Report: IRS Likely to Come After Tribune Company for Sale of Chicago Cubs

MoneySometimes you see a report, and you can’t immediately tell whether it’s a huge bombshell that’s going to blow the doors off the place, or whether it’s a whole lot of nothing. This is one of those reports. Tentative early read: whole lot of nothing.

Today, Fortune’s Allan Sloan reports that the IRS is going after the Tribune Company for the way it unloaded Newsday, a newspaper in Long Island, back in 2008 under the leadership of Sam Zell. The IRS is taking issue with the structure of the deal, which was not a “sale,” but instead was a “partnership” between TribCo and Cablevision, which saw Cablevision get 97% of Newsday, and TribCo receive a bundle of cash and a tiny stake in Newsday. Under this approach, in theory, TribCo avoided a substantial capital gains tax bill, but still got its cash.

If that transaction sounds familiar, it should: it is essentially the same structure the Tribune Company used to “sell” the Chicago Cubs to the Ricketts Family back in 2009. That structure, which also required the Ricketts Family to use a great deal of debt for the purchase (which they may not have otherwise preferred to use), was a condition of the Tribune Company’s selection of a particular Cubs buyer. It is rumored to have scared off a number of other prospective buyers.

That structure, and the accompanying debt, has been the subject of a great deal of discussion and debate in recent months as the Cubs look to increase revenues (see the Wrigley Renovation and Cubs TV Deal story lines) in the wake of rapidly falling payroll (which Tom Ricketts called unsustainable in the late Tribune Company ownership era).

Sloan’s report concludes that, if the IRS is going after TribCo for the Newsday deal, the Cubs deal is probably next. Indeed, Sloane noted that in a tax footnote to a TribCo financial report released yesterday, the Tribune Company’s returns for the 2009 year – the year that included the Cubs deal – are being audited. If the Cubs deal is challenged in the same way as the Newsday deal, the bill TribCo might face could approach $300 million.

What you’re wondering: is there an impact to the Cubs and/or the Ricketts Family?

At first blush, it would seem the answer is “very little” or “very unlikely.” As the “buyer” in the deal, it wasn’t the Ricketts Family’s obligation to pay the capital gains taxes that the Tribune Company sought to avoid. Then again, because the deal was not a traditional sale – the Ricketts Family, in essence, formed a partnership with the TribCo (who got the cash) – maybe the Ricketts Family is still nominally on the hook. I’m neither privy to the particulars of the deal, nor am I an expert on the tax implications of complex transactions. I won’t pretend to be either thing here.

Which is not to say, at bottom, that I’m worried for the Ricketts. Say what you will about the IRS, but I really doubt they’d be looking to put the screws to the Ricketts on this one when the entity that avoided a “sale” and got the cash is the Tribune Company.

That said, because of the wonky structure of the deal, and the desirability of the Cubs that led the Ricketts Family to agree to it, almost anything is possible. I can’t claim to have knowledge of any shifty provisions in the sale (indemnity clauses, for example) that could implicate the Ricketts Family in the event of this kind of IRS audit. Maybe, as a condition of the transaction, the Ricketts Family took on some of the risk of tax penalties. I doubt it, but, as I said, I don’t know. I also don’t know to what extent the Ricketts Family has been prepared for this situation for years. Given the nature of the deal, I’d like to the family’s legion of advisors and lawyers would have alerted them of this possibility way back when.

Further, I don’t know the implications of the fact that the Cubs “sale” emanated from the Tribune Company’s bankruptcy proceedings, and was blessed by a federal bankruptcy judge. I tend to think that doesn’t really matter here. Taxes are always still owed, and I don’t think there’s a good argument that the Tribune Company defrauded creditors through the “sale” (after all, it generated a whole lot of cash for TribCo, which, I presume, went to creditors).

I also don’t know how successful the IRS is going to be. Evading taxes is unlawful. Avoiding taxes is not. Without knowledge of the particulars, I can’t quite say where this falls, but with multiple hundreds of millions of dollars on the line, there might be an incentive for both sides to just agree to a small settlement. In other words, we might never really hear about this again.

A Cubs spokesperson said that the team has no comment, indicating that this is a Tribune Company issue. That sounds about right to me, and I very much hope that’s where this ends, as far as the Cubs and Ricketts Family are concerned.

Brett Taylor is the editor and lead writer at Bleacher Nation, and can also be found as Bleacher Nation on Twitter and on Facebook.

