The Atlanta Braves are not just a real estate company, they're lobbyists now, too

The Braves are the only MLB team facing a tax code change that could cost them millions of dollars annually

(For those that don’t know, my day job is working in finance. While I’m currently working with SBA borrowers in my current role, after graduating from Auburn University with my MBA I spent years in commercial lending and corporate finance. It’s rare that I get to combine both my professional career and my passion for baseball for a newsletter, but I couldn’t resist on this one.)

In case you weren’t aware, Atlanta Braves Holdings, Inc. is both a baseball team and a real estate company. The company’s two ‘divisions’, to use my own terminology, do different things: One side generates baseball revenue, which is subject to MLB revenue-sharing rules, while the other generates revenue from real estate, primarily from The Battery Atlanta, which they keep entirely to themselves.

(I broke this whole thing down on a recent podcast during an early-season off-day, complete with dollar amounts and all of that, if you’re interested.)

But it turns out that the Braves are now in the lobbying business, too.

Let’s talk about it.

There’s a looming tax code change

The IRS has a proposed rule out for public comment that would change Section 162(m) of the Internal Revenue Code of 1986.

Let me break it down by going back a few years.

The American Rescue Plan Act of 2021 was signed into law in March of that year as a $1.9 trillion economic stimulus bill that the previous administration passed to help the country’s economy recover from the bulk of the 2020 COVID-19 economic disruptions.¹

It did a lot of things you’ve probably heard of:

• Direct economic stimulus payments to taxpayers making $75,000 or less

• Provided $130 billion to schools to implement health and safety upgrades

• Expanded the Child Tax Credit

• Expanded federally-funded unemployment benefits to backstop struggling state systems that were overwhelmed with requests and underfunded.

And so on and so forth.

It also made a lot of changes that you haven’t heard of, one of which impacts the Braves. Way back in 1993, the IRS code was changed to prohibit/cap the standard practice of claiming a tax deduction for highly compensated “covered employees” of publicly-traded corporations, commonly understood to be the Chief Executive Officer, Chief Financial Officer, etc.

And it hasn’t been settled since.

No administration has tried to completely strip out the provision, mind you, as no one in power wants to upset Wall Street, but they’ve all tried to change the definitions of who is covered under the rule.

Long story short here, the definition of who counts as an employee was narrowed by 2017’s Tax Cuts and Jobs Act and widened again by the 2021 American Rescue Plan…conveniently when the Braves got in this spree of locking up some of their franchise cornerstones to long-term deals. But now that the 2017 administration is back in power, they want to go back to their definition. And that impacts the Braves.

The difference in the two definitions comes down to who is eligible - under the 2017 definition they’re trying to go back to, it’s solely company officers, so your CEO, CFO, etc, and the highest compensated employees serving as executive officers. Under the 2021 definition, it’s those two leaders and a number of your highest compensated employees, whether or not they’re officers of the company.

Now, for most publicly traded corporations, this distinction doesn’t matter. Who makes more than the CEO and the CFO? Usually, no one, and your highest compensated employees are almost always other corporate officers that are on the Executive Team.

But for the Atlanta Braves, those ‘highly-compensated’ employees would be baseball players who just so happen to not be company officers. While we don’t have any sort of confirmation, I believe by the time the proposed rule would go into effect (2027), it’d be Matt Olson, Austin Riley, Ronald Acuña Jr., Spencer Strider, and Sean Murphy.

In the 2027 season, their stated salary values combine to $98M (if Ronald’s club option is picked up) and $96M if it’s not (replacing Acuña with Jurickson Profar). Assuming the Braves pay a standard 21% corporate tax rate (which could absolutely change between now and then), the removal of any deduction over $1M could cost the team around $19M in additional tax obligations that year.

(For context, in the team’s most recent regulatory filing, they reported paying just $4.2M in federal income taxes last year.)

Here’s the competitive balance issue: Privately held corporations aren’t subject to the same change in rules. Juan Soto’s $57.5M salary is fair game to be entirely deducted by Steven Cohen of the Mets. Same for Zack Wheeler’s $42M from Philly and several of the massive Dodgers salaries owed to players like Shohei Ohtani, Yoshinobu Yamamoto, Blake Snell, and Mookie Betts.²

And so because of this, the Braves are in a hard place. No other Major League organization is going to put effort behind getting this rule changed or getting Atlanta an exemption, since helping the Braves would make it harder to beat them (as they’d have more financial resources available to pay players). Per reporting from Bloomberg, the Braves hired lobbyists in February to address this issue.

But know that if they’re not successful, it’ll be one more obstacle thta Alex Anthopoulos will need to overcome in free agency to continue to supplement the long-term core of this roster.

Here’s that podcast episode, if you’re interested in the team buying an office park during a losing streak

1. Let’s not make these comments political, please.

2. Truthfully, I don’t know how the deferrals interact with this tax provision, since that salary money isn’t technically paid into an account until the second summer after the season it’s earned. Are the Dodgers deducting the $46M escrow amount owed for Shohei’s 2025 season that they’ll pay in 2027, or are they getting the full $70M? I believe it’s based on the year in which it vests and is no longer subject to forfeiture, which should be the year it’s paid into escrow under MLB’s Collective Bargaining Agreement and the many rules that govern how that process works. (Yes, I have a copy of the CBA on my computer. Are you really that surprised?)