Investment Considerations for US Water Infrastructure

Investment Considerations for US Water Infrastructure

In the United States, the state of water infrastructure has reached a critical juncture. Years of underinvestment, coupled with the challenges posed by aging systems and increasing demand, have brought the issue of water infrastructure to the forefront of national discourse. With the significant infrastructure spending projections slated for the coming decades, traditional reliance on public funding has shifted toward increased private investment in a sector that has historically been the domain of public utilities.

This transition towards private investment in water infrastructure marks a major departure from traditional models, where municipalities and local governments are primarily responsible for funding and maintaining water systems. The rationale behind this shift lies in the recognition that public funding alone cannot adequately meet the immense financing needs required to upgrade and modernize aging infrastructure. Moreover, private investment brings the prospect of innovation, efficiency gains, and access to capital markets that may otherwise be unavailable to public entities.

However, the move towards privatization of water infrastructure is not without its complexities and potential challenges. Critics argue that privatization may lead to concerns regarding equity, accessibility, and accountability. Privatized water systems could prioritize profit over public service, resulting in increased costs for consumers and diminished oversight over essential services. Furthermore, there are concerns about the potential for private investors to prioritize investments in profitable areas, neglecting marginalized communities or regions with lower profitability.

Nonetheless, proponents of increased private investment contend that it offers a viable solution to the pressing needs of water infrastructure. By leveraging private capital and expertise, municipalities can accelerate the pace of infrastructure upgrades and improvements while spreading the financial burden across a broader spectrum of stakeholders. Moreover, private investment can introduce competition and market dynamics that incentivize efficiency, innovation, and cost-effectiveness in service delivery.

Looking ahead, the implications of increased private investment in water infrastructure are multifaceted and contingent on various factors. The regulatory landscape, for instance, will play a crucial role in shaping the trajectory of private sector involvement. Clear and robust regulatory frameworks are necessary to safeguard against possible abuses and ensure that private investment aligns with broader public interest objectives, such as environmental sustainability and social equity.

Evolving technology will also play an increasingly vital role in water infrastructure, presenting both opportunities and challenges for private investors and public utilities alike. Advancements in digitalization, sensor technologies, and data analytics hold the promise of optimizing water resource management, reducing wastage, and enhancing system resilience. However, integrating these technologies into existing infrastructure requires significant capital investment and careful coordination between public and private stakeholders.

Overarching issues like climate change add another layer of complexity to infrastructural discourse. Increasing temperatures, changing precipitation patterns, and persistent extreme weather events pose unprecedented challenges to the reliability and resilience of water systems. Adaptation and mitigation efforts will require substantial investment in infrastructure upgrades, such as stormwater management systems, flood protection measures, and water treatment facilities.

The future of US water infrastructure will hinge on a balance between utilizing the perceived benefits of private sector involvement and safeguarding the broader public interest. As companies navigate this complex landscape, Appraisal Economics stands to streamline the process, offering high-level water and sewage valuation and appraisal services for those aiming to consolidate, diversify their impact, and ultimately become more effective. 


Valuations For Restricted Tokens: An Advantaged Tax Play

Valuations For Restricted Tokens: An Advantaged Tax Play

In 2024, the landscape for restricted tokens has evolved significantly, presenting a strategic advantage for tax-savvy investors. The valuation of these tokens, often issued as part of compensation packages or initial coin offerings (ICOs), has become a critical consideration for both issuers and recipients. The interplay between market dynamics, regulatory frameworks, and tax implications forms a complex yet lucrative domain for those well-versed in digital assets.

Restricted tokens, unlike their freely tradable counterparts, come with specific constraints on transferability and liquidity, typically for a designated period. These restrictions inherently affect their market value, necessitating precise valuation techniques that account for the illiquidity discount. The process often involves sophisticated financial models, such as the Black-Scholes option pricing model or Monte Carlo simulations, adjusted for the lack of marketability. These models help determine the fair market value (FMV) at the time of issuance, a crucial figure for tax purposes.

