P.D.B. Sports, Ltd., Bowlen Sports, Inc., Tax Matters Partner v. Commissioner

109 T.C. No. 20

• Court: United States Tax Court
• Decided: December 22, 1997
• Docket: 730-96
• Status: Unknown

Opinion

109 T.C. No. 20

UNITED STATES TAX COURT

P.D.B. SPORTS, LTD., BOWLEN SPORTS, INC., TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 730-96. Filed December 22, 1997.

An individual purchased more than a 50-percent interest in a partnership, that owned and operated a professional sports franchise. Partnership's presale basis in player contracts was 6X. Because more than 50 percent of Partnership's ownership had changed, P contends that sec. 708, I.R.C., causes a termination and triggers the partnership basis provisions causing a stepped-up basis (to fair market value) in the player contracts to 36X. Partnership claimed amortization deductions using the 36X basis. R contends that sec. 1056, I.R.C., applies and would limit the amortizable basis in the player contracts, even though the contracts were acquired through purchase of an interest in a partnership. Alternatively, R contends that if sec. 1056, I.R.C., does not apply to partnership transactions involving sports franchises, the partnership's basis would be less than claimed under subch. K partnership provisions. Held: Sec. 1056, I.R.C., does not apply to this partnership transaction involving a sports franchise. - 2 -

Held, further: Partnership correctly computed the basis in the player contracts under the subch. K basis adjustment sections and regulations thereunder.

Richard P. Slivka and Charles D. Henson, for petitioner.

Randall L. Preheim, for respondent.

GERBER, Judge: Respondent issued notices of final

partnership administrative adjustments to P.D.B. Sports, Ltd.,

for the taxable years 1989 and 1990. Among other adjustments,

respondent disallowed amortization in the amounts of $1,878,056

and $259,255 for 1989 and 1990, respectively, claimed with

respect to professional football player contracts. After

concessions, the sole issue remaining for our consideration is

whether the partnership, for purposes of determining the

amortizable basis in player contracts, is subject to section

10561 in addition to, in conjunction with, or instead of the

subchapter K partnership provisions. Petitioner contends that

the partnership provisions apply exclusively and would, in this

case, permit the amortization of the fair market value of the

player contracts. Conversely, respondent contends that section

1056 applies to limit amortization to an amount equal to the

seller's basis, plus any gain recognized by the seller. In

1 All section and subchapter references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. - 3 -

particular, the controversy centers on whether section 1056 was

intended to apply where the buyer acquires a partnership interest

in a partnership holding player contracts.

FINDINGS OF FACT2

Patrick Bowlen (Bowlen), after graduating from the

University of Oklahoma law school, practiced law for 2 years in

Calgary, Canada. Thereafter, he began a real estate development

business which he operated into the late 1980's. During 1984-85,

Bowlen acquired an interest as a general partner in a partnership

that was the franchised owner and operator of the Denver Broncos

(Broncos) professional football team, a member of the National

Football League (NFL). That partnership, P.D.B. Sports, Ltd.

(Bowlen I), was a Colorado limited partnership with its principal

place of business in Colorado at the time the petition was filed.

Prior to Bowlen's involvement in the Broncos, Bowlen I was

99.75-percent owned by Edgar F. Kaiser, Jr. (Kaiser), a Canadian

national.3 The remaining .25 percent of Bowlen I was also

indirectly owned by Kaiser, through a corporation E.F.K. Sports

Holdings, Ltd. (Kaiser I). Due to Bowlen's prior interest in

2 The parties' stipulation of facts and the attached exhibits are incorporated herein by this reference. 3 Bowlen I, prior to the transactions in question and when controlled by Kaiser, had been named E.F.K. Sports, Ltd. When Bowlen acquired a partnership interest, he changed the partnership name from E.F.K. Sports to P.D.B. Sports, Ltd. (referred to as Bowlen I for purposes of this opinion). - 4 -

purchasing the Broncos, in late 1983, Kaiser approached Bowlen

about acquiring an interest in the partnership.

In 1984, Kaiser disposed of his entire interest in Bowlen I,

including his interest held through Kaiser I (the corporate

entity), in two separate transactions. First, during March 1984,

Kaiser sold about 39 percent of the Bowlen I partnership to John

R. Adams, through Adams' Colorado limited partnership, J.R.A.

Sports, Ltd. (Adams), for $10 million. Second, during March

1984, Kaiser entered into an agreement with Bowlen for the sale

of about 61 percent of the Bowlen I partnership. Bowlen's

purchase of Kaiser's Bowlen I partnership interest occurred on

June 1, 1984. Bowlen purchased about 59 percent of Kaiser's

partnership interest for $25,793,100 plus assumption of

$34,689,717 in Kaiser’s partnership liabilities. At the same

time, Bowlen also purchased the .25-percent partnership interest

held by Kaiser I for $106,900. Subsequently, Bowlen transferred

his aggregated partnership interest (about 61 percent) in Bowlen

I to his corporation, Texas Northern Productions, Inc., also

known as Bowlen Sports, Inc., (Bowlen II).

On June 1, 1984, Bowlen I was owned as follows:

Partner Percentage Ownership Type of Interest

Bowlen II 60.8 General partner Adams 39.2 Limited partner

Bowlen II's and Adams' aggregate basis in their partnership

interests in Bowlen I was approximately $72,242,770. At the time - 5 -

of Bowlen's purchase, Bowlen I owned the following assets: the

NFL franchise for the Broncos, professional football player

contracts, a stadium lease, and television rights. Bowlen I's

adjusted basis in the player contracts on May 31, 1984, before

the sale of the partnership interests to Bowlen II, was

$6,510,555.4

Bowlen I treated the sale of the partnership interest to

Bowlen as causing a section 708(b)(1)(B) termination of the

partnership for Federal tax purposes. Adams consented to the

transfer of Kaiser's partnership interests to Bowlen and entered

into a new partnership agreement with Bowlen II in order to

prevent dissolution of the partnership under State law. The

Broncos franchise, held by Bowlen I, was not separately for sale.

The parties' transactions were in form and substance the sale of

partnership interests as opposed to a sale of the underlying

partnership assets.

A list of players, whose contracts existed at the time that

Bowlen acquired his interest, was used to determine the value of

the player contracts. During June 1984, the Broncos' general

manager contacted four individuals, including general managers

and/or individuals responsible for negotiating player contracts

4 The parties stipulated that the partnership had an adjusted basis in the player contracts on May 31, 1984, in the amount of $6,328,656; however, an exhibit reflects an adjusted basis of $6,510,555. Respondent relied on the amount shown in the exhibit on brief without objection by petitioner. We use the $6,510,555 amount for purposes of this opinion. - 6 -

at four NFL teams, to wit, Chicago Bears, Cleveland Browns, New

York Giants, and Houston Oilers. These four individuals assigned

estimated values to the existing Bronco player contracts, which

when aggregated totaled $44,325,000, $43,450,000, $59,215,000,

and $35,790,000, respectively. The average of these assigned or

estimated total values is $45,695,000. Bowlen I's accountant

evaluated the assets of the partnership and the values assigned

to them by the partnership personnel. The accountant analyzed

and adjusted the values of the partnership assets and determined

that the fair market value of the player contracts was

$36,121,385 as of June 1, 1984, the date of the transfer of the

partnership interest to Bowlen. The accountant's analysis was

conducted under the approach contained in the subchapter K

partnership provisions where the appreciation in the value of the

assets over the partnership's presale basis in the assets is

allocated to the assets to account for the difference. The

difference between the partnership presale basis (approximately

$26 million) and Bowlen’s and Adams’ purchase price for the

partnership interests including assumptions of liability

(approximately $72 million) was about $46 million.5 The

accountant's asset valuations and conclusions regarding the

partnership's basis in the assets, including the player

5 The $72 million basis reflects adjustments made by the partnership that are not germane to this case to account for Bowlen’s acquisition costs and Adams’ share of partnership income prior to the sec. 708 termination. - 7 -

contracts, were premised on the assumption that the mandatory

basis adjustment rules of section 732(d) applied.

