November 28, 2018

The Financial Impacts of Legalized Sports Gambling

Until recently, placing wagers on single sporting events in the United States was only legal in Nevada. With the Supreme Court’s ruling in the court case Murphy v. National Collegiate Athletic Association (NCAA), states earned the right to legalize and govern sports gambling within their borders. Las Vegas, the Mecca of U.S. sports gambling, will now see other cities and states looking to cash-in on its once unique business venture recently estimated at a $5 billion handle.

State Implications

Since the decision in May 2018, numerous states have worked on legislation to provide the framework for regulated and taxable sports gambling. New Jersey, Delaware, Mississippi, West Virginia, New Mexico and Pennsylvania all joined Nevada in fully authorizing and are now operating as states with legal sports betting. Arkansas, New York and Rhode Island have also boarded the gambling train and are ready to embark on the implementation phase. As of November 2018, an additional 17 states have presented bills and are awaiting further action to lift their respective bans.

States’ interest in establishing legal sports betting should not come as a shock because of the ability to employ a new tax revenue stream. Yes, the tax revenue generated from this new activity will increase each state’s spending repertoire, but probably not enough to solve current funding shortages. Gambling addiction services will also be seeking increased state funding and grants. Unfortunately, inflated societal costs and the continued existence of the black market may hinder the true revenue surplus states desired when rushing to pass regulated sports betting.

Professional Sports Franchise Implications

Professional sports franchises and their leagues have long opposed widespread legalized sports gambling because of its potential harm to the integrity of the on-field product. However, these organizations started softening their stances even before the Supreme Court leveled its most recent verdict. The NHL granted Las Vegas an expansion franchise in June 2016, and the NFL followed suit in early 2017 by approving the eventual relocation of the Oakland Raiders to “Sin City”. Each move broke the mold in professional sports of avoiding Las Vegas and the taboo industry calling it home.

With betting on sports now recognized as an upcoming and widespread business throughout the nation, leagues, as well as their individual franchises, will look to capitalize on the new sponsorship opportunities. The NBA’s and NHL’s recent partnerships with MGM Resorts showcase the immediate financial windfalls of legalized gambling. According to a study prompted by the American Gaming Association (AGA), recreational gambling could increase sponsorship, advertising, television, and ticket revenue streams for the four major sports by the following amounts:

  • NFL: $2.3 billion annually
  • MLB: $1.1 billion annually
  • NBA: $585 million annually
  • NHL: $216 million annually

The hike in league revenues will also be coupled with new administrative and education programs for its on-field professionals.  While athletes, coaches, and officials will all be subjected to more training on what this new reality of legalized sports gambling means for their careers, leagues will be saddled with the task of committing resources to update the code of conduct, monitor betting trends, and establish policies to punish offenders of their game’s integrity.

Future Developments

In order to make its greatest impact, sports leagues and the entertainment hubs will need to integrate technology into the industry’s infrastructure. Daily fantasy sports apps, such as FanDuel and Draft Kings, have already begun the development of new, in-app platforms that would allow users a space to register in a state and place wagers from the comfort of their own couch. Each state’s betting options could be expanded when coupled with technology’s advancement. So, whether you’re placing a wager on tomorrow’s game, or in the 2nd half of the game currently on TV, technology will be at the helm empowering consumers to grow the legal industry. Despite Las Vegas’ longstanding track record, and underground operations that Congress estimated at upwards of $150 billion annually, sports gambling is in its infancy as a business.

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November 27, 2018

States Resisting Updated Federal Estate Tax Exemption Following Tax Reform

One of the many Tax Cuts and Jobs Act (TCJA) changes adopted when filing 2018 taxes is the new estate tax exemption. The estate tax is a tax on an individual’s right to transfer property at death and includes everything owned or having a certain interest in at the date of death. Under the TCJA, the amount of the federal estate tax exemption per person more than doubled, going from $5,490,000 in 2017 to $11,180,000 in 2018. Married couples can exempt up to $22,360,000 under the new law with proper planning.

States Responding to the New Estate Tax Exemption

Over 75% of states do not impose their own estate tax, and these states follow the federal exemption amount. States such as Delaware, New Jersey and Ohio have all recoupled from their estate tax beginning January 1, 2018 and will use the federal amount going forward.

The states that do have their own estate tax are not as lenient with their exemption as the updated federal amount. Residents of those states will need to ensure they are aware of the potential impact of state estate taxes on their assets. Some states also have an inheritance tax which is separate from estate tax. Below is a chart of states that currently have an estate tax and how they have altered their exemption amount after the release of the TCJA.

Estate Tax Exemption by State

 

Overall Impact on Individuals

Most states have not had much reaction to the estate tax exemption increase and will follow the federal’s increased amount. Some states have continued to adjust their estate tax exemption for inflation as they do every year, but the majority have not changed their exemption amount. The District of Columbia has been impacted the most as they almost tripled their estate tax exemption for 2018.

With such high federal thresholds, the vast majority of estates will not be subject to the estate tax. Because the federal exemption has increased substantially, prior estate planning should be revisited to ensure your estate plan reflects any changes in your state and the federal law.

Contact an Anders advisor to find out more about how the Tax Cuts and Jobs Act will impact you or your estate going forward. Learn more about TCJA changes in our Tax Reform Resource Center.

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November 20, 2018

How Age Shapes Your Business Transition Plan

The thought of selling the business you’ve spent years building may fill you with feelings of fear, uncertainty or excitement. Age has a big impact on your attitude towards your business, and your feelings about one day getting out of it. Whether you’re in your 30’s and moving on from your first startup, or in your 70’s figuring out what’s next for your legacy, age plays a big part in when and how you’ll approach transitioning your business.

Owners aged 25 to 46

Twenty- and thirty-something business owners grew up in an age when job security did not exist. They watched as their parents were downsized or packaged off into early retirement, and that resulted in a somewhat jaded attitude towards the role of a business in society.

Business owners in their twenties and thirties generally see their companies as a means to an end, and most expect to sell in the next 5 to 10 years. Similar to their employed classmates who move to a new job every 3 to 5 years, business owners in this age group often expect to start a few companies in their lifetime.

Owners aged 47 to 65

Baby boomers came of age in a time when the social contract between a company and an employee was sacred. An employee agreed to be loyal to the company, and in return, the company agreed to provide a decent living and a pension for a few golden years. Many business owners in this generation think of their company as more than a profit center. They see their business as part of a community and themselves as community leaders.

To many boomers, the idea of selling their company feels like selling out their employees and their community. This is why so many chief executive officers in their fifties and sixties are torn: they know they need to sell to fund their retirement, but they agonize over where that will leave their loyal employees.

Owners aged 65+

Older business owners grew up in a time when hobbies were impractical and discouraged. You went to work while your wife tended to the kids (today, more than half of businesses are started by women, but those were different times), you ate dinner, you watched the news and you went to bed. With few hobbies and little other than work to define them, business owners in their late sixties, seventies and eighties feel lost without their business – this is why so many refuse to sell or experience depression after they do.

Age and mentality effects not only the view of transitioning the business for sellers, but also for buyers. For example, someone who runs a boutique mergers and acquisitions business may refuse to take assignments from business owners over the age of 70. They have found that this age group is so personally invested that they can rarely bring themselves to sell their business – frequently calling off the sale halfway through.

There will always be exceptions to general rules of thumb, but frequently, more than your industry, nationality, marital status or educational background your birth certificate plays a large part in defining your transition plan. To discuss your personalized transition plan, contact an Anders advisor or learn more about Anders Business Transition Planning Services.

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November 19, 2018

Anders Startup Client Spotlight on StatRoute

We offer our startup clients the opportunity to share their story and showcase their business in our Startup Newsletter. This month’s featured emerging company is sports statistics startup, StatRoute.

Name and company

Jeff Volaski, CEO & Founder of StatRoute

When did you start your business?

January, 2018

What inspired you to start your business?

I was inspired by the quality of Sports Fans consumers in Fantasy Sports (and Sports Betting). These consumers are extremely knowledgeable, intelligent and passionate about what they do yet they are all looking at the same stats, the same sites, and stuck in deep-rooted patterns. I started learning more about Sports Data and feel the industry has grown complacent, and as a result, innovation has not grown at the same pace as its consumers.

What city are you based in?

St. Louis, MO and Denver, CO

What is your product or service?

We introduce Context and Relevance to Sports Data so that fans can lean into very specific stats. These stats could take 45 minutes to find with current offerings, and on our site, you can find everything in less than 5-seconds. This is the core foundation of what we build at StatRoute, every stat, every decision in a matter of seconds and with no limitations.  As we continue to build we will introduce innovative ways for consumers to connect, share, engage, and empower through a single site with everything they need to make better decisions and have fun doing it.

What sets your product or service apart from the competition?

At present time our largest differentiator is allowing customers to filter large data sets with no limits. Other sites limit you to one at a time, but on StatRoute you can use our 275+ filters in any other, without restrictions meaning you can literally find statistics that have never been seen before. From here, StatRoute will focus our energies on making Data Analytics easy, and accessible for all fans (regardless of their experience) and begin to introduce artificial intelligence within our data giving our customers a true edge, so they can win their leagues and feel like a rock star while doing it.

What is the best business advice you ever received?

The advice I have received is all over the board, but when you break it down its very simple:

People make successful businesses not ideas. Surround yourself with the right people and focus, never quit, execute, and go do it.

Is there anything else you would like to share about your business?

We are excited about releasing a very powerful NBA product for Daily Fantasy Sports Consumers. This will be out this winter!

What is your favorite thing to do outside of work?

Spending time with family, going to a Cards game, and golfing.

If people want to learn more about your startup, where should they go?

www.statroute.com

Or e-mail me at jeff@statroute.com with any business inquiries.

StatRoute | St. Louis Startup

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November 13, 2018

Tax Reform: Qualified Improvement Property, Bonus Depreciation and Section 179 Expensing

With the passage of the Tax Cuts and Jobs Act, there are now more tax benefits and simplification for lessees and building owners through changes to Qualified Improvement Property, bonus depreciation and Section 179 expensing.

Previous Law

Prior to the passing of the Tax Cuts and Jobs Act of 2017, the federal tax code established separate definitions and rules for qualified leasehold improvements, qualified restaurant property, qualified retail improvement property and qualified improvement property. The prior law also allowed for 50% bonus depreciation on new personal property and equipment purchased and placed in service in 2017 as well as a maximum Section 179 expense deduction of up to $510,000.

New Law

Qualified Improvement Property (QIP)

Beginning 1/1/2018 the Tax Cuts and Jobs Act simplifies and consolidates the various leasehold categories to one “Qualified Improvement Property” (QIP).

Due to a legislative omission, QIP was not added to the list of property with a 15-year depreciation period and is not eligible for bonus depreciation.  Corrective legislation is anticipated to fix this and treat QIP with a 15-year depreciation period rather than a 39-year depreciation period and be eligible for bonus depreciation.  Once this is corrected, lessees and building owners who improve qualifying business property will reap federal tax benefits of shorter depreciable lives, increase bonus depreciation deductions and Section 179 expensing.

QIP has been further simplified to apply to interior common areas of nonresidential buildings if the improvement is placed in service after the building was first placed in service, can be owner occupied and will not be subject to the three-year rule.

Bonus Depreciation

Qualified property acquired and placed in service after September 27, 2017 are eligible for 100% bonus depreciation, and applies to both new and used qualified property.

Section 179 Expensing

An alternative to bonus depreciation is Section 179 expensing. The Tax Cuts and Jobs Act has increased the expensing limit to $1 million, with a spending cap of $2.5 million of equipment purchases for tax years beginning in 2018. The definition of qualified real property now includes roofs, HVAC equipment, fire protection, alarm systems and security systems for nonresidential buildings.

Please contact an Anders advisor to discuss questions about your specific situation, or learn more about the Anders Real Estate and Construction Groups. Visit our Tax Reform Resource Center for videos, blog posts and resources on how tax reform will impact you, your family and your business.

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November 8, 2018

Anders Tax, Audit and Technology Advisors Mentor 3rd Place Team for TrueUp’s Blockchain Challenge

Tax senior manager Lucas A. Luckett, CPA/PFS, CPA, audit supervisor Brian C. Loose, CPA and technology systems engineer Alex P. Grosse, VMTSP mentored the third-place team in the first-ever 2018 Blockchain Challenge for Accountants. The competition was hosted by TrueUp, a gamified skill enhancement platform for accounting and finance professionals. Accounting students and professionals were brought together for the challenge to become educated and explore new accounting and record tracking technology poised to change the industry.

The challenge ran for two weeks, bringing together 183 students from over 34 universities. The students were grouped into teams of three with accounting and audit professionals from over 30 firms across the country. Participants were challenged with a futuristic mission of “learning blockchain to prevent the Cyberattack of 2040”.

Since 84% of accounting professionals either don’t know what blockchain technology is or they need to know more, TrueUp provided curated, educational content and links to blockchain resources to participants. The six-week program was divided into three blocks that built on each other to uncover the culprit of the Cyberattack of 2040. Due to the high volume of participation, teams were divided into two separate judging blocks with independent panels of judges.

Luke, Brian and Alex mentored three students from Iowa State University to third place in the Judge Block 1 Winners.

Learn more about the TrueUp Blockchain Challenge.

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November 6, 2018

How the New Revenue Recognition Standard Will Impact Manufacturers

The new revenue recognition standard includes important provisions that manufacturers need to be aware of. Effective 1/1/2019 for private companies with calendar year ends, the new standards will change the way manufacturing companies recognize revenue.

Variable Consideration

Manufacturing companies will often offer sales incentives to their customers, such as rebates, volume discounts or other price concessions. These incentives create variability in the pricing of goods or services offered to customers. Under the new standard, if the transaction includes variable consideration, the company would be required to estimate the transaction price by using either the “expected value” approach or the “most likely amount” approach, depending on which method the company expects to better predict the amount of consideration to which the entity will be entitled. Judgment is necessary in determining whether the expected value or the most likely amount is more predictive of the amount of consideration in the contract.

Regardless of which technique is used to estimate the transaction price, some or all of an estimate of variable consideration is only included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.  As a result, companies may have to recognize some or all of the probability-weighted amount or most likely amount estimated.

Contract Costs

The new standard also provides guidance on accounting for costs associated with obtaining or fulfilling a contract. Incremental costs of obtaining a contact, such as sales commissions and fulfillment costs not included in the scope of other guidance, should be generally capitalized when those costs are expected to be recovered and they are directly related to a contract. There is a practical expedient allowing companies to expense these costs if they are expected to be amortized in less than one year. Under current standards, there is limited guidance related to these costs and many companies have generally elected to expense these costs immediately.

These are just a couple considerations for manufacturing companies. Many companies may think their businesses and sales processes are not complicated enough for this new standard to have a significant impact on how they recognize revenue, but don’t assume this. The standard contains provisions that may create unexpected issues for certain manufacturing companies. Contact an Anders advisor to make sure your company is prepared for the new revenue recognition standard.

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