The tax advantage of restricted tokens lies in their lower initial valuation compared to fully liquid tokens. When employees or early investors receive these tokens, their taxable income (based on the FMV at issuance) is significantly lower. As the tokens vest and the restrictions lapse, any appreciation in value registers as capital gains instead of ordinary income, which is subject to higher tax rates. This deferral and potential conversion to capital gains create substantial tax savings, especially in jurisdictions with favorable gains tax treatments.

Furthermore, applying the 83(b) election amplifies these benefits, allowing recipients to pay taxes on the FMV of the restricted tokens at the time of grant rather than upon vesting. By doing so, any subsequent increase in value sees taxation at the capital gains rate – not the higher ordinary income rate. However, the election must occur within 30 days of the grant, and the decision is irrevocable, thus necessitating a careful assessment of the token’s potential future value and the individual’s liquidity position to cover the initial tax liability.

The valuation discount for lack of marketability (DLOM) is pivotal in this context. Various empirical studies and methods, such as restricted stock studies and option-pricing approaches, provide the basis for quantifying DLOM. These studies typically examine the price differential between publicly traded shares and restricted shares of the same company, reflecting the impact of illiquidity. Option-pricing models, on the other hand, incorporate factors such as volatility, holding period, and dividend yield to estimate the discount. In practice, a DLOM ranging from 10-30 percent is common, though this varies with the specific circumstances of the token and the issuing entity.

Regulatory considerations further complicate the valuation process. The Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS) have stringent guidelines on how these tokens should be reported and taxed. The SEC’s focus is primarily on ensuring compliance with securities laws, while the IRS is concerned with the accurate reporting of income and gains. The interplay between these regulations often necessitates expert legal and tax advice to navigate the compliance landscape effectively.

The strategic issuance and acceptance of restricted tokens, therefore, demand a nuanced understanding of both the market and regulatory environment. Companies must balance the attractiveness of these tokens as part of compensation packages against the compliance and reporting burdens. For recipients, the potential tax savings must be weighed against the risks of illiquidity and the uncertainty of future token value.

In essence, restricted tokens in 2024 represent a sophisticated tax planning tool within the broader spectrum of digital asset management. The ability to leverage valuation discounts, regulatory provisions, and strategic tax elections can result in significant financial benefits – but it requires a deep understanding of the intricate valuation methodologies, tax implications, and regulatory landscape. 

As the digital economy continues to expand, the role of restricted tokens will likely become increasingly prominent, offering both challenges and opportunities for astute investors and issuers alike. Appraisal Economics provides in-depth, high-level valuation services that can make this process easier to navigate and ultimately more effective for long-term success. 


Benefits of Bifacial Solar Panels

Benefits of Bifacial Solar Panels

Bifacial solar panels have emerged as a promising innovation within renewable energy, offering distinct advantages over traditional monofacial panels. By utilizing sunlight from both sides of the panel, bifacial technology enhances energy production and efficiency, making it a compelling choice for various applications in the solar industry.

A Range of Advantages

Among bifacial solar panels’ numerous benefits, their increased energy yield is perhaps the most crucial. Unlike monofacial panels that only capture sunlight on one side, bifacial panels utilize both the front and rear surfaces to generate electricity. This dual-sided absorption allows bifacial panels to collect energy from both direct sunlight and reflected sunlight from surrounding surfaces such as the ground, buildings, or even clouds. As a result, bifacial panels can achieve higher energy output compared to their monofacial counterparts, especially in environments with ample diffuse light or reflective surfaces.

Bifacial panels’ versatility makes them suitable for a wide, energy-efficient range of installation scenarios. Whether mounted on the ground, on rooftops, or integrated into building facades, bifacial panels can adapt to diverse environments and orientations. This flexibility maximizes energy production and enhances the aesthetic integration of solar technology into architectural designs.