Bowlen I began amortizing the player contracts on June 1,

1984, using a 5-year useful life. After assigning values to the

partnership's assets other than the NFL Broncos franchise, the

partnership assigned the residual amount of Bowlen and Adams'

basis in their partnership interests to the franchise. Bowlen I

did not make a section 754 election in 1984. During 1984 through

1988, Bowlen I reported amortization expenses and writeoffs of

the player contracts in issue in excess of $34 million.

In September 1985, P.D.B. Enterprises, Inc. (Bowlen III),

purchased Adams' 39.2-percent partnership interest in Bowlen I

for $20 million. Bowlen III was wholly owned by Bowlen II.

During the years in issue, Bowlen I was owned as follows:

Bowlen II 60.8 General partner Bowlen III 39.2 Limited partner

When the 60.80-percent partnership interest in Bowlen I was

originally purchased, Kaiser did not provide Bowlen with

information about whether Kaiser recognized any gain attributable

to the player contracts. Nor did Bowlen ask Kaiser for such

information. No evidence was presented at trial by either party

about the amount of gain recognized by Kaiser from the sale of

his partnership interest to Bowlen or the portion of that gain

attributable to player contracts. Evidence of the gain - 8 -

recognized by Kaiser may have been contained in Kaiser's 1984

Federal income tax return. The Internal Revenue Service

destroyed Kaiser's return as part of its normal practices and

procedures for destruction of old tax returns. Kaiser, a

Canadian national, did not testify at trial.

OPINION

I. Background

As part of the Tax Reform Act of 1976, Pub. L. 94-455, 90

Stat. 1520, legislation was enacted to address certain tax

aspects of transactions involving professional sports franchises.

One major aspect concerned the amortization of the costs of

player contracts. Laird v. United States, 556 F.2d 1224 (5th

Cir. 1977); First Northwest Indus. v. Commissioner, 70 T.C. 817

(1978), revd. and remanded on other grounds 649 F.2d 707 (9th

Cir. 1981). Section 1245(a)(4) was enacted to require

depreciation recapture regarding player contracts when a sports

team is sold irrespective of whether the contracts are actually

resold.6 Concerning the issues in this case, legislation was

enacted to prevent a sports team purchaser from allocating more

than a fair market value portion of the purchase price to player

contracts.

6 Player contracts are sec. 1231 property. Generally, the sale or exchange of player contracts results in capital gain treatment for the seller's income, subject to the aggregation requirements of sec. 1231. - 9 -

In particular, it was thought that purchasers of sports

franchises were over allocating basis to player contracts and

inflating amortization. Congress, by enacting section 1056,

sought to employ an approach that would require the seller and

buyer to use the same arm's-length or fair market value amount to

report income or claim deductions resulting from a sports

franchise transaction. Section 1056(a) provides:

(a) General Rule.--If a franchise to conduct any sports enterprise is sold or exchanged, and if, in connection with such sale or exchange, there is a transfer of a contract for the services of an athlete, the basis of such contract in the hands of the transferee shall not exceed the sum of--

(1) the adjusted basis of such contract in the hands of the transferor immediately before the transfer, plus

(2) the gain (if any) recognized by the transferor on the transfer of such contract.

In addition to equating the buyer's basis with the seller's

reporting position, the basis of acquired player contracts may

also be affected by the section 1056(d) rebuttable presumption

that no more than 50 percent of the purchase price of a sports

team is to be allocated to player contracts. To rebut the

presumption a taxpayer must "[establish] to the * * *

[Commissioner's satisfaction] that a specified amount in excess

of 50 percent is properly allocable". Sec. 1056(d).

The question considered here is whether the purchase of an

interest in a partnership entity that holds and operates a sports

franchise is a sale or exchange of "a franchise to conduct any - 10 -

sports enterprise" within the meaning of section 1056(a). There

was little dispute by the parties about the transactional facts.

Upon the transfer of the partnership interest from Kaiser to

Bowlen, Bowlen I adjusted its basis in the player contracts to a

value of approximately $36 million in accordance with the

mandatory basis adjustment rules of section 732(d), accompanying

regulations, and related statutes.7 Bowlen I adjusted its basis

in the player contracts without regard to whether Kaiser

recognized gain from the player contracts.

Respondent determined that the partnership's basis in the

player contracts acquired with the Broncos franchise is limited

by section 1056(a), i.e., that the basis of the player contracts

is limited to the presale partnership basis in the player

contracts ($6,510,555) plus any gain that Kaiser recognized on

the sale of his partnership interests allocable to the player

contracts. Respondent's determination must be based on the

inferential premise that section 1056(a) applies to the indirect

purchase and sale of a sports franchise held in partnership form.

As there is no evidence that Kaiser recognized gain from the

player contracts, respondent also maintains that the basis in the

7 It is noted that the $36 million basis for the player contracts would have fallen within the sec. 1056(d) presumption provision that no more than 50 percent of the total purchase price of a sports team is to be allocable to player contracts. If sec. 1056 applied here, the partnership would not have been statutorily required to establish to respondent’s satisfaction the portion of the basis allocation in excess of 50 percent to respondent's satisfaction. - 11 -

partnership's player contracts is limited to the presale basis in

the contracts.

Respondent argues that section 1056 would limit the

amortizable basis of the partnership's player contracts in this

case. Respondent, however, does not discuss or explain how or if

the section 1056 limitation would otherwise affect partnership

provisions, including sections 732(d), 743(b) and/or 754 which

may have been considered or have been in play in the transaction

under consideration. Respondent does not explain whether section

1056 would preempt the application of other basis requirements

and/or elections under subchapter K or whether it would be

integrated in some manner. These unanswered questions are

problematic and complicate our proper analysis of respondent's

determination. Additionally, no regulations have been issued

under section 1056, although, in the 1976 legislation, respondent

was statutorily mandated to issue regulations.

In the alternative, if we decide that the partnership

provisions of subchapter K apply to the exclusion of section

1056, respondent argues that the partnership incorrectly computed

its basis in the player contracts, and, as a result, no player

contract bases remain to be amortized.

II. Section 1056--Does It Apply to Partnership Transactions?

Section 1056 applies to a "sale or exchange" of a sports

franchise. In this case, the sports franchise was held in

partnership form so that any sale or exchange of a sports - 12 -

franchise could have only occurred indirectly. In order for the

section 1056 language to literally apply here, respondent must,

in some manner, ignore the partnership as an entity. Respondent

makes two separate arguments in support of the section 1056

determination. First, respondent argues that the sale of the

partnership interest constituted a sale of the partnership's

underlying assets if the aggregate theory of partnerships is

employed. Respondent's second argument poses a theoretical sale

or exchange to address that section 1056 requirement. Respondent

contends that the sale of a partnership interest causes a

constructive partnership termination resulting in a deemed

distribution of partnership property and a deemed contribution of

the property to a new partnership. Under respondent's second

argument, the deemed distribution and contribution are

hypothesized to be the section 1056 "sale or exchange" of the

partnership's property.8

We note that respondent does not contend that the Bowlen I

partnership is a sham or should be disregarded because it had

been created to avoid the application of section 1056. In

addition, respondent does not argue that Bowlen acquired the

assets of Bowlen I in a two-step transaction over the 1984-85

period. We agree with petitioner and hold that there was no

8 Respondent, in the second argument, alternatively attempts to address how a "sale or exchange" could occur even if we were to hold that sec. 1056 should be applied to subch. K transactions under the entity theory. - 13 -

"sale or exchange" of a sports franchise or player contracts

within the meaning of section 1056.

In general, the sale of a partnership interest does not

affect the basis of partnership property, and the issue of

whether section 1056 should apply to the sale of a partnership

interest would be irrelevant. A partnership may be able to

increase the basis of certain assets upon a sale of a partnership

interest where the sale causes a constructive termination of the

partnership. See sec. 708(b)(1)(B). Section 708(b)(1)(B)

provides for a partnership's termination on a sale or exchange of

50 percent or more of the total interest in the partnership’s

capital and profits within a 12-month period. The termination

results in a deemed distribution of partnership property to the

new and continuing partners (Bowlen and Adams) and a deemed

recontribution of the property to a newly formed partnership.

