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Thursday, July 31, 2008

Making Sport of 409A

Well, here's a quickie for you, spanning both entertainment and 409A. Key to any number of re-upping of contracts, trades, etc., in the sports world is the common and critical practice of the "restructuring" of what are extremely large payments and payment streams - "restructuring the contract," if you will. Sometimes, for example, the restructuring is needed to accommodate a team's financial needs generally, to make the contract appealing to another team or to fit within a salary cap. What happens on and after January 1, 2009, after the expiration of transition relief under our ol' friend cap-A? (I still think that maybe the biggest emerging issue under cap-A will prove to be the unchangeability thereunder of any number of compensation arrangements, particularly in the context of a wide range of transactional settings.) For those payments that were deferred comp., and for those payments that are to be newly or additionally deferred, how the heck are these restructuring arrangements going to continue to occur (without acceleration of taxation and an additional 20% tax)? Where they cannot be so restructured, what will be the effect on the sports industry and the teams and athletes involved? There may need to be real attention paid in the industry to ensuring that existing arrangements are "short-term deferrals" so as to permit flexibility, although even that may not be enough to facilitate deals where deferral (if not in compliance with the one-year/five-year requirements), rather than acceleration, is sought. Hmm - will someone ask Congress to get involved? (Don't forget the golfers' exception (couched as a medical/doctors'/hospital exception in the legislative history) under Rostenkowski's 457(e)(12).) Just wondering . . .

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