Another advantage of bifacial solar panels is their improved performance under varying environmental conditions. Traditional monofacial panels are highly dependent on direct sunlight and can experience efficiency losses due to factors such as shading, soiling, or temperature fluctuations. In contrast, bifacial panels are less susceptible to these issues since they can capture additional light from different angles and surfaces. This inherent resilience makes bifacial technology particularly well-suited for challenging environments where shading or soiling may be prevalent, such as urban areas or dusty regions.

Moreover, the longevity and durability of bifacial panels contribute to their cost-effectiveness over the long term. With advancements in materials and manufacturing processes, modern bifacial panels exhibit robust construction and weather resistance, ensuring reliable performance throughout their lifespan. In this sense, durability can reduce maintenance requirements while enhancing the overall return on investment for solar projects, making bifacial technology an attractive option for both utility-scale and distributed installations.

Bolstering Sustainability

In addition to their energy-generating capabilities, bifacial solar panels offer environmental benefits by reducing the carbon footprint associated with electricity generation. By harnessing clean, renewable energy from the sun, these panels help mitigate greenhouse gas emissions and combat climate change. Furthermore, the sustainability of solar power extends beyond its operational phase, as many components of bifacial panels are recyclable, contributing to the circular economy and reducing waste.

Furthermore, efficiency gains achieved with bifacial technology can have significant implications for the economics of solar energy. Bifacial panels maximize their energy yield per unit of area, enabling higher energy density and reducing land requirements for solar installations. This increased efficiency not only optimizes land use; it also lowers the levelized cost of electricity, making solar power more competitive with conventional energy sources.

Bifacial solar panels represent a compelling advancement for photovoltaic technology, and as the renewable energy transition accelerates, bifacial technology should remain instrumental in shaping the future of solar power generation.

At Appraisal Economics, our vast solar valuation expertise and insights on renewable energy innovations like bifacial solar panels is sure to meet your needs. Be sure to contact us to learn more about our suite of research-driven valuation offerings.

NASCAR Heating Up Media Rights Deals

NASCAR Heating Up Media Rights Deals

NASCAR recently inked groundbreaking seven-year media rights deals with four major partners, ensuring comprehensive coverage of the NASCAR Cup Series from 2025 to 2031. The quartet includes FOX Sports, NBC Sports, Prime Video by Amazon, and TNT Sports, a branch of Warner Bros. Discovery.

Monetary details remain undisclosed, but the deal will reportedly eclipse $1.1 billion per year, far surpassing the league’s previous media rights deal total of $820 million. 

Under the new agreements, FOX Sports and NBC Sports will retain their roles as primary broadcasters, each airing 14 races annually. FOX will kickstart the season with marquee events like The Busch Light Clash and the storied DAYTONA 500, also adding live coverage of the entire NASCAR CRAFTSMAN Truck Series season. NBC, on the other hand, will close out the season with coverage of the playoffs and the championship race. Both networks will mix broadcast and cable events, offering nine races annually on traditional broadcast channels.

Prime Video and TNT Sports are joining the broadcast fray, sharing coverage of 10 midseason races. Prime Video’s debut marks NASCAR’s first foray into direct-to-consumer streaming, offering live practice and qualifying sessions for the first half of the season. TNT Sports will pick up the baton with five midseason races, streaming concurrently on its platform and truTV. Additionally, both platforms have snagged exclusive rights to all practice and qualifying sessions for the entirety of the Cup Series schedule.

NASCAR’s President, Steve Phelps, hailed the deals as a pivotal step towards expanding the sport’s reach across various platforms, highlighting the sport’s growth potential amidst an evolving media landscape. Brian Herbst, the league’s senior vice president of media and productions, echoed this sentiment, emphasizing the importance of aligning with esteemed media giants to cater to diverse fan preferences.