Sec. 1.708-1(b)(1)(iv), Income Tax Regs.

Section 1.708-1(b)(1)(iv), Income Tax Regs., states, in

pertinent part:

(iv) If a partnership is terminated by a sale or exchange of an interest, the following is deemed to occur: The partnership distributes its properties to the purchaser and the other remaining partners in proportion to their respective interests in the partnership properties; and, immediately thereafter, the purchaser and the other remaining partners contribute the properties to a new partnership * * * For election of basis adjustments by the purchaser and other remaining partners, see sections 732(d) and 743(b) and paragraph (d) of section 1.732-1 and - 14 -

paragraph (b) of section 1.743-1.[9] [Citations omitted.]

Upon a distribution of partnership property, each partner’s

basis in his partnership interest is allocated among the

distributed assets in proportion to the assets' respective bases

to the partnership. Sec. 732(b) and (c). The partnership's

bases in its assets may be adjusted under section 743(b) before

the partnership distribution to reflect changes in the fair

market value of partnership property in relation to the

partnership's adjusted bases in the assets. The partnership’s

basis, after being adjusted in accord with section 743(b), is

then used to allocate basis among the distributed assets. Upon

recontribution of the property to the new partnership, the

partnership takes the partner's basis in the property at the time

of contribution. Sec. 723.

In this case, a section 708(b) constructive termination

would have occurred due to the sale of more than a 50-percent

partnership interest. The assets of Bowlen I, including the

Broncos franchise and professional football player contracts,

would be deemed to have been distributed to Bowlen and Adams and

recontributed to a new partnership. Sec. 1.708-1(b)(1)(iv),

9 Sec. 1.708-1(b)(iv), Income Tax Regs., was amended by T.D. 8717, 1997-24 I.R.B. 5 (May 8, 1997), to apply to sec. 708 terminations occurring after May 8, 1996. The amended regulation would not apply in this case. The changes may cause a result different than the one dictated by the regulations in existence for the 1984 taxable year, the year in which a sale of a 50- percent interest in Bowlen I occurred. - 15 -

Income Tax Regs. Prior to the deemed distribution, the bases of

Bowlen I's assets would be adjusted to reflect their fair market

values under section 743(b) based on the assumption that the

mandatory basis adjustment of section 732(d) applied.10 Upon the

deemed distribution, Bowlen I would use the fair market values of

the assets to allocate Bowlen’s and Adams' bases in their

partnership interests among the partnership assets pursuant to

section 732(c) basis allocation rules. Bowlen I followed the

above-outlined statutory process and did not consider the amount

of gain that the selling partner (Kaiser or his wholly owned

corporation) may have recognized on the player contracts or the

terminated partnership's presale basis in the contracts in

determining the contracts' basis. Therefore, Bowlen I's basis in

the player contracts was determined without reference to the

section 1056(a) basis limitation requirements.

A. Respondent's First Argument--Section 1056 If Applied to a Subchapter K Transaction Using the Aggregate Approach to Partnerships Would Result in a "sale or exchange" of a Sports Franchise and Player Contracts Within the Meaning of That Section

Section 1056(a) specifically applies to a "sale or exchange"

of a sports franchise. There is no reference to indirect

transfers of sports franchises through intermediate entities,

10 Respondent challenges whether Bowlen I was entitled to adjust the assets to their fair market values and use the fair market values to allocate bases among the assets under the partnership provisions. Respondent argues that Bowlen I should have allocated bases among its assets in proportion to the terminated partnership's presale adjusted basis in the assets. This matter is addressed later in the opinion. - 16 -

such as a partnership. Section 1056 has not previously been

considered by any court. Significantly, although regulations are

mandated in the statute, since its enactment 20 years ago, none

have been issued. The absence of regulations (interpretative or

legislative), however, does not limit our ability to interpret

the statute and decide the issues presented in this case.

In construing a statute, we generally give effect to the

plain and ordinary meaning of its language. United States v.

Locke, 471 U.S. 84, 93, 95-96 (1985); United States v. American

Trucking Associations, Inc., 310 U.S. 534, 543 (1940). Words

with a fixed legal or judicially settled meaning, on the other

hand, generally must be presumed to have been used in that sense

unless such an interpretation would lead to absurd results. See

United States v. Merriam, 263 U.S. 179, 187 (1923); Lenz v.

Commissioner, 101 T.C. 260, 265 (1993). Our principal objective

in interpreting any statute is to determine Congress' intent in

using the statutory language being construed. United States v.

American Trucking Associations, Inc., supra at 542; General

Signal Corp. & Subs. v. Commissioner, 103 T.C. 216, 240 (1994),

supplemented by 104 T.C. 248 (1995). When a statute is

ambiguous, we may look to its legislative history and the

purposes for its enactment. United States v. Ron Pair Enters.,

Inc., 489 U.S. 235, 241 (1989); Peterson Marital Trust v.

Commissioner, 102 T.C. 790, 799 (1994), affd. 78 F.3d 795 (2d - 17 -

Cir. 1996). In addition, we may seek out any reliable evidence

as to the legislative purpose even where the statute is clear.

United States v. American Trucking Associations, Inc., supra at

543-544; Centel Communications Co. v. Commissioner, 92 T.C. 612,

628 (1989), affd. 920 F.2d 1335 (7th Cir. 1990). We use these

general principles of statutory interpretation to determine the

scope of section 1056 and/or the application of the subchapter K

basis adjustment rules.

The parties couch the question of whether section 1056

applies to the sale of an interest in a partnership holding a

sports franchise in terms of the threshold inquiry of whether a

partnership should be treated as an entity or aggregate. As

explained above, respondent seeks to employ the aggregate

approach to cause a more direct relationship to the partnership's

assets when an interest in the partnership changes hands.

Conversely, petitioner contends that the partnership should be

treated as an entity for purposes of our consideration of section

1056. In determining whether section 1056 should apply to the

sale of a partnership interest, our analysis considers both the

legislative intent in enacting section 1056 and the structure and

scope of the subchapter K basis adjustment rules.

1. Legislative Intent With Regard to the Application of Section 1056 to Partnership Transactions

"The theory concerning partnerships as entities is not

easily defined. It is well established that the partnership form - 18 -

is a hybrid--part separate entity, part aggregate." Schneer v.

Commissioner, 97 T.C. 643, 660 (1991). For purposes of

interpreting Code provisions outside of subchapter K, a

partnership may be treated as either an entity, separate from its

partners, or an aggregate of its partners depending on which

characterization is more appropriate to carry out the intent

and/or purpose of the particular Internal Revenue Code section

under consideration. Brown Group, Inc. & Subs. v. Commissioner,

104 T.C. 105, 116 (1995), vacated and remanded on other grounds

77 F.3d 217 (8th Cir. 1996); Casel v. Commissioner, 79 T.C. 424,

432-433 (1982).

Respondent argues that Congress intended section 1056 to

apply broadly, to include the sale of an interest in a

partnership that operates a sports franchise. Respondent

contends that the section 1056 legislative history contains

indications that Congress sought to prevent inconsistent player

contract valuations by sellers and buyers of sports teams.

Finally, respondent contends that if section 1056 is not applied

to the sale of a partnership interest, inconsistent valuations of

player contracts could occur, contrary to congressional intent.

Relying on those points, respondent maintains that it is

appropriate to apply the aggregate theory of partnerships for

purposes of section 1056's application to partnership

transactions to prevent this perceived abuse. - 19 -

Petitioner contends that section 1056 is unambiguous, makes

no reference to partnership transactions, and applies only to

transactions directly involving sports franchises not including

the sale of a partnership interest. Finally, petitioner argues

that legislative history is inconclusive and, in any event,

irrelevant because the statute is unambiguous. Because

partnerships can be and have been treated as an aggregate or

entity, we must disagree with petitioner's contention that

section 1056 is unambiguous. Petitioner is of the view that the

entity approach is to be applied to Internal Revenue Code

provisions that are outside of subchapter K unless Congress

provides otherwise. No such presumption favoring the entity

approach exists.