101 responses to “Report: IRS Likely to Come After Tribune Company for Sale of Chicago Cubs”

  1. DarthHater

    This is great news. Void the sale, put the team in receivership, and then sell it to Cuban! :-P

    1. Yohler

      +1

  2. Blublud

    I never understood why rich people cheat on their taxes. Even after you pay them, your still rich.

    1. DarthHater

      I think part of the answer is that rich people get rich by always trying to get even richer.

    2. gocatsgo2003

      Whose still rich?

    3. Jeffery D.

      The reason, in part (I think), rich people avoid taxes is because they feel they are being unfairly overtaxed and thus feel they compelled to do something about it. I just want to add that I in no way endorse tax evasion and anyone who avoids taxes should absolutely be penalized to the fullest extent of the law. Also, my yearly income is probably that of a busker in downtown Detroit. But just think of it this way: Someone who makes $10 and is taxed 10% gives $1 in taxes. Another person that makes $100 and taxed that same 10% gives $10. But now Mr. Tax-Man comes in and says that the person who make $100 now has to pay 25% ($25) because they aren’t being as “hurt” as the person making $10. Besides the fact that Mr. Tax-Man shouldn’t “hurt” anyone more than the other, the person making $100 has now contributed 25 times that of the person making $10. They’re providing a significant amount more already, and now they’re providing much much more. Frankly, I don’t blame them; but that again, is in no way to be mistaken for endorsement.

      If this is not their reasoning, then they’re probably just greedy jagoffs.

  3. Dean

    So I guess Sam was a tea party member right!

    1. Blublud

      Hilarious!

    2. Tobias

      Is Sam a Republican because it was a IRS agent that is a Conservative Republican that started the inquiries.

      1. TWC

        What say we drop this angle, and focus on how it affect the Cubs, rather than have a proxy fight over our political predilections?

        1. DarthHater

          Or we could all just agree to make fun of whatever nonsense Diehard comes up with…

          1. TWC

            Looks like IR got a head start on that below.

  4. Kevin

    Hopefully the Ricketts can buy Sam Zell’s 5% interest, get rid of their debt and put the big money in the big market team. I never liked ithis part of the sale.

  5. Jblades

    Highly unlikely, but would be great. Tom Ricketts wouldn’t have an excuse to be cheap.

  6. Die hard

    Conspiracy to screw the IRS takes 2 parties both of whom are culpable

    1. Internet Random

      Just. Plain. Wrong.

      1. Die hard

        And to collect the IRS can lien the assets of the buyer or recipient

        1. DarthHater

          What’s to worry about? The very worst thing that could happen is the Cubs go out of business and we can all then go root for teams that have a chance of winning before we die. :-P

        2. Internet Random

          No.

        3. Mak

          Incorrect

      2. Die hard

        It’s called a Klein Conspiracy 18 USC 371

        1. Mak

          I’ve never once heard of that being applies to the buyer regarding the sellers tax planning (and vice versa).

          1. DarthHater

            The fact that it has never happened is what makes it true in the Diehard universe. Haven’t you been paying attention?

        2. Internet Random

          No, it’s not.

          1. DarthHater

            This isn’t an argument, it’s just contradiction.

            1. Internet Random

              Yep. I know better than to try to reason someone out of a position that he didn’t reason himself into… especially someone trolling.

              1. Die hard

                If MLB reviewed and sanctioned deal then also a target

                1. TWC

                  Troll, troll, troll the blog, gently down the stream…

                  1. DarthHater

                    …wearily, wearily, wearily, wearily…

                    1. Die hard

                      The IRS can also go after the tax advisors. If the advisors for Ricketts were careful they would have included a survival clause whereby the deal survives any such action by the IRS

                2. MichiganGoat

                  Then so is Dick Tidrow because he IS Major League Baseball.

            2. Pat

              No it isn’t.

  7. Mak

    I blame the Congressman who make the IRC so ridiculously complex, which invites tax planning shannigans to begin with. Zell ain’t the first (apple this month, eg) and won’t be the last.

    Just a note — my corp. tax project was to analyze the Zell/Tribune sale. Sweet Jesus, that shit was complex.

    1. Internet Random

      Where did you find sources detailing the transaction? I’ve found some vague stuff about it here and there, but nothing that told me as much as I wanted to know.

      1. Mak

        Would have to look back at my notes — there were a few scholarly articles written, as well as a lot of guesswork by looking at similar structures. Note that the project was about the Tribune ESOP acquisition structure, not the Cubs purchase.