FOX Sports CEO Eric Shanks expressed pride in the network’s longstanding relationship with NASCAR, while NBC Sports President Rick Cordella reiterated their commitment to delivering the sport’s thrilling moments across various platforms. Prime Video’s Jay Marine similarly underscored the importance of bringing NASCAR Cup Series racing to the streaming giant’s U.S. audience for the first time, promising to enhance fan engagement through innovative content offerings.

Meanwhile, TNT Sports, with its rich history in NASCAR, anticipates an immersive return to the racing scene, leveraging its multi-platform approach to elevate the viewing experience for fans.

In addition to these major partnerships, The CW Network will exclusively host the NASCAR Xfinity Series, further bolstering NASCAR’s presence on leading airwaves.

With these landmark agreements in place, NASCAR is set to captivate audiences across traditional television, streaming platforms, and digital channels, ushering in a new era of accessibility and excitement for fans of the high-octane sport.  

Appraisal Economics has extensive experience performing valuation engagements in the entertainment industry, including for NASCAR. Our experts understand the valuation nuances associated with the complex terms of media rights transactions.  Contact us today!  

The NFL Is Considering New Ownership Rules. What Do These New Policies Entail?

The NFL Is Considering New Ownership Rules. What Do These New Policies Entail?

The NFL has always stood out for its steadfast adherence to stringent ownership rules. However, recent developments suggest winds of change are blowing through the league’s boardrooms, potentially opening the door to a new era of diversity and opportunity.

It all began with a pivotal moment in July when NFL team owners unanimously greenlit the sale of the Washington Commanders from Daniel Snyder to a consortium led by Josh Harris, marking a transaction valued at a staggering $6.05 billion. This landmark deal served as a catalyst, prompting the formation of a dedicated committee of five NFL owners — Arthur Blank of the Atlanta Falcons, Robert Kraft of the New England Patriots, Jimmy Haslam of the Cleveland Browns, Greg Penner of the Denver Broncos, and Clark Hunt of the Kansas City Chiefs and chairman of the finance committee — tasked with a comprehensive review of the league’s ownership policies.

At the heart of this endeavor lies a recognition that the NFL’s current ownership framework may have inadvertently limited the pool of potential bidders in recent franchise sales. From debt thresholds to equity requirements, the committee is leaving no stone unturned as it explores avenues to foster a more inclusive environment for prospective owners.

Unlike other major sports leagues, the NFL’s ownership rules have often been characterized as the most restrictive. For instance, the lead investor of any ownership group must hold a minimum 30 percent equity stake, while the total number of individuals in an ownership group cannot exceed 25. Moreover, strict limitations on borrowing and prohibitions on ownership by private equity firms or public corporations have further constrained ownership possibilities.

League officials, buoyed by suggestions made in December, are urging team owners to reconsider the status quo and contemplate potential adjustments to the ownership playbook. Among the proposals on the table are the possibility of allowing private equity firms to acquire limited stakes in teams, revising the 30 percent equity requirement for lead owners, and loosening the debt limits for prospective purchasers.

Central to this dialogue is the acknowledgment of a glaring disparity: the lack of minority representation among NFL franchise owners. With no Black principal owners in the league, concerns have been raised about the accessibility of ownership opportunities for underrepresented groups. Addressing this imbalance isn’t just a matter of social equity; it’s a strategic imperative for the league’s long-term growth and relevance in an increasingly diverse society. After all, a league that reflects the rich tapestry of its fanbase is better equipped to resonate with audiences and navigate the complex challenges of the modern sports landscape.

As the NFL charts its course forward, it faces a balancing act between tradition and evolution, between preserving the integrity of its brand as the sports industry continues to evolve. The outcome of this deliberation will reverberate far beyond the boardrooms of team owners, shaping the very fabric of the league and its relationship with fans, players, and stakeholders alike.

In the end, it’s not just about who owns the teams; it’s about what those teams represent — a shared vision of excellence, inclusivity, and community. As the NFL sets its sights on the horizon, it does so with the understanding that the true measure of its success lies not in the size of its stadiums or the magnitude of its TV deals but in the hearts and minds of those who call themselves fans.

