Bears go to court

Team sues state seeking tax relief

SPORTS | Bruce Rushton

The Chicago Bears have gone to court seeking refuge from the tax man.

The Bears this month sued the Illinois Department of Revenue in Sangamon County Circuit Court, claiming that the state is overtaxing a team that Forbes magazine recently valued at $1.7 billion, making the Monsters of the Midway the eighth most valuable franchise in the National Football League, according to the magazine.

The tax dispute centers on how much the team should pay in state income taxes on revenue earned from broadcasting fees. The state figures that the Bears owe slightly more than $1 million in taxes for 2009 and 2010 and more than $520,000 in penalties and interest for those two years. The team wrote a check for the full amount in October, paying under protest. Now, Circuit Court Judge Leslie Graves is set to decide whether the team will get its money back.

Included in the court file are tax statements printed on Department of Revenue stationary, and filed by lawyers for the Bears, that show that the team had a federal taxable income of more than $34.1 million for the tax year ending in February 2009 and a taxable income of nearly $37.3 million for the following year, both mediocre years for the team on the field. The sheets show that the Bears paid slightly more than $1 million in state income taxes in 2009, which covered monies earned during the 2008 season, and more than $1.1 million in 2010 for income gained during the 2009 season. Total sales for the team for the year ending in February, 2009 were nearly $266 million; total sales the following year were almost $273 million.

It is a rare glimpse into the finances of a privately owned professional sports franchise.

“It’s not usual,” said Andrew Zimbalist, an economics professor at Smith College in Massachusetts who is considered one of the nation’s leading academic experts on the business of sports. “With the IRS, the material is always confidential. With state departments of revenue, as far as I know, the material is confidential as well.”

Teams are usually loath to make bottom lines public, Zimbalist and other experts agree.

“It is not common,” says Marc Ganis, a Chicago sports consultant who helps put together stadium deals and other big-money projects involving pro sports franchises. “Truly, I’ve never seen this kind of thing. … That’s a lot of information to be putting out there.”

Ganis said that he’s unaware of any change in tax law affecting taxes on broadcast revenue collected by pro sports franchises, nor have the Bears’ deals for television and radio revenue changed.

“There doesn’t appear to be a change in the law or a change in the circumstances of the business,” Ganis said. “The conclusion is, there’s some sort of change at the tax collection department. … If they took this position for the 2008 and 2009 seasons, why didn’t they take it for the 2006 and 2005 seasons? The structure of the (broadcasting) contracts has not changed.”

An attorney for the team who is handling the litigation could not be reached for comment.

If recent history is any guide, the Bears should cross their fingers as they lawyer up to do battle in Sangamon County. The Bears this year lost a legal fight with Cook County over whether the team should have to pay more than $4 million in amusement taxes on sales of parking spaces, programs, food and beverages that are part of packages for fans who purchase premium seats. The team had argued that only the face value of admission tickets should be taxed, but a state appellate court in August reversed the decision of a lower court and said the team must pay the higher amount. With interest, the tab came to more than $5 million.

The team could face bigger tax burdens in the future if the state interprets the tax code in the same way that it has for the two seasons at the center of the pending lawsuit, Ganis said. Unlike the Cook County amusement tax, which the team could theoretically pass through to fans, the tax on broadcast revenue comes directly from team owners’ pockets, he said.

“It makes a great deal of sense for the Bears to sue,” Ganis said. “If this interpretation is carried forward, it would result in a significant amount of money every single year.”

Contact Bruce Rushton at [email protected].