Congress used the pervasive tax terminology "sale or

exchange" to categorize the transactions subject to section

1056(a) basis provisions and limitations. Two types of transfers

of sports franchises were expressly exempted from the section

1056(a) basis limitation, section 1031 like-kind exchanges and

transfers from a decedent. Sec. 1056(b). Neither exception

references partnership interests or provides guidance, one way or

the other, on the congressional intent. Section 1056 does not

mention the transfer of an interest in a partnership holding a

sports franchise. Moreover, the legislative history does not

contain any reference to the imposition of the basis limitation

rules of section 1056 on the transfer of partnership interests. - 20 -

The legislative history emphasizes that section 1056 was

enacted to prevent inconsistent valuations of player contracts by

purchasers and sellers of professional sports franchises. H.

Rept. 94-658, at 115-117 (1975), 1976-3 C.B. (Vol. 2) 695, 807-

809; S. Rept. 94-938 at 87-88 (1976), 1976-3 C.B. (Vol. 3) 49,

125-126.11 Section 1056 was intended to cause the tax

consequences on the sale of sports franchises to be subject to an

arm's-length and balanced posture. That is accomplished by using

the seller's basis plus any gain recognized by the seller as the

standard for the buyer's basis in player contracts. H. Rept. 94-

658, at 117; 1976-3 C.B. (Vol. 2) at 809; S. Rept. 94-938 at 87-

88, 1976-3 C.B. (Vol. 3) at 125-126.

We disagree with respondent's contention that inconsistent

valuations of player contracts would automatically occur in

transactions involving a sports franchise held within a

partnership. Provisions within subchapter K protect against

inconsistent valuations of partnership property by buying and

11 The purchaser of a sports franchise would be motivated to allocate a larger portion of the purchase price to player contracts because the costs of player contracts are amortizable. Likewise, there would be less motivation to allocate cost to the franchise rights and goodwill which are not amortizable. Conversely, sellers would be motivated to allocate little of the purchase price to player contracts because gain recognized on the sale of player contracts may be subject to sec. 1245 depreciation recapture and treated as ordinary income. Sellers would also be motivated to allocate a larger portion of the purchase price to unamortizable assets, such as franchise rights, any gains on which may be taxable at capital gain rates and are not subject to recapture provisions. - 21 -

selling partners. Under section 751, the selling partner

(Kaiser) would be required to recognize any gain attributable to

the amortization deductions on the player contracts as ordinary

income. Sec. 751(a), (c). Section 751 would prevent the selling

partner from converting section 1245 depreciation recapture

income from the player contracts into capital gain. Accordingly,

without considering section 1056, the seller's reporting

requirements are congressionally mandated under subchapter K and

section 1245. The selling and buying partners are bound to

allocate the purchase price of the partnership interest to

particular section 751 partnership assets as provided in the

terms of their sales agreement. Sec. 1.751-1(a)(2), Income Tax

Regs. There is no subchapter K provision similar to section

1056;12 however, under subchapter K, the focus is not on

inconsistent asset valuations by individuals buying and selling

partnership interests.

Respondent also relies on the Staff of the Joint Committee

on Taxation, General Explanation of the Tax Reform Act of 1976

(J. Comm. Print 1976) (hereinafter General Explanation) as

support for the position that the term "sale or exchange" as used

in section 1056 includes a sale of a partnership interest in a

sports team. The General Explanation states at 86 that section

12 Under sec. 1056, to prevent a buyer from inflating the basis of player contracts, the buyer is limited to the seller's basis and any recognized gain on the contracts. - 22 -

1056 applies to "the sale, exchange, or other disposition of a

sports franchise." The General Explanation is prepared by the

staff of the Joint Committee on Taxation and is generally not

considered to be legislative history. Courts, however, have

referenced the General Explanation in opinions involving the

interpretation of statutes. See, e.g., FPC v. Memphis Light,

Gas & Water Div., 411 U.S. 458, 471-472 (1973); Todd v.

Commissioner, 89 T.C. 912, 917-918 (1987), affd. 862 F.2d 540

(5th Cir. 1988). In any event, the General Explanation does not

contain elucidation or clear guidance on the application of

section 1056 to transfers of partnership interests, as respondent

argues. The General Explanation contains the amorphous phrase

"other disposition of a sports franchise" which we find

inconclusive on the question of whether partnership transactions

are covered by section 1056. To accept the "other disposition"

language as including the transfer of a partnership interest

would, of necessity, require us to ignore and/or circumvent

certain of the subchapter K special basis adjustments available

to a buying partner and other basis provisions governing

partnership transactions.

In that connection, the integration into subchapter K of a

basis limitation like that contained in section 1056 would be a

complex and arduous task. Subchapter K already contains a

complex and comprehensive set of basis provisions designed to

address the unique aspects of a pass-through entity. Such an - 23 -

integration would present numerous choices and policy decisions

that the statute, legislative history, and respondent have failed

to address.

Section 1060 provides an example of the integration of basis

rules into subchapter K. Section 1060 was enacted in 1986

subsequent to the transaction in question and is inapplicable in

this case.13 Nevertheless, the enactment of section 1060

provides an example of the complexity and difficulties involved

in a section 1056 integration into partnership transactions.

Sections 1056 and 1060 each control the allocation of

purchase price to individual assets, albeit by different means.

Section 1060 requires the seller and buyer in certain prescribed

asset sales to allocate the purchase price among acquired assets

using the residual allocation method. Under that method, a

taxpayer generally allocates the purchase price among acquired

assets to the extent of their fair market values in descending

order of priority starting with cash and tangible and intangible

assets other than goodwill and going concern value. Sec.

1060(a); sec. 1.1060-1T(a)(1), (d), Temporary Income Tax Regs.,

53 Fed. Reg. 27039, 27040 (July 18, 1988). The residual of the

purchase price is then allocated to goodwill and going concern

value. Sec. 1.1060-1T(d), Temporary Income Tax Regs., 53 Fed.

13 Sec. 1060, enacted by sec. 641(a) of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2282, applies to asset acquisitions after May 6, 1986, unless entered under a binding contract in effect on that date and at all times thereafter. - 24 -

Reg. 27040 (July 18, 1988). Allocation of the purchase price to

the individual assets determines the seller's gain or loss on the

sale of the assets and the buyer's bases in the acquired assets.

As initially enacted, section 1060 did not address the

transfer and allocation involving partnership interests. In

1988, section 1060(d) was added specifically to require the use

of the residual method for distributions of partnership property

to partners and for transfers of partnership interests for

purposes of determining the value of goodwill or going concern

value in applying section 755. The 1988 amendment included

detailed provisions to enable section 1060 principles to be

integrated into the generally self-contained provisions of

subchapter K. The absence of express provisions in section 1056

to address partnership transactions more likely indicates that it

does not apply to basis adjustments available to partners who

purchase partnership interests. Any ambiguity or omission in

section 1056 logically could have been cured by amendment.

2. Interplay Between Section 1056 and the Subchapter K Partnership Provisions

In deciding that section 1056 does not apply to the sale of

a partnership interest, we have considered the effect that

section 1056 would have on the integrity and continuity of

subchapter K. In that regard, petitioner contends that we should

not apply section 1056 on an ad hoc basis to subchapter K because

to do so would undermine the partnership basis provisions. - 25 -

Subchapter K contains several detailed provisions governing basis

adjustments and allocations in partnership transactions. See

secs. 732, 743, 754, and 755. Generally, subchapter K employs

the entity approach in treating transfers of partnership

interests. The sale of a partnership interest is treated as the

sale of a single capital asset rather than as a transfer of the

individual assets of the partnership. See secs. 741 and 742.