Expert valuation firms, like Appraisal Economics, are equipped to handle both sports franchise and private equity valuations. Although most sports franchises are privately held (versus publicly traded) concerns, they can be valued using generally accepted valuation methods. The valuation process entails an analysis of the relationship between the price paid for a franchise and a relevant measure of team performance, typically revenue. 

Estate Tax Sunset Provision Is Upon Us

Estate Tax Sunset Provision Is Upon Us

The Tax Cuts and Jobs Act (TCJA) significantly increased the lifetime estate and gift tax exemption, nearly doubling it from where it stood previously in 2017. As of this year, the exemption is at around $13.61 million per individual and $27.22 million for married couples.

Families who were looking to pass on wealth should be mindful of the sunset provision embedded within the TCJA. These provisions are set to expire by the end of 2025. If nothing changes before 2025, these provisions will revert back to 2017 levels. This could decrease estate and gift exemptions to around $7.5 million per person and $14.5 million for married couples, factoring in inflation.

Although new tax legislation may emerge before 2026, families should reconsider their estate planning under the assumption that the TCJA provisions may likely expire. Adopting a wait-and-see approach could prove detrimental to saving on estate taxes. Rather than waiting to see if the law expires, reach out to an experienced valuation firm (like Appraisal Economics) that specializes in estate tax planning to help you be proactive in your financial future. 

But let’s talk more about the sunset provisions.

Reconsider Credit Shelter Trusts

Credit shelter trusts, or CSTs, have historically been a favored strategy for maximizing federal estate tax exemptions in a married couple’s estate plan. This trust is designed to shelter a portion of the couple’s assets from estate taxes upon the death of the first spouse, ensuring that the exemption amount is fully utilized. When they establish a CST, couples can effectively double their estate tax exemptions, thus minimizing the tax burden on their heirs and preserving more of their wealth for future generations.

However, with the changing landscape of estate tax laws and the impending sunset provision of the current exemption levels, there’s renewed interest in rebuilding and optimizing these credit shelters. As the exemption amounts are set to decrease, couples can discuss strategies with a financial expert to discover how they can leverage CSTs to their fullest potential.

Use the Opportunity to Plan for Growth

Planning for growth is a fundamental aspect of any successful estate planning strategy. As individuals and families accumulate wealth and assets over time, it’s essential to implement proactive measures to accommodate this growth within estate plans. This involves regularly reviewing and updating existing plans to reflect changes in financial circumstances, asset portfolios, and family dynamics. Anticipating future growth and considering its implications on estate taxation is how to create effective strategies that maximize tax efficiencies and ensure wealth is preserved and distributed correctly.

One key consideration in planning for growth is the utilization of tax-efficient vehicles, such as trusts, which offer flexibility and control over asset distribution while minimizing tax liabilities. Trusts allow individuals to designate specific beneficiaries, manage the timing and conditions of asset distributions, and potentially reduce estate taxes by removing assets from their taxable estate. By incorporating trusts into their estate plans, individuals can safeguard their wealth against market fluctuations and economic uncertainties while also providing for the financial security of their loved ones for generations to come.

As the sunset provision of the current lifetime estate and gift tax exemption approaches in 2026, it’s imperative for individuals and families to take proactive steps in their estate planning. By staying informed, proactive, and adaptable, individuals can navigate the complexities of estate taxation with confidence and ensure that their legacy endures for years to come. 

The IRS Embraces Artificial Intelligence for Precision and Proficiency

The IRS Embraces Artificial Intelligence for Precision and Proficiency

Beyond its conventional role as the tax collector, the IRS is harnessing the power of artificial intelligence to revolutionize its audit processes. This shift marks a pivotal moment, one where cutting-edge technology intersects with the nuanced world of tax compliance.

