Tribune Wants to Structure Cubs Sale To Avoid Taxes: Will Baseball Approve the Debt Load?

Chicago real estate billionaire Sam Zell bought the Tribune last December in an $8.2 billion leveraged buyout. Since then, he is anxious to sell assets so that he can make the debt payments.

The biggest Tribune asset he wants to unload is the Chicago Cubs and Wrigley Field. Some experts think that he can sell them for $1 billion.

The problem is that, since the Tribune bought the Cubs back in 1981 for only $20.5 million, they could owe up to $400 million in taxes.

So, Zell is not only searching for the highest price, but also for a buyer who would be willing to work with a structured sale to avoid taxes.

Zell wants to avoid paying taxes so that he can have more money for paying down the debt.

In fact, since Zell knew at the time of the buyout that he would need to sell assets, he converted the Tribune from a C corporation to an S corporation. The advantage is that, 10 years after the conversion, any assets the corporation had at the time of the conversion can be sold tax free. Any assets sold in the first 10 years, however, would trigger capital gains taxes.

What Zell would like is for the buyer to form a leveraged partnership with the Tribune, which would keep a small percentage of the Cubs.

The partnership would borrow money to buy the Cubs, and the Tribune would get the money. As long as the distribution was borrowed money, the Tribune does not have to pay taxes.

There are 2 hurdles:

1. The buyer would not be able to start paying off the principle until Jan 1, 2018 (the 10 year anniversary of the buyout).

2. Major League Baseball has to approve any sale, and they have traditionally frowned on highly leveraged owners, because they are worried that they might not be able to field a competitive team.