Aggregate concepts, however, are also employed upon the

transfer of partnership interests. For example, the basis of

partnership property may be adjusted under the partnership

provisions upon the sale of a partnership interest in accordance

with section 743(b). The basis adjustment under section 743(b)

places a buying partner in the same position as if that partner

had purchased an undivided proportionate share of the partnership

property. Section 743(b) enables the purchaser of a partnership

interest to increase the depreciable basis of appreciated

partnership property to parallel the acquisition costs. Section

743(b) also protects a new partner by increasing basis to avoid

taxation on any inflated gains that could occur if the

partnership interest is later sold.

These basis adjustments were statutorily provided to

individuals who purchase partnership interests, and we are

reluctant to vary from this approach without a clear legislative

mandate for partnerships owning sports franchises. The

partnership here applied the section 743(b) special basis - 26 -

adjustments believing that the mandatory basis adjustment of

section 732(d) applied. The mandatory basis adjustment prevents

a buying partner from shifting basis allocation from

nondepreciable or unamortizable property to depreciable or

amortizable property under the section 732(c) basis allocation.

Similarly, section 1056 is intended to prevent overvaluation of

amortizable player contracts and undervaluation of the

unamortizable sports franchise by buyers of sports teams. The

only difference, however, is that the partnership provisions do

not restrict the basis adjustment of a particular partnership

asset to the partnership's presale basis plus any gain recognized

by the selling partner.

We are satisfied that subchapter K provisions are sufficient

to determine the basis of partnership property and include

sufficient safeguards (such as section 732(d) and accompanying

regulations) to prevent inflation of the depreciable or

amortizable basis of property.14 We are also satisfied that

Bowlen I did not overvalue the player contracts in issue. In

some respects, the partnership's player contract valuation

complies with the section 1056(d) provision involving the

14 We recognize, however, that subch. K may permit a purchaser of a partnership interest to obtain increased amortizable basis in the player contracts even though the selling partner may not have recognized depreciation recapture income on those contracts. This could occur when a buying partner and selling partner have not allocated the total purchase price of the partnership interest among the individual partnership assets in a sales contract. - 27 -

presumption and requirements for allocating more than 50 percent

to player contracts. Bowlen I obtained four estimates of the

value of the Broncos' player contracts on the date of the sale of

the partnership interest from general managers and personnel

specialists of other NFL teams. The estimates ranged from

$35,790,000 to $59,215,000, with an average amount approximating

$45,700,000. Bowlen I assigned approximately $36 million as the

fair market value of player contracts, which amount equates with

50 percent of the approximate $72 million aggregate cost for

Bowlen and Adams' partnership interests. It should be emphasized

that a conservative valuation was used, and (as explained later

in this opinion) we find this assigned value was the fair market

value at the time of acquisition.

Petitioner's argument focuses on the factor that Kaiser's

gain attributable to the player contracts should have been

derived from the $36 million amount used by the partnership for

amortization purposes. Respondent, however, focuses on

petitioner's inability to prove the actual amount of gain that

Kaiser recognized from the contracts, under the basis limitation

rules of section 1056(a). Neither party offered direct evidence

showing the gain, if any, that the seller (Kaiser) may have

recognized on the sale of the partnership interests attributable

to the player contracts. Without such evidence, as required

under section 1056(a), respondent argues that the basis in the

player contracts is limited to the partnership's presale basis. - 28 -

Further exacerbating the dilemma here, respondent, in accord with

established practices, destroyed the seller's income tax return

that might have shed light on this question.

The $36,121,385 basis for the player contracts used by the

partnership does not exceed the value of the contracts or provide

any tax benefit not otherwise available to the partners.

Amortization of the fair market value in accord with the

partners' acquisition costs for partnership property is an

appropriate deduction under subchapter K. Any tax advantage that

may have occurred in the circumstances of this case would have

been due to the seller's (Kaiser's) failure to report sufficient

gain or his mischaracterization of gain as capital upon the sale

of his partnership interest. Respondent argues, but is unable to

show, that Kaiser was able to have the benefit of capital gain on

the sale of his partnership interest without recapture in the

form of ordinary income of any amortization that may have been

taken on the player contracts.

B. Respondent's Alternative Argument--A Deemed Distribution and Recontribution of Partnership Property Under Section 731 Constitutes a "sale or exchange" Within the Meaning of Section 1056

Respondent alternatively argues that if we hold that a

partnership is to be treated as an entity for purposes of

applying section 1056, a sale or exchange of the partnership

assets nevertheless occurred under the entity theory.

Responent’s alternative argument is premised on the contention - 29 -

that a sale or exchange of a sports franchise and player

contracts within the meaning of section 1056(a) occurred on the

deemed distribution and recontribution of partnership property

attributable to the partnership's constructive section 708

termination. Respondent relies on section 731 as support for the

position that an exchange occurs when a partnership makes a

liquidating distribution of partnership property to its

partners.15

Section 731(a) defines the circumstances under which a

partner recognizes gain or loss from partnership distributions

and provides that "Any gain or loss recognized under this

subsection shall be considered as gain or loss from the sale or

exchange of the partnership interest of the distributee

partner."16 Sec. 731(a). Respondent maintains that there is

tacit recognition in section 731 that a deemed partnership

distribution constitutes a sale or exchange regardless of whether

the partner recognizes gain or loss on the distribution.

Respondent, relying on section 721, continues with the additional

premise that the deemed recontribution of the partnership

15 It is noted that any distribution of property in this case would have been theoretically deemed to have occurred under the statutes and regulations and that no actual distribution in kind occurred. 16 Generally, a partner recognizes gain upon the distribution of partnership property only to the extent that money distributed exceeds the partner's basis in his partnership interest. Sec. 731(a)(1). - 30 -

property to the new partnership is an exchange. Section 721

provides that "No gain or loss shall be recognized to a

partnership or to any of its partners in the case of a

contribution of property to the partnership in exchange for an

interest in the partnership."

Respondent's reliance on section 731 is misplaced. The

purpose of the above-quoted portion of section 731 is to

characterize the gain or loss recognized on partnership

distributions as capital or ordinary in nature. See sec. 1.731-

1(a)(3), Income Tax Regs. Section 741 provides for the

characterization of income or loss from the sale or exchange of a

partnership interest as capital, except as provided in section

751 (relating to unrealized receivables and inventory items that

have substantially appreciated in value). Section 731(a), in

turn, subjects the tax consequences of partnership distributions

to the gain or loss characterization rule of section 741.

Moreover, section 731(a) provisions apply to nonliquidating and

liquidating distributions. It would be inappropriate to treat

partners who receive current distributions from a partnership as

selling their partnership interests, which respondent's argument

would seem to require. Rather, a partner who receives a

nonliquidating distribution is treated as selling his partnership

interest only for purposes of characterizing the gain recognized

by the partner. - 31 -

The phrase "sale or exchange" appears in several tax

statutes and has been the subject of numerous opinions. The

customary meaning of "sale or exchange" implies a reciprocal

transfer. Helvering v. William Flaccus Oak Leather Co., 313 U.S.

247, 249 (1941). The phrase "sale or exchange" has been

interpreted in some circumstances to include a distribution of

partnership property in liquidation of a partnership interest.

However, a partnership distribution does not necessarily qualify

as a sale or exchange. For example, a liquidating distribution

of a 50-percent or more partnership interest is not treated as a

sale or exchange of the partnership interest for purposes of a

section 708(b)(1)(B) constructive termination. Sec. 1.708-

1(b)(1)(ii), Income Tax Regs. Whether a partnership distribution

is a sale or exchange of the distributed partnership property

depends on the statutory mandate of the section sought to be

applied to the particular subchapter K transaction.

Respondent's second or alternative argument to apply section

1056 to subchapter K transactions would raise difficult and yet

unanswered questions, such as whether the partnership or selling

partner should be considered to be the transferor of the assets

for purposes of section 1056. Under respondent's view, the

buying partner's basis would be limited to the terminated

partnership's presale basis plus gain recognized by the selling

partner (Kaiser) on the player contracts. Section 1056(a) limits

the buyer's basis in player contracts to the transferor's basis - 32 -

plus gain recognized by the transferor on the contracts.

Accordingly, respondent's position requires both the selling

partner (Kaiser) and the terminated partnership to be treated as

the transferor for purposes of section 1056 on the deemed

distribution.