The IRS’s adoption of AI signifies a proactive stride toward efficiency, accuracy, and fairness in navigating the auditing process. Steering away from the traditional audit methodologies that relied heavily on manual intervention and limited analytical capacities, the IRS can now tap machine learning algorithms and predictive analytics to fuel data-driven insights. They can now analyze voluminous datasets swiftly, identifying patterns, anomalies, and potential discrepancies with heightened precision. 

Here is a quick look into how artificial intelligence can be used to transform audits: 

Identifying Tax Evaders

One of the key strengths lies in AI’s ability to sift through vast datasets with remarkable speed and discern patterns that might elude human scrutiny. Machine learning algorithms employed by the IRS can analyze historical tax data, financial transactions, and other relevant information to identify anomalies and irregularities that could be indicative of potential tax evasion. This allows the IRS to stay one step ahead of tax evaders.

Predictive analytics can help the IRS prioritize cases with a higher likelihood of tax evasion, ensuring that resources are strategically allocated for maximum impact. In that same vein, the dynamic nature of artificial intelligence enables the IRS to continuously refine its models and stay attuned to evolving tax evasion tactics.

More Insightful Audits

The IRS can task artificial intelligence with generating targeted and context-specific questions so they can achieve more effective and insightful audits. This ensures that tax evaders are not only identified but are also subjected to thorough investigations based on tailored inquiries. The synergy between human expertise and AI-driven insights empowers the IRS to build a more comprehensive understanding of taxpayer behavior, reducing false positives and ensuring a fair and accurate assessment of potential tax evasion cases.

Auditing Red Flags for Wealthy Filers

For high-net-worth individuals with complex financial portfolios, identifying potential issues manually can be an arduous task. AI automates the analysis of extensive financial data and detects subtle patterns that may indicate irregularities and issues, such as discrepancies in reported income, unusual financial transactions, or inconsistent asset valuations.

AI can consider a multitude of factors, including investment strategies, asset allocations, and intricate financial structures, to identify red flags indicative of potential tax issues. Because AI reduces the IRS’ reliance on manual reviews, there are fewer opportunities for oversight or bias.

Chatbots for More Efficient Customer Service

These intelligent virtual assistants can efficiently handle routine inquiries, providing taxpayers with instant and accurate information on topics ranging from tax deadlines to basic filing procedures. AI chatbots can comprehend and respond to queries in a manner that mirrors human conversation, but often at a much faster rate.

During peak tax seasons or in the face of significant policy changes, the demand for information and assistance can surge. AI-driven chatbots excel in managing increased workloads without compromising on efficiency or accuracy. This scalability ensures that taxpayers receive timely and accurate information, reducing the burden on human customer service representatives and allowing them to focus on more complex and specialized queries that may require human expertise.

Drawing on extensive experience as an independent valuation expert for the IRS, Appraisal Economics is well-equipped to address the intricate needs of taxpayers navigating complex situations. As a trusted partner, Appraisal Economics remains committed to providing thorough and well-supported valuations that not only meet the rigorous standards of the IRS but also serve as invaluable tools for clients seeking clarity and strategic insight in the ever-evolving landscape of taxation and financial planning.

New York Considers Ban on Non-Compete Agreements

New York Considers Ban on Non-Compete Agreements

In a significant move towards protecting worker mobility, the New York State Legislature approved a bill that would render nearly all new non-competition agreements for workers void. New York Governor Kathy Hochul was deliberating whether to sign or veto the groundbreaking bill. 

What Is the Purpose of a Non-Compete Agreement?

These agreements are a common fixture in employment contracts and typically restrict employees from pursuing new job opportunities or establishing their own businesses for a specified period after leaving their current employer so as not to harm the employer’s business. 

The key objectives of a non-compete include safeguarding confidential information, trade secrets, and proprietary business knowledge from being exploited by a departing employee for the benefit of a competitor. While the overarching goal is to strike a balance between protecting employers and providing employees with reasonable career opportunities, the enforceability and limitations of non-compete agreements vary based on jurisdiction and applicable laws.

