Earlier this year, the IRS launched its 'Sports Industry Losses' campaign, aimed at investigating reported tax losses of entities involved in professional sports teams. While this move may be welcomed by the American Treasury, it could pose significant concerns for owners of clubs in Major League Soccer (MLS), the United Soccer League (USL), and the National Women's Soccer League (NWSL).
The campaign is part of the IRS' broader efforts to enhance enforcement and collections through its Large Business and International Division, as outlined in the provisions of the 2023 Inflation Reduction Act. Though American soccer has made notable progress in recent years, it generally remains a challenging business operation when it comes to day-to-day profitability. While some MLS clubs have shown profitability according to Forbes' analysis, historically it has not been the case for most teams. For much of the league's history, MLS clubs have consistently incurred losses running into millions of dollars each year. To sustain operations, the league office has relied on substantial financial contributions from clubs or hefty expansion fees, causing some to even liken the structure to a Ponzi scheme. MLS club revenues typically range between $25 and $100 million, with about a third of the clubs falling below the $47 million revenue threshold required to qualify as a small business by the U.S. Small Business Administration. In comparison, most NFL clubs report net profits of $100 to $200 million annually, with revenues reaching between $500 million and $1 billion. Even all NHL clubs demonstrate profitability with revenues in the range of $150 to $280 million.
