gain of $600m. However, in this scenario, no one would be saying that the sale price was $1.2 billion.
   17. snapper (history's 42nd greatest monster) Posted: February 03, 2018 at 11:32 PM (#5618872)
The Marlins are not a corporation, but (I think) a limited partnership. It's more like owning the property directly.

The property sold was encumbered by nonrecourse debt, so the amount realized was $1.2 billion, not 800 million. See the Crane case. Most private real estate also is not really different as it is also usually secured by the property only (non-recourse). Recourse debt is actually a little more complicated because it is not necessarily assumed by a buyer upon sale.


If that's true, it's a horribly tax inefficient structure. Why would anyone choose that?

You're saying by not being a corporation, Loria has to pay capital gains tax on $400M dollars he did not actually receive. That seems crazy.

I can't believe a shyster like him is that dumb. Much more likely is that he's lying through his teeth trying to defraud Miami.
   18. Walt Davis Posted: February 03, 2018 at 11:44 PM (#5618876)
Oops, sorry, I forgot to carry the 1 ... billion.
   19. . . . . . . Posted: February 03, 2018 at 11:45 PM (#5618877)
He’s not lying and that structure was almost certainly tax optimal. Probably because that structure helped shield ordinary income. But you pay the piper when you sell in the form of a big CG tax bill.
   20. AuntBea calls himself Sky Panther Posted: February 04, 2018 at 12:01 AM (#5618879)
You're saying by not being a corporation, Loria has to pay capital gains tax on $400M dollars he did not actually receive. That seems crazy.
No. It's actually generally a more efficient structure, and I'm not saying that. First, if Loria were the sole owner of the Marlins, bought it for $200, the Marlins borrowed $400, then Loria sold for $800 cash plus the debt assumption, Loria would have a tax basis of $600 and an amount realized of $1.2 billion, for a gain of $600. He would not have extra gain from the debt taken on by the Marlins.

If the Marlins threw off $300 of depreciation while Loria owned it, Loria would have a deduction (against ordinary income, whether earned through the Marlins or otherwise) on his taxes for those years, which can be carried forward, so he would be getting the benefit of the $300 immediately. If the Marlins also distributed $100 to him, he would have the cash immediately. Those two transactions would reduce his basis back down to the $200 he started with, so upon sale he would have the $1000 gain. Some of this could be recharacterized as ordinary income to the extent of depreciation recapture (it offset ordinary income), for example, so the tax rate could be higher than 20%. Taking the $400 of value he received while owning the Marlins his net amount of gain is the same $600 he had above. [edit: this is better thought of as the total amount received is $300+$100+$800 for a gain of $1000, which is what he is taxed on].

Now, if this were a corporation, he would have an original stock basis of $200. He wouldn't be able to take any deductions on property held by the corporation. The $100 distribution could be treated as a partial redemption (reducing basis), or could be treated as a dividend for an immediate tax on $100. Upon sale he might have a further gain of $600 (in the dividend case) or $700 (in the case of a reduction in share basis). Either way his total gain would actually be the same, once the cash he received is factored in [edit $700, which was also what he was taxed on]. However, if there was income also earned at the corporate level, the corporation also pays tax, which generally makes the structure less efficient.

edit: fixed errors.
   21. AuntBea calls himself Sky Panther Posted: February 04, 2018 at 12:25 AM (#5618883)
I think business real estate depreciation is actually recaptured at a 25% capital gain rate, but the general point stands.
   22. dlf Posted: February 04, 2018 at 09:11 AM (#5618918)
One of the things we've learned with regards to the Braves relocation to WFF is that the team was represented by top notch attorneys at some of the most prestigious law firms in the country while Cobb County was represented by attorneys on staff for the county. Meaning no disrespect, but for the most part, attorneys working in low level governmental offices are not those that graduated at the top of their class at HYS. Cobb didn't bring a knife to a gun fight; they brought a flower and box of chocolates. I suspect that the Marlins / Miami clash will be much the same and the "promises" Loria made will be so well couched with limitations and caveats that at the end of the day the tax payers will be SOL.
   23. You Know Nothing JT Snow (YR) Posted: February 04, 2018 at 09:13 AM (#5618919)
The party with the most expensive lawyers manages to scam the other party? Who woulda thunk it?

Lawyers are parasites and prostitutes.
   24. Edmundo got dem ol' Kozma blues again mama Posted: February 04, 2018 at 09:18 AM (#5618922)
Jeffrey Loria claims he made no profit from Marlins sale, owes nothing to city, county


I assume that he said this in a Jon Lovitz voice.
   25. McCoy Posted: February 04, 2018 at 09:32 AM (#5618924)
The whole idea of getting swindled and better lawyers causing it is false. The reality of that the politicians wanted the stadoums built, didn't really care about the cost, and needed language in the contract to help sell this swindle.

Now of course the bill has come due and the politicians have to protect their job so they blame the evil greedy rich guy when in reality most of them were in cahoots with him from the beginning*.

* Provided they are still in elected office. The newer ones will blame the old ones to protect their job.
   26. . . . . . . Posted: February 04, 2018 at 09:33 AM (#5618925)
The party with the most expensive lawyers manages to scam the other party? Who woulda thunk it?


At least in my second hand experience, the problem isn’t that state and locals use cheaper lawyers, it’s that they hire friends and political supporters. I.e. the legacy of the spoils system still lives in local politics. So their lawyers are expensive, just not very good.
   27. AuntBea calls himself Sky Panther Posted: February 04, 2018 at 10:00 AM (#5618929)
It's really not the lawyers, for the city or Loria, that are generally drafting the business deal. They should be checking to see that the document reflects what their side thinks it does, but the modeling of how much money will be made under various scenarios only becomes a lawyer's job when the principals and their accountants, etc. are incompetent and/or shirking their duties. I'm guessing the real truth of this situation is closer to McCoy's 25.

   28. The Yankee Clapper Posted: February 04, 2018 at 03:09 PM (#5619062)
The party with the most expensive lawyers manages to scam the other party? Who woulda thunk it?

As #25 noted, that's nonsense. The politicians wanted a bit of cover, so they said the government would share in the profits if Loria made a "windfall" on the stadium deal by selling the team within certain time frames, and then crafted a formula that made it unlikely they'd actually get any money. Anyone believing the politicians got scammed is exceedingly gullible.
   29. 6 - 4 - 3 Posted: February 04, 2018 at 11:21 PM (#5619510)
There was a Superbowl commercial where two guys ring the doorbell of some rich douche and then punt a football right into his groin when he opens the door.

Someone needs to do that to Loria for real.

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