The potential legislation was proposed by State Sen. Sean Ryan and has ignited discussions on the need for such restrictions and the potential implications for both employers and employees.

Banning Non-Compete Agreements

The proposed legislation would have modified the New York State Labor Law by introducing a new Section 191-d. This new section would prohibit employers, corporations, partnerships, limited liability companies, or other entities from soliciting, mandating, requesting, or accepting a “non-compete agreement” from any “covered individual” and would declare void to the extent necessary every contract restraining an individual from engaging in a lawful profession, trade, or business of any nature.

Governor Hochul indicated a desire for a compensation cap to accompany the proposed ban on non-compete agreements. She suggested a cap of $250,000 as the threshold above which such agreements would be permissible. Notably, the bill applied to workers across the board, irrespective of their compensation levels. 

The proposed legislation has spurred a contentious debate, with proponents advocating for enhanced worker rights and greater labor market flexibility. One of the key arguments supporting the ban on non-compete agreements is that they can stifle innovation and hinder professional growth. Advocates contend that by restricting employees from freely moving between jobs or venturing into entrepreneurship, non-compete agreements limit competition and impede the development of a dynamic and agile job market. Furthermore, proponents argue that such agreements disproportionately affect lower-wage workers who may lack the resources to challenge or negotiate the terms of these restrictive covenants.

On the other hand, critics argue that imposing a compensation cap may inadvertently hinder the growth of startups and emerging businesses. State Sen. Sean Ryan’s reservations about the compensation cap highlight the complexities surrounding this proposed legislation. While recognizing the need to protect workers, Ryan underscores the potential negative consequences for startups, which often rely on attracting top talent with specialized skills. The delicate balance between fostering a competitive job market and safeguarding emerging businesses underscores the challenges faced by policymakers in enacting legislation that promotes economic growth while ensuring fair labor practices.

An Update on New York Governor Kathy Hochul’s Decision

Just recently, Gov. Hochul vetoed the legislation that would have banned employee non-competes in New York, but employers can expect a revised bill to be introduced next year.

New York would have become the second most populous state to prohibit such clauses, aligning with California, where this restriction has been in effect for over a century.

Non-Compete Agreement Valuations

Valuing non-compete agreements involves assessing their worth and impact on businesses. Valuation firms like ours consider factors such as the duration and geographic scope of the non-compete, the industry involved, and the specific skills or knowledge the employee possesses. The goal is to determine the economic value of protecting proprietary information, client relationships, and trade secrets. Businesses may seek to quantify the potential financial harm that could arise if a departing employee were to compete directly.

IRS Announces Sports Industry Losses Campaign

IRS Announces Sports Industry Losses Campaign

On January 16, the IRS announced a campaign to “identify partnerships within the sports industry that report significant tax losses and determine if the income and deductions driving the losses are reported in compliance with the applicable sections of the Internal Revenue Code.” As rapidly escalating prices limit the pool of potential buyers, ownership of sports teams is increasingly limited to the ultra-wealthy. Many sports partnerships are structured as pass-through entities (e.g., LLCs, S corporations), with important tax implications.

There are various means by which a sports partnership can generate tax losses. While it is possible for operating expenses to exceed revenues, salary controls in most US sports leagues limit the likelihood that a team will not be able to operate profitably on a cash basis. However, depreciation, amortization, and the deductibility of interest payments on debt can allow sports partnerships to report financial losses.

Ownership of sports teams often includes a stadium, arena, or other facilities, the value of which can be depreciated over time, reducing taxable income. The value of intangible assets such as player contracts, brands, and broadcasting rights can similarly be amortized to reduce taxes. If a sports partnership takes on debt to finance an acquisition or improvement of a team, interest payments on that debt will generally also be tax-deductible.