The section 708 regulations provide that the deemed

distribution is from the terminated partnership. Sec. 1.708-

1(b)(1)(iv), Income Tax Regs. The normal rule is that a

partnership does not recognize gain on a liquidating distribution

to a partner. See sec. 732(a). Consequently, if only the

terminated partnership was treated as the transferor for purposes

of section 1056(a), a buying partner would be limited to the

partnership's presale basis in the contracts even if the selling

partner recognized gain from the player contracts. Respondent

does not seek that result.

For Kaiser to be the transferor (seller) on the deemed

distribution, however, the aggregate partnership theory would

need to be employed. Consistent with our prior discussion, the

aggregate theory of partnership would not be appropriate for

purposes of section 1056. Respondent's argument that a section

1056 "sale or exchange" occurs on a deemed distribution and

recontribution requires treating the partnership as an aggregate

of its partners. Accordingly, we conclude that a partnership

distribution does not constitute a sale or exchange of the - 33 -

distributed partnership assets under section 1056, and Bowlen I's

basis in the player contracts is not subject to section 1056.

III. Has Bowlen I Correctly Computed the Basis of Partnership Assets Under the Partnership Provisions?

A. Burden of Proof as to Fair Market Value of Player Contracts

As a threshold and procedural matter, petitioner argues that

any question concerning the partnership's basis computation under

the partnership provisions is a new matter for which respondent

should bear the burden of proof. Rule 142(a). Petitioner

contends that respondent raised the question concerning the

subchapter K basis computation for the first time at trial and

that issue constitutes a new matter. Respondent argues that,

although this issue was not addressed in the notices of final

partnership administrative adjustment, petitioner raised the

issue by alleging in the pleading that the player contracts’

bases were correctly determined under subchapter K.

Respondent, under section 1056, determined that the

partnership was not entitled to amortization of certain player

contracts for the years under consideration. Petitioner alleged

that respondent erred in applying section 1056 and not accepting

the approach utilized by the partnership. Petitioner's

allegations in the petition address the question of whether the

section 1056 limitations would affect the amount of basis

available for amortization. In the notice of final partnership

administrative adjustments, respondent did not determine that the - 34 -

basis amount used by the partnership for the player contracts was

incorrect, except insofar as it was limited by the requirement of

section 1056(a).

Generally, * * * [taxpayers] [bear] the burden of proof. Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933). Respondent, however, bears the burden of proof as to "any new matter, increases in deficiency, and affirmative defenses, pleaded in the answer". Rule 142(a). A new position taken by * * * [the Commissioner] is not necessarily a "new matter" if it merely clarifies or develops * * * [the Commissioner’s] original determination without requiring the presentation of different evidence, being inconsistent with * * * [the Commissioner’s] original determination, or increasing the amount of the deficiency. Achiro v. Commissioner, 77 T.C. 881, 889-891 (1981) * * * . [Citations omitted.]

Seagate Tech., Inc., & Consol. Subs. v. Commissioner, 102 T.C.

149, 169 (1994).

Respondent raised, for the first time at trial, the question

of whether the partnership correctly valued partnership assets

and hence was required to use section 732(d) to allocate partner

acquisition costs to basis. That question or issue was raised by

respondent as an alternative argument if we should find that

section 1056 did not apply. Petitioner, up until the trial,

simply argued that section 1056 did not apply as determined and

that the partnership's reporting position was, therefore,

correct.

Going into the trial, the sole issue confronting petitioner

was whether the limitations of section 1056 applied to the

partnership's basis in player contracts. Petitioner had - 35 -

stipulated the estimates made by the four NFL teams and the

adjustment made by the partnership's accountant to arrive at a

$36,121,385 fair market value and basis for the player contracts.

That evidence was stipulated to provide background for the

factual scenario needed to address the section 1056 question.

Petitioner did not plan to offer expert testimony on value

because respondent's determination did not question the value of

the player contracts. Petitioner would have been required to

present additional evidence to address respondent's alternative

argument, raised for the first time at trial. Accordingly,

respondent bears the burden of proof with respect to the question

of whether partnership's valuation of the player contracts was

B. Respondent's Alternative Argument

Having decided that section 1056 does not apply to the sale

of a partnership interest, we address respondent's alternative

argument that the basis of the player contracts was incorrectly

computed under subchapter K. In this case, a distribution was

deemed to have occurred to Bowlen and the remaining partner

because of the section 708 constructive termination of the

partnership when Bowlen purchased over a 50-percent partnership

interest. Sec. 708(b)(1)(B); sec. 1.708-1(b)(1)(iv), Income Tax

Regs.

Section 732(d) and the regulations thereunder, with respect

to a liquidating distribution, require a basis adjustment in - 36 -

accord with section 743(b) prior to a distribution to a partner

who acquired his interest in the absence of a section 754

election, if three conditions exist: (1) The fair market value

of the partnership's property (other than money) exceeds 110

percent of its adjusted basis to the partnership at the time the

partnership interest was acquired, (2) upon liquidation of the

partner's interest in the partnership immediately after

acquisition, an allocation of basis under section 732(c) would

have shifted basis to depreciable, depletable, or amortizable

property from property not subject to these allowances, and (3) a

special basis adjustment under section 743(b) would have changed

the basis to the transferee partner of property actually

distributed. Sec. 1.732-1(d)(4), Income Tax Regs.; see Rudd v.

Commissioner, 79 T.C. 225, 240-246 (1982).

The partnership did not have a section 754 election in

effect for 1984. Up to this point, the parties remain in accord.

Their disagreement goes to the amount of the fair market value of

the player contracts and whether the section 732(d) provisions

applied.

The partnership's accountant determined that the section

732(d) mandatory basis adjustment rules applied, and the player

contract bases were adjusted in accord with section 743(b) prior

to the deemed distribution. The partnership used the section

743(b) adjusted basis, i.e., their purported fair market values, - 37 -

to allocate basis among the distributed assets and assigned a

basis of $36,121,385 to the player contracts.

Respondent argues that the value of the player contracts at

the time of Bowlen's acquisition of a partnership interest was

$45,695,000, which was the average of the estimates by other NFL

teams. Due to respondent’s premise that the partnership used an

incorrect basis of $36,121,385, respondent argues that section

732(d) did not apply and that the partnership's basis in the

player contracts is $21,288,373 in the absence of the section

743(b) adjustment. Because the partnership had amortized more

than $21,288,373 prior to the years before this Court, no

deduction would be allowable if respondent's argument is

sustained. If, however, we find that the fair market value of

the player contracts ($36,121,385) used by the partnership was

correct, then respondent's argument must fail. As decided above,

respondent bears the burden of proving that the fair market value

of the player contracts was $45,695,000, instead of the

$36,121,385 amount used by the partnership.17

To meet that burden, respondent relies on the $45,695,000

average of the four estimates obtained by Bowlen I as the true

17 Petitioner agrees that a $45,695,000 fair market value for the player contracts would mean that secs. 732(d) and 743(b) would not apply resulting in a $21,288,373 basis in player contracts. Similarly, respondent agrees that a $36,121,385 value would result in the application of sec. 732(d) and related sections and that the basis of the contracts would have been $36,121,385. - 38 -

fair market value so that the $45,695,000 value would not have

triggered section 732(d).18 Respondent argues that the

partnership's basis would have been $21,288,373 and that prior

year's claimed amortization had already exceed that amount prior

to the years under consideration. Accordingly, under

respondent's argument, the partnership would not be entitled to

any further amortization.

The partnership, in accord with its accountant's analysis,

used the $36,121,385 fair market value for purpose of determining

whether the mandatory basis adjustment rules of section 732(d)

apply. Respondent did not present expert testimony regarding the

value of the player contracts and relies on the simple expediency

of averaging the four estimates used by the partnership in an

attempt to reach a fair market value. The estimates were not

offered to establish the fair market value of the player

contracts. Instead they are a predicate for discussion of the

section 1056 issue and whether it applies to a partnership

transaction.

