A-Rod’s 600th Home Run Ball: What’s it Really Worth?

It was a towering home run to dead center field that sent New York’s Alex Rodriquez, 35, on a historical trot around the bases of Yankee Stadium on August 4. In a simpler time, it would have been enough to marvel at the third baseman’s power and smile for A-Rod, as he is known, as he became the youngest member of the 600 home run club, an exclusive group of seven that includes iconic names like Babe Ruth and Hank Aaron.

No more — and it’s not just because A-Rod has admitted using performance enhancing steroids earlier in his career that may have helped him to this pantheon quicker. See, America’s pastime is no longer solely the providence of romantics and the statistics obsessed. Investors in sports memorabilia care deeply about who caught that ball, how much it was worth, and where it may end up.

You don’t believe me? Then why have a pair of websites –  www.hittrackeronline.com and  www.seatgeek.com – spend substantial brain power on predicting the best place to sit to catch a home run from players in pursuit of  history?

There’s plenty of money in the sports memorabilia market. Just ask Dan Imler, managing director of SCP Auctions in Laguna Niguel, Calif. His company sold A-Rod’s 500th home run ball for $105,000, as well as Barry Bonds’ record-setting 756th home run ball for a whopping $752,000.

“It’s a broad market of people with a lot of discretionary income who really want to own a significant piece of sports history, in this case baseball history,” Imler said. “These mementos go into very sophisticated collections.”

Fair enough. But there is a significant number among us who wonder exactly what the tax consequences are for those who chase sports milestone trophies. Or better, those of us who might someday be in the right place at the right time when a home run lands in our lap.

“In other words, what happens when our most popular pastime goes up against the most disliked government agency in America?” asks Alan Solarz, a partner with the international law firm Bryan Cave LLP.

As expected, it is complicated.

When a Yankees security guard by the name of Frankie Babilonia scooped up Rodriquez’s home run ball as it bounced in Monument Park, the centerfield memorial to the greatest of the Bronx Bombers, the tax possibilities began rattling around Solarz’s brain.

Scenario 1: If Babilonia kept the ball, which Imler and other memorabilia appraisers value at about $150,000, a game of chicken could have commenced with the Internal Revenue Service. If you found $150,000 under your seat in center field, you’d have to report it, right? So what’s the difference here?

“It’s a controversial area of the law,” said Solarz. “It’s a little bit of, don’t ask, don’t tell.”

Given the notoriety of the ball, what would Solarz argue if a zealous tax man came out of the woodwork?

“First, a baseball can’t be valued until it is sold,” he said. “Second, that it was a gift from Major League Baseball when you purchased your ticket, and third, that when you purchased your ticket you have the right to catch a ball.”

Scenario II: When Babilonia chose to give the ball back to Rodriquez, one of the more perverse ironies of our tax code arose.

“The ball becomes a gift, and a multimillionaire athlete gets it tax free,” explained Solarz.

Now, that’s hardly fair.

Scenario III: What if you are a hardworking blue-collar guy who finds himself parked in the outfield seats beneath the ball that Jim Thome or Manny Ramirez launch into the stands for their 600th home runs, perhaps as early as next year?

“First you report the ball as a nontaxable event,” said Solarz, “and then hold onto it for a year before selling it. Let’s say you get $150,000: You will have to pay taxes on it, but you do so at the lower rate of 28 percent because it is a collectable.”

The Jackpot Scenario: What if you really, really want to make a killing on a milestone baseball, to maximize your profits?

“You put it in a display case for all to see and hold it until you die,” said Solarz. “The ball will grow in value – let’s say to $1 million upon your death, and you’ll have given it to your kids as an inheritance. Now, under the 2009 tax law, as long as your estate is below $3.5 million, there is no estate tax to the person who dies, and no income tax to the person who receives it.”

Now, that is a home run ball!

Related Links:
A-Rod’s Home Run Ball: A Tax Headache for the Record Books? (The Wall Street Journal)
Alex Rodriguez Hits Home Run Number 600 (The Washington Post)