Sports partnerships that are structured as pass-through entities do not pay income tax directly, and any losses are allocated to individual partners. Considering the scale of the sports business and the net worth of individual owners, the size of the tax benefits can be quite substantial.

Understanding the potential tax benefits of sports team ownership starts with a valuation of the underlying assets, which form the basis for depreciation and amortization schedules. As scrutiny of sports teams and their owners increases, accurate and defensible valuations are critical. The team at Appraisal Economics brings deep experience in the sports industry and expertise in applying the correct methodologies for valuing both tangible and intangible assets. Contact us today to learn how we can help.

The 2023 Writers’ Strike: A Turning Point for Hollywood Creatives

The 2023 Writers’ Strike: A Turning Point for Hollywood Creatives

The entertainment industry faced an unexpected plot twist this year, with the Writers Guild of America (WGA) making headlines. In April, a resounding 97.85% of WGA members cast their vote in favor of a potential strike against the Alliance of Motion Picture and Television Producers (AMPTP). 

WGA orchestrated the strike based on a few concerns, including unfair wages, low residual payouts, and the contentious use of artificial intelligence in crafting film and television scripts. The WGA’s primary fear of AI is that it will slowly erode job opportunities for writers and lead to the creation of more substandard content. The union was also worried about the vulnerability of intellectual property to theft in this AI-driven landscape. To safeguard against these perceived risks, the WGA proposed delineating AI-generated material as distinct from traditional ‘literary material’ or ‘source material’ and has advocated against using existing scripts for AI training purposes. 

The crux of the matter lay in the pursuit of a satisfactory agreement between the WGA and the AMPTP, the latter representing the major film and television studios in Hollywood. Despite protracted negotiations encompassing prominent industry players like Amazon Studios, Apple Studios, Netflix, Disney, and more, the May 1 deadline passed without a consensus, triggering the strike — the first significant strike since the memorable 2007–2008 standoff.

As the clock struck midnight on May 2, picket lines began forming outside prominent studios and production houses. From the sprawling campuses of Disney to the bustling hub of Netflix and the legendary Warner Bros. Studios, writers stood united in their resolve. The WGA set stringent guidelines, prohibiting members from engaging in any writing, revising, or pitching with companies affiliated with the AMPTP.

Solidarity echoed through the industry as writers rallied to support their fellow creatives despite financial uncertainties arising from the strike. The Entertainment Community Fund and renowned writers, showrunners, and producers, including the likes of J.J. Abrams, Shonda Rhimes, and Greg Berlanti, offered aid and pledged money to those facing financial hardships.

Months passed with negotiations looming on the horizon, interspersed with hopeful but inconclusive meetings between the WGA and the AMPTP. The turning point arrived in September, signaling a potential breakthrough. With renewed vigor, both parties engaged in a series of meetings. Studio CEOs joined negotiations, hinting at a growing sense of urgency and commitment to finding common ground. After extensive deliberations, a tentative agreement was reached on September 24, marking the beginning of the end of the prolonged strike.

The dawn of September 27 brought the much-awaited news — official confirmation that the strike had concluded. A sigh of relief swept through the entertainment community as the industry looked forward to rekindling its creative engines. The new contract, a product of arduous negotiations, heralds a shift in the dynamics between writers and studios, addressing crucial concerns while setting the stage for a more equitable future. The deal encompasses many of the pivotal points the members had staunchly advocated for throughout the negotiations. This includes wage increases, better residual payouts, and comprehensive directives concerning the utilization of artificial intelligence in the creative process.

The 2023 Writers’ Strike, an epochal event that disrupted the status quo, not only showcased the resilience of writers but also emphasized the significance of unity and collective action in shaping the entertainment landscape. 

When it comes to intellectual property, valuation firms like ours are essential in assessing the worth of intellectual property (IP), notably copyrights, within the entertainment industry and beyond. Employing a blend of financial analysis, industry expertise, and market insights allows us to enable stakeholders to make informed decisions regarding the monetization, licensing, or sale of intellectual property.