#AsForDynamite: Let's Talk About AEW & "Tax Evasion"

I grant you that no one needed this much pro-wrestling analysis from me today. But then this happened, and well, here we are.

Tax evasion?

I obviously missed something.

— Danno E. Cabeza (@DannoECabeza) March 29, 2024

Some very low IQ individuals have said recently that AEW was created by the Khan’s for tax purposes

— Wrestling_Mark (@WrestlingMark16) March 29, 2024

Let's say you're Tony Khan (TK), AEW's founder and one of the richest men in the world. For perspective, TK and his father also own the Jacksonville Jaguars and Fulham FC, putting them into a truly elite clique of the world's wealthiest of wealthy individuals. These guys have so much money that I dare say the average individual probably can't actually grasp how much they truly have.

High performing guys at this level often "create value" with their hobbies. In TK's case, he's a hard core pro-wrestling fan, and his idea of "creating value with a hobby" became All Elite Wrestling. 

I'd love to get TK's personal take on it, but from the outside, it looks like a labor of love that blew up. Kind of like when your side-hustle gets so big that you can considered quitting your day job. In this case, though, TK has manifestly NOT quit his day job. He's still very much involved in the Jags, Fulham, and a sports analytics company that probably serves as his actual day job.

So if you're TK, and your standalone business shows a profit over the course of a given year, what do you do? Do you need to show a profit? Do you even want to?

The answer to this question definitely IS NOT, "Well, TK is so rich that he doesn't care." Maybe he doesn't have to care, but let me assure you, super-high-functioning guys like this absolutely keep score. I'm quite sure that TK can tell you where every dollar goes in AEW, and that he cares deeply about whether or not the business itself is a success overall. 

What he doesn't need to do is show a profit in a standalone business.

Why?

First off, let's disaggregate TK's AEW paycheck from the business's profitability. I have no idea whether or not he pays himself as the Head of AEW, but he probably does -- and he should. However, his paycheck is different from the business's profit at the end of the year, which is also not the same thing as the business's valuation. Valuation can get kind of nebulous, but the important thing here is that if the business itself makes money, it will have to pay taxes the same as any individual.

Which means that if AEW shows a profit of $3XM at the end of the year, the U.S. government is gonna take $XM in taxes, and the company will have effectively lost that money with nothing to show for it. American companies try VERY HARD not to show profits on paper for this very reason.

This is a distinctly different situation than Eric Bischoff found himself in when he was running WCW back in the mid- to late-90s. Bischoff ran a subsidiary of the Turner Corporation and then Warner Brothers, and he had to make money because businesses have to make money. He then turned his profits over to the corporate overlords, who in turn decided how to reinvest it, whether to pay a dividend, etc. Bottom line, whatever happened to those profits