Jerry Reinsdorf selling? Not on his life

Last week it was announced that Arte Moreno, who has owned the Angels since May 2013, was putting the team up for sale. Almost immediately, a curious thing happened.

Suddenly it starting popping up on Twitter that “sources” were saying White Sox owner Jerry Reinsdorf had decided to sell the club after the 2023 campaign. That he and Tony La Russa were going to return for one final swan-song and leave the baseball stage.

Most, if not all, Sox fans would hope these rumors would be true. This organization has grown stale on the baseball side, with the people in charge of operations retaining positions in the organization for decades. From the general manager to the medical, conditioning and training staffs, nothing seems to go right, despite the best efforts of all concerned. Worse, there is no accountability for failure.

It’s reflected in the final arbiter: the won/loss record.

From 1981 through 2006 under Reinsdorf, at least fans could expect the Sox to be competitive and produce a winning season. During those 26 years, the team had a winning record 16 times and made the postseason four, winning the World Series in 2005. Since then, from 2007 through 2021, the Sox have only produced five winning seasons, made the playoffs twice — and been eliminated in the first round both times.

Unfortunately, those who hope for a sale are probably going to be disappointed.

Reinsdorf rarely talks about his ownership/financial situation, but he has done so at times. And he’s been consistent … no sale while he’s alive, unless some unusual circumstances take place, because of the tax/financial situation a sale would trigger.

This is the Reinsdorf record on selling the White Sox:

“The only way I’d sell in the future is for health or family reasons, or if we lost so much money that it didn’t make sense to keep the team. Under the most recent changes in the law, a pro sports franchise no longer is a good tax shelter. The owners can’t write off half the cost immediately for player depreciation.” — Jerry Reinsdorf to Bob Logan, from the book Miracle on 35th Street (1983).

In May 2004, Reinsdorf appeared on “Chicago Tonight” hosted by Bob Sirott. During the interview he again said that he has told his family that when he passes away they should “sell the Sox, keep the Bulls.” Part of the reason he said was because the salary structure in the NBA is better suited from an ownership standpoint (i.e. they have a salary cap, while MLB does not.)

Not to mention, the tax hit could be as much as $200 million less (roughly) if the team is sold after Reinsdorf passes away. (Discussion below.)

It’s known, although not talked about much, that according to sources some of the minority partners have been urging Reinsdorf to sell since 2005. It’s also known that around 2008 the owner of the South Bend Cubs minor league franchise, Andrew Berlin (who grew up a Sox fan), twice made overtures to purchase the White Sox. Both times the offers were rejected outright.

Over the decades, Reinsdorf has been consistent. Remember, he is a brilliant businessman. He started his professional career working for the Internal Revenue Service; he knows the tax laws, and is wealthy enough to hire professional tax advisors to keep him up to date on anything he may not know.

I’m not a tax expert; far from it. I have very little knowledge in that area, but I recently saw something that caught my eye, when a White Sox fan chimed in with some numbers related to the rumors of Reinsdorf selling the club. The writer seemed to have a good knowledge of the tax circumstances, and what was written dovetailed with what Reinsdorf has said: Due to the tax hit, he simply can’t/won’t sell while he is alive, even if he wanted to.

Here is how the author broke down a sale of the Sox with a $2 billion deal (Forbes’ latest estimate of the White Sox value was around $1.7 billion).

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In paying the estate tax, Michael Reinsdorf will get a step up in basis to the current market value of the franchise, which will be whatever it is valued at on the estate tax return, so that when he sells, the capital gains tax will be $0. If Jerry Reinsdorf sells now, he has to pay capital gains tax, then the estate has to pay tax on the proceeds.

Jerry’s capital gains tax $2 billion - $19 million = $1.981 billion X 20% capital gains tax = $396.2 million
Jerry’s estate tax $1.585 billion X 40% estate tax = $634 million
Total tax paid (if he sells while still alive) = $1 billion (not counting Illinois state tax!)

If Michael (Reinsdorf family) sells the team after Jerry passes, however, the numbers improve considerably.

Jerry’s estate tax on the franchise interest $2 billion X 40% = $800 million
Michael’s capital gains tax on sale of team = $2 billion - $2 billion = $0 X 20% = $0
Total tax paid (if the family sells after death) = $800 million dollars (with no state tax paid!)

Obviously those numbers are for the full franchise, and since Reinsdorf doesn’t own the full franchise, the numbers would probably be less, but the tax savings would be similar.

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Based on these numbers, you are looking at roughly a $200 million advantage by NOT selling until Reinsdorf’s death. That kind of number certainly will get the attention of someone who is as sharp a businessman as Jerry Reinsdorf.

If someone reading this is well-versed in taxes and can clarify or correct anything in the assumptions, please do so in the comments.

Bottom line, though, it just doesn’t appear that Reinsdorf has any financial incentive to sell … not today, and not tomorrow — regardless how dysfunctional the team is on the field and in the dugout.