  8. Internet Random

    For what it’s worth, I think Brett’s analysis is spot on here. I’d go further, though, and bet heavily that the Cubs will not be significantly adversely affected by this. It’s Zell’s problem.

    1. TWC

      “It’s Zell’s problem.”

      And I can’t think of a more deserving jagload to have such a problem.

      1. Internet Random

        VVV

  9. Internet Random

    Maybe Yadier Molina.

    Maybe.

  10. jj

    The IRS would seek back taxes and penalties against the Tribune Co., not the Cubs or Ricketts. In essence, IRS negates the tax benefits, not the deal itself. Of course, if there is no tax sheltering permitted, Ricketts could get rid of the debt (depending on terms of the deal with Zell). No downside other than press. Also, if the audit is just starting, do not expect a resolution for years, absent Trib just paying. Berkshire had been fighting assessments going back more than a decade.

    1. Internet Random

      That.

    2. mak

      exactly

  11. oswego chris

    I can’t imagine Zell was doing this by himself on TurboTax? When I am doing mine, I always have to click no when it says:

    DID YOU PARTICIPATE IN A TRANSACTION THAT INVOLVED A MAJOR LEAGUE BASEBALL FRANCHISE?

    maybe he did…

    1. TWC

      Well, considering the book you just wrote, you’re kinda screwed for next year, eh?

    2. Internet Random

      You must get the “Deluxe” version.

  12. AD

    What is Garza’s worth. A top five organizational prospect?

    1. willis

      Not with his injuries the last two years. I would say maybe a top ten and a top 20. He balls out of control the next month or so, that may change, but doubt it, not for a rental.

      1. AD

        I think he’d be an interesting option for the Rockies, Red Sox, Diamondbacks, Indians, Royals, and Giants.

    2. Rebuilding

      It would take another player in all likely hood, but I would like to see us deal him to someone in the NL West for:

      (1) Dodgers – Joc Pederson
      (2) Diamondbacks – Matt Davidson
      (3) Rockies – Corey Dickerson

      Dickerson really intrigues me. Only their #16 prospect because of a lack of pedigree, but has raked wherever he’s been. Most productive AAA hitter this year by far and blocked by CarGo

      1. 70'scub

        Why not sign him he is still in his prime, let him pitch and have the option at a later date to trade him to a big market club and/or eat some money for a small market club to obtain better prospects. If the Cubs start to get competitive back half of next year keep him.

      2. AD

        Corey Dickerson is quite interesting. I just looked him up. He’s a lefty, has great righty/lefty splits, home/road splits, and has absolutely raked at every level. He’d be a great addition to the system and could be a started once any of the outfielders are traded. Thanks for the tip.

  13. 5412

    Hi,

    The Trib carries the voice for the libs, they probably thought the had the Holder exemption.

    5412

    1. DarthHater

      Hi,

      Please shut up.

      DarthHater

    2. TWC

      Yeah, seriously. The pretentiousness exhibited in by signing all your comments “Regards, 5412″ can be overlooked. The irrelevant political crap exhibited in comments like this cannot. Please stop.

      1. Jacob

        He forgot the “regards” this time… he’s slacking.

      2. Big Joe

        How he signs his name? Really?? The guy gave his opinion. You two clowns don’t agree? That’s fine. Just quit your bitching. It seems it’s like all you ever do.

        1. Drew7

          Actually, he said *that* could be overlooked.

        2. TWC

          Hey, Big Joe, here’s my opinion: You can get bent, too.

          1. Internet Random

            I suspect Big Joe and 5412 are the same troll. Possibly Die hard too.

            1. DarthHater

              I don’t recall Big Joe being a troll. But he’s wrong on this one. My comment had nothing to do with 5412′s opinions or with how he signs his name. It had to do with the fact that political remarks don’t belong on a baseball blog. Period.

              1. Big Joe

                Fair enough, Darth. I apologize.

                1. DarthHater

                  Thanks. And I’m sorry that TWC told you to get bent. He’s a tool. ;-)

                  1. Big Joe

                    That’s why his BS was ignored. Not worth my time.

          2. willis

            C’mon dude, as much as you talk down to people on here and you’re going to get riled up about a little political jab? That wasn’t meant to be taken serious? It was a slight at the BS going on right now and humor, nothing serious. 5412 is an ok dude. Give him a break.

            1. Internet Random

              Political discussions have never been encouraged here.