18 Respondent's argument that sec. 732(d) would not apply is based on a $45,695,000 value for the player contracts, which in turn, would, according to respondent, result in a larger basis being allocated to depreciable and amortizable assets under sec. 732(d) than if a sec. 743(b) basis adjustment was not in effect. The parties did not debate whether each other's analysis was correct. In essence they agreed, that if we find the value they propose to be correct, then the result they propose ensues. We accept these concessions for purposes of this case. - 39 -

Our analysis of the four estimates19 shows them to be

cursory and terse. No explanation is provided for the estimate

listed for each player. The four estimates contain huge

differences and inconsistencies when comparing particular

players. For example, John Elway's contract is estimated as high

as $6,350,000 by the Chicago Bears and as low as $4 million by

the Cleveland Browns. With respect to Steve Busick, the Chicago

Bears estimated $225,000 and the Houston Oilers $1,250,000.

Conversely, the Chicago Bears estimated $100,000 for Britt

Freeman and the Houston Oilers $10,000. We cannot tell whether

these differences reflect the needs of those teams for a

particular player's skills or result from some other

consideration or factor.

The accountant for the partnership, after considering the

estimates respondent relies on, reached a fair market value of

$36,121,385. The value used by the partnership is within the

range of estimates of value by the four NFL teams. We also note

that the $36 million figure is a conservative amount. Under

these circumstances, respondent has not carried the burden of

showing that the fair market value of the player contracts was

more than the $36,121,385 used by the partnership or that the

correct fair market value is the $45,695,000 relied on by

respondent to show that section 732(d) would not apply.

19 A summary of the four estimates was received in evidence and is attached to this opinion as the appendix. - 40 -

Accordingly, we find that the mandatory basis adjustment of

section 732(d) applies within the context of subchapter K and

that Bowlen I properly computed the basis of the player contracts

in accordance with the partnership provisions and is entitled to

the amortization deduction in controversy.

To reflect the foregoing and due to concessions by the

parties,

Decision will be entered

under Rule 155. - 41 - APPENDIX APPRAISER (Chicago (Cleveland (New York (Houston Bears Browns) Giants) Oilers) NAME VANISI BAILEY YOUNG HERZEG TOTAL AVERAGE

Aguilar, Joe $100,000 $150,000 $100,000 $10,000 $360,000 $90,000 Alexander, Ray 100,000 200,000 0 200,000 500,000 125,000 Banaszak, Chris 100,000 225,000 125,000 10,000 460,000 115,000 Banks, Larry 100,000 200,000 120,000 10,000 430,000 107,500 Barnett, Dean 125,000 200,000 150,000 10,000 485,000 121,250 Barnett, Larry 100,000 200,000 125,000 10,000 435,000 108,750 Bishop, Keith 525,000 225,000 900,000 1,250,000 2,900,000 725,000 Blinka, Stan 275,000 250,000 300,000 10,000 835,000 208,750 Bowyer, Walt 150,000 175,000 400,000 100,000 825,000 206,250 Boyd, Michael 100,000 175,000 125,000 10,000 410,000 102,500 Brewer, Chris 150,000 225,000 400,000 200,000 975,000 243,750 Brunner, Scott 625,000 750,000 900,000 1,000,000 3,275,000 818,750 Brunot, Rick 100,000 200,000 100,000 10,000 410,000 102,500 Bryan, Billy 1,125,000 225,000 1,500,000 800,000 3,650,000 912,500 Buchannan, Mike 100,000 175,000 125,000 10,000 410,000 102,500 Busick, Steve 225,000 250,000 900,000 1,250,000 2,625,000 656,250 Carmody, Steve 100,000 250,000 100,000 10,000 460,000 115,000 Carswell, Ernest 100,000 175,000 100,000 10,000 385,000 96,250 Carter, Rubin 750,000 750,000 1,000,000 300,000 2,800,000 700,000 Chavous, Barney 1,150,000 400,000 1,200,000 500,000 3,250,000 812,500 Coleman, Duane 100,000 150,000 125,000 10,000 385,000 96,250 Collins, Trent 100,000 175,000 100,000 10,000 385,000 96,250 Comeaux, Darren 125,000 175,000 300,000 100,000 700,000 175,000 Cooper, Mark 450,000 750,000 900,000 600,000 2,700,000 675,000 Costello, Rocky 100,000 125,000 125,000 10,000 360,000 90,000 Davis, Billy 100,000 225,000 125,000 10,000 460,000 115,000 Davis, Jeff 100,000 175,000 125,000 10,000 410,000 102,500 Davis, Ricky 100,000 175,000 125,000 10,000 410,000 102,500 De Bourge, Dale 100,000 175,000 100,000 10,000 385,000 96,250 De Rose, Dan 100,000 200,000 100,000 10,000 410,000 102,500 Dennison, Rick 150,000 225,000 500,000 600,000 1,475,000 368,750 Diorio, Jerry 100,000 200,000 100,000 10,000 410,000 102,500 Dixon, Kevin 100,000 200,000 125,000 10,000 435,000 108,750 Dodson, Lance 100,000 200,000 100,000 10,000 410,000 102,500 Dupree, Myron 125,000 250,000 225,000 50,000 650,000 162,500 Egloff, Ron 300,000 275,000 250,000 50,000 875,000 218,750 Elway, John 6,350,000 4,000,000 5,000,000 6,000,000 21,350,000 5,337,500 Felknor, Bret 125,000 175,000 125,000 10,000 435,000 108,750 Fernandez, Jacinto 100,000 175,000 125,000 10,000 410,000 102,500 Fisher, Mike 100,000 150,000 125,000 10,000 385,000 96,250 Foley, Steve 825,000 300,000 1,200,000 1,000,000 3,325,000 831,250 Freeman, Britt 100,000 150,000 125,000 10,000 385,000 96,250 Freeman, Mike 100,000 200,000 150,000 200,000 650,000 162,500 Gaines, Charlie 100,000 200,000 100,000 10,000 410,000 102,500 Garnett, Scott 150,000 250,000 400,000 500,000 1,300,000 325,000 Gearring, Vernon 100,000 150,000 100,000 200,000 550,000 137,500 Gilbert, Freddie 0 0 0 0 0 0 Gradishar, Randy 0 0 0 0 0 0 Graves, Marsharne 100,000 150,000 200,000 10,000 460,000 115,000 Greggs, Mark 100,000 200,000 100,000 10,000 410,000 102,500 Harden, Mike 775,000 250,000 900,000 700,000 2,625,000 656,250 Harris, Weedy 150,000 250,000 250,000 10,000 660,000 165,000 Hawkins, Reco 100,000 125,000 100,000 10,000 335,000 83,750 Hedderly, Russ 100,000 125,000 100,000 10,000 335,000 83,750 Higginbotham, John 100,000 175,000 100,000 10,000 385,000 96,250 Hollingsworth, Shawn 100,000 175,000 150,000 10,000 435,000 108,750 Hood, Winford 150,000 200,000 400,000 500,000 1,250,000 312,500 Howard, Paul 925,000 250,000 900,000 100,000 2,175,000 543,750 Hunley, Ricky 0 0 0 0 0 0 Jackson, Roger 300,000 250,000 300,000 100,000 950,000 237,500 Jackson, Tom 625,000 300,000 1,200,000 200,000 2,325,000 581,250 Jarman, Murray 150,000 200,000 200,000 10,000 560,000 140,000 Jenkins, Bob 100,000 125,000 100,000 10,000 335,000 83,750 Jones, Demetrius 100,000 125,000 120,000 10,000 355,000 88,750 Jones, Rulon 1,475,000 750,000 1,200,000 2,500,000 5,925,000 1,481,250 Joyce, Jim 100,000 125,000 125,000 10,000 360,000 90,000 - 42 - (Chicago (Cleveland (New York (Houston Bears Browns) Giants) Oilers) NAME VANISI BAILEY YOUNG HERZEG TOTAL AVERAGE

