The Atlanta Braves, the country’s only publicly traded Major League Baseball team, is facing off against the US tax code in a lonely battle that threatens to cost the franchise millions.
A little-known tax rule soon to go into effect will restrict public corporations from deducting the salaries paid to their highest compensated employees. For Atlanta Braves Holdings Inc., those employees are players.
Privately held teams like the New York Mets or Philadelphia Phillies won’t get hit by the tax and can deduct every dime paid to multi-million dollar players.
Atlanta’s five most generously compensated players are set to collectively earn $96 million in 2027—the year the new rule limiting salary deduction for all but $1 million of each of the top five most highly compensated players’ pay.
The Braves will be at a significant disadvantage under the tax code and could be particularly harmed when pursuing free agents because they’d have to factor in the additional tax burden, in addition to the contract amount when competing for top talent.
The tax code generally allows companies to write off employee compensation as a business expense. But efforts to curb those write-offs for multi-million-dollar salaries date back to former President Bill Clinton’s first term.
The rule initially only applied to executive pay—not employee compensation—but it was broadened to include the five highest worker salaries as part of former President Joe Biden’s pandemic relief bill, with a delayed effective date until 2027.
Companies can lessen the blow by employing sophisticated tax techniques, including timing other losses to offset the higher tax bills, according to Deb Lifshey, a managing director at Pearl Meyer. Another option is to go private, which reduces oversight and regulation. “We always have companies that struggle with the question: ‘Is it worth it to be public?’” Lifshey said.