              1. willis

                Haha, can you imagine if they were? Things would get real interesting real fast. It would kind of be entertaining to sit back and watch for a day or so, then it would get tired.

                Saying that I really don’t think he was going there with that. I think he was making an IRS/Holder joke. Nothing more. No need for people to get fired up about it.

                1. willis

                  And let me respond to myself by adding that I don’t think poking fun at the IRS or the Justice Department has anything to do with politics right now with all that’s going on. Whether your democrat, repub, libertarian, or Independent, it’s pretty comical. So I really don’t think he was coming from a certain angle.

                  1. willis

                    *you’re*

                2. DarthHater

                  Had he made an IRS joke without the “libs” remark, I wouldn’t have said a word.

                  1. Internet Random

                    Jinx.

                    1. DarthHater

                      Great. Now neither one of us can say “libs” any more. :-D

                    2. Internet Random

                      No, you have to buy me a Coke. Those are the rules.

                    3. DarthHater

                      cocaine.jpg

                  2. willis

                    Ok, there was probably a better word there, or just nothing at all.

                    (God what sensitive liberal this guy must be, Jesus :) )

                    1. DarthHater

                      Please keep your religion off the board, too. ;-)

                    2. willis

                      It won’t let me respond to your pic, so I’ll respond to myself in a response to you…awesome picture darth I want to go to a disco all of the sudden. Weird.

                3. Internet Random

                  “[I]t would get tired.”

                  Sooner than you think.

                  I would be more inclined to agree with your second paragraph if not for the use of “the libs”, which seems calculated to push buttons.

            2. DarthHater

              All I did was calmly tell him to shut up. Just a little jab. Nothing to take too seriously. :-P

              At any rate, even casual political comments can sidetrack the blog into a huge morass of irrelevant partisan pontificating. Just look at any of the past discussions on this comment board about gay rights in professional sports. Better to avoid politics altogether.

    3. Dynastyin2017

      Why’s the Trib Co. liberal? Cuz they don’t believe the world is flat?

      1. Internet Random

        Also, the Tribune is widely acknowledged to be a conservative publication. A troll doesn’t care about such things, of course, but those are the facts.

        1. DarthHater

          Nonsense. The Tribune caters to people who can read and everybody knows those people are overwhelmingly liberal. (See how quickly the political shit gets out of hand?) ;-)

  14. Rebuilding

    I hadn’t really noticed, but Chris Rusin has been about the best starter in the PCL this year. Allowed only 2 ER in the last 3 starts over 24 innings

    1. King Jeff

      He’s starting to look like a decent candidate for the rotation after the deadline.

      1. Rebuilding

        According to Fangraphs Rusin has been the 5th best starter in the entire minor leagues this year. And he’s doing it in the PCL. Only 59 Ks in 97 IPs though

        1. cub2014

          If Rusin comes up it will be after Feldman is
          gone. Feldman is not a strike out pitcher
          either.

  15. Bea Arthur's husband.

    Oh man Gordon is gonna love this!

  16. Oswego chris

    Good News…Iowa’s Chris Rusin threw a complete game shutout tonight…Pathetic News…First Iowa Cubs’ CG Shutout since Sergio Mitre in 2004….

    1. Jp3

      Oh god, could’ve gone longer without hearing that bummer of a name, Sergio Mitre.

  17. Rebuilding

    Baez with a grand slam tonight (and a walk)

    1. baldtaxguy

      Just fun to hear his progress. The walks as well,,,just awesome

  18. Die hard

    Zella best defense is that sale not complete until debt paid off making the deal not yet final … Result–Ricketts doesn’t own team

    1. Jp3

      Exactly, boom

    2. Cubbie Blues

      Is a house sale not final until the note is payed off too? Does my truck actually still belong to the previous guy? He’s going to be pissed when he finds out what my kids have done to it.

      1. Die hard

        Why did Zell retain some control? And who really owns your house? you or bank? Try to sell without paying lien… Try to keep if default mtge… Wake up kid

    3. DarthHater

      Really? That’s his best defense? I would have thought Zell could afford a lawyer who wasn’t senile.

      1. hansman1982

        Well, of course he couldn’t afford DieHard. He only accepts payment in non-hybrid seeds.

        1. toot

          What?

  19. Cubbie Blues

    Is a house sale not final until the note is payed off too? Does my truck actually still belong to the previous guy? He’s going to be pissed when he finds out what my kids have done to it.

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