Karlis, Rich 700,000 400,000 900,000 600,000 2,600,000 650,000 Kay, Clarence 150,000 250,000 600,000 1,250,000 2,250,000 562,500 Kelley, Greg 100,000 125,000 100,000 10,000 335,000 83,750 Kenneybrew, Carl 100,000 200,000 125,000 10,000 435,000 108,750 Kragen, Greg 100,000 200,000 125,000 200,000 625,000 156,250 Kubiak, Gary 225,000 500,000 600,000 1,000,000 2,325,000 581,250 Lang, Gene 150,000 250,000 200,000 200,000 800,000 200,000 Lanier, Ken 550,000 400,000 900,000 1,000,000 2,850,000 712,500 Lasack, Duane 100,000 125,000 100,000 10,000 335,000 83,750 Leary, Bill 125,000 125,000 100,000 10,000 360,000 90,000 Lilly, Tony 650,000 250,000 700,000 600,000 2,200,000 550,000 Logan, Dave 375,000 200,000 1,200,000 10,000 1,785,000 446,250 Lomeli, Dan 100,000 125,000 100,000 10,000 335,000 83,750 Luck, Mike 100,000 125,000 175,000 10,000 410,000 102,500 Lytle, Rob 0 200,000 300,000 10,000 510,000 127,500 Manor, Brison 275,000 300,000 300,000 100,000 975,000 243,750 Massie, Rick 0 0 0 0 0 0 Mecklenburg, Karl 250,000 200,000 600,000 0 1,050,000 262,500 Micho, Bobby 150,000 200,000 300,000 200,000 850,000 212,500 Moen, Kevin 100,000 175,000 100,000 10,000 385,000 96,250 Morgan, John 100,000 175,000 100,000 10,000 385,000 96,250 Mullahey, Nick 100,000 175,000 100,000 10,000 385,000 96,250 Muriaty, Gene 100,000 200,000 125,000 10,000 435,000 108,750 Myers, Wilbur 175,000 200,000 250,000 10,000 635,000 158,750 Myles, Jesse 175,000 250,000 250,000 200,000 875,000 218,750 Naylor, Rick 100,000 125,000 100,000 10,000 335,000 83,750 Neal, Alan 100,000 200,000 100,000 10,000 410,000 102,500 Niko, Maomao 125,000 200,000 150,000 10,000 485,000 121,250 Norman, Chris 100,000 200,000 175,000 600,000 1,075,000 268,750 O’Brien, Eddie 100,000 200,000 100,000 10,000 410,000 102,500 Osborn, Kelly 100,000 200,000 100,000 10,000 410,000 102,500 Parros, Rick 425,000 300,000 900,000 50,000 1,675,000 418,750 Patterson, Jeff 100,000 200,000 100,000 10,000 410,000 102,500 Poole, Jon 100,000 200,000 100,000 10,000 410,000 102,500 Poole, Nathan 150,000 225,000 200,000 50,000 625,000 156,250 Prestridge, Luke 525,000 400,000 500,000 200,000 1,625,000 406,250 Price, Steve 100,000 175,000 100,000 200,000 575,000 143,750 Raikes, Jeff 125,000 200,000 125,000 10,000 460,000 115,000 Ramson, Eason 225,000 300,000 600,000 10,000 1,135,000 283,750 Reiner, Mike 100,000 175,000 100,000 10,000 385,000 96,250 Robbins, Randy 200,000 300,000 600,000 600,000 1,700,000 425,000 Robinson, Capus 100,000 200,000 100,000 10,000 410,000 102,500 Rogers, Shawn 100,000 200,000 100,000 10,000 410,000 102,500 [illegible] 100,000 200,000 100,000 10,000 410,000 102,500 Russell, Marlin 100,000 200,000 125,000 10,000 435,000 108,750 Ryan, Jim 275,000 200,000 900,000 600,000 1,975,000 493,750 Salazar, Robert 100,000 200,000 125,000 10,000 435,000 108,750 Sampson, Clint 350,000 500,000 600,000 600,000 2,050,000 512,500 Sawyer, John 275,000 300,000 400,000 10,000 985,000 246,250 Scandrett, David 100,000 200,000 100,000 10,000 410,000 102,500 Schafer, Steve 100,000 200,000 125,000 10,000 435,000 108,750 Simmons, Melvin 100,000 200,000 100,000 10,000 410,000 102,500 Simpson, Adrian 100,000 200,000 100,000 10,000 410,000 102,500 Skudneski, David 100,000 200,000 125,000 10,000 435,000 108,750 Small, George 200,000 300,000 175,000 10,000 685,000 171,250 Smith, Aaron 100,000 250,000 300,000 200,000 850,000 212,500 Smith, Alonzo 100,000 200,000 100,000 10,000 410,000 102,500 Smith, Charlie 100,000 200,000 100,000 10,000 410,000 102,500 Smith, Darryl 100,000 125,000 100,000 10,000 335,000 83,750 Smith, Dennis 2,275,000 1,000,000 2,000,000 2,500,000 7,775,000 1,943,750 Smith, John 100,000 200,000 100,000 10,000 410,000 102,500 Smith, Reggie 0 0 0 0 0 0 Stachowski, Rich 100,000 200,000 175,000 10,000 485,000 121,250 Staff, Mike 100,000 200,000 125,000 10,000 435,000 108,750 Stankavage, Scott 100,000 250,000 250,000 10,000 610,000 152,500 Studdard, Dave 550,000 300,000 1,000,000 300,000 2,150,000 537,500 Summers, Don 100,000 125,000 175,000 200,000 600,000 150,000 Sutton, Phil 100,000 200,000 100,000 10,000 410,000 102,500 Swanke, Rob 100,000 250,000 200,000 10,000 560,000 140,000 - 43 - (Chicago (Cleveland (New York (Houston Bears Browns) Giants) Oilers) NAME VANISI BAILEY YOUNG HERZEG TOTAL AVERAGE

100,000 200,000 100,000 10,000 410,000 102,500 Taylor, Joe 150,000 300,000 400,000 10,000 860,000 215,000 Thomas, Zack 100,000 200,000 125,000 10,000 435,000 108,750 Thompson, Dale 100,000 200,000 125,000 10,000 435,000 108,750 Thurson, Tommy 100,000 200,000 125,000 10,000 435,000 108,750 Thurston, Guy 900,000 750,000 1,300,000 700,000 3,650,000 912,500 Townsend, Andre 100,000 200,000 0 10,000 310,000 77,500 Uebel, Ralf 175,000 250,000 300,000 150,000 875,000 218,750 Uecker, Keith 0 100,000 500,000 0 600,000 150,000 Upchurch, Rick 100,000 175,000 100,000 10,000 385,000 96,250 Veals, Dennis 100,000 175,000 125,000 10,000 410,000 102,500 Wade, Michael 100,000 175,000 100,000 10,000 385,000 96,250 Walker, Chuck 100,000 175,000 125,000 10,000 410,000 102,500 Walker, Eddie Ray 100,000 200,000 100,000 10,000 410,000 102,500 Walsh, Eddie 2,050,000 1,000,000 2,000,000 1,500,000 6,550,000 1,637,500 Watson, Steve 100,000 200,000 100,000 10,000 410,000 102,500 Whetstone, Mike 525,000 1,000,000 1,200,000 400,000 3,125,000 781,250 Willhite, Gerald 750,000 250,000 700,000 300,000 2,000,000 500,000 Wilson, Steve 375,000 750,000 1,200,000 400,000 2,725,000 681,250 Winder, Sammy 100,000 150,000 100,000 10,000 360,000 90,000 Wise, Ben 325,000 225,000 600,000 150,000 1,300,000 325,000 Woodard, Kenneth 300,000 175,000 600,000 50,000 1,125,000 281,250 Wright, James 1,425,000 1,000,000 1,500,000 600,000 4,525,000 1,131,250 Wright, Louis 100,000 275,000 100,000 10,000 485,000 121,250 Wristen, John 100,000 150,000 100,000 10,000 360,000 90,000 Young, Barry ___________ ___________ ___________ __________ ___________ ___________

TOTAL 44,325,000 43,450,000 59,215,000 35,790,000 182,780,000 45,695,000