## Facts

- In 1970, Allan H. Selig and an ownership group bought the Seattle Pilots baseball franchise and moved it to Milwaukee.
- The purchase price was $10.8 million, allocated in the acquisition agreement to $100,000 for equipment and supplies, $500,000 for the franchise, and $10.2 million for 149 player contracts.
- For federal income tax purposes, Selig treated the $10.2 million allocated to player contracts as depreciable intangible property and amortized it over five years under I.R.C. § 167(a).
- Selig obtained four appraisals valuing the player contracts (as an assembled roster acquired in a franchise purchase) at an average slightly above $10 million.
- The government obtained appraisals valuing the player contracts substantially lower, using an approach that valued contracts on an individual-player basis.
- The IRS disallowed the amortization deductions; Selig paid the deficiency and filed a refund suit.
- The district court found the $10.2 million allocation proper and held the player contracts were depreciable intangibles with a reasonably ascertainable useful life; the government appealed.

## Issues

1. Whether allocating $10.2 million of the $10.8 million purchase price to player contracts, rather than to franchise value or other assets, was a permissible allocation for tax purposes.
2. Whether the acquired player contracts were depreciable intangible assets with a reasonably ascertainable limited useful life, allowing amortization under I.R.C. § 167(a).
3. Whether valuing the player contracts as a package (roster) rather than as the sum of individually valued contracts was an acceptable valuation method in this transaction.

## Decision

- The Seventh Circuit affirmed the judgment for Selig.
- The court upheld the district court’s allocation of $10.2 million to the player contracts.
- The court accepted valuation of the roster as a package in the context of a franchise acquisition.
- The court agreed the player contracts had a determinable useful life and were depreciable intangibles under I.R.C. § 167(a).
- The court rejected the government’s argument that the allocation was implausible merely because the franchise allocation was comparatively low.

## Legal Principles

- Cost allocated to acquired intangible rights may be amortized under I.R.C. § 167(a) if the intangible has (1) a separable value and (2) a reasonably ascertainable limited useful life.
- In valuing assets acquired in a business purchase, the valuation method may reflect the economics of the transaction; where the buyer acquires an assembled enterprise, a package valuation of interdependent contract rights may be permissible.
- Valuation and purchase-price allocation are primarily factual determinations; an appellate court will defer to the trial court’s findings absent clear error, particularly when supported by expert appraisal evidence and market-based reasoning.

## Conclusion

The court upheld Selig’s purchase-price allocation and allowed amortization of the amount allocated to player contracts because the contracts were shown to have distinct value in a franchise acquisition and a reasonably ascertainable limited useful life, and the district court’s valuation findings were not clearly erroneous.


Selig v. United States, 740 F.2d 572 (7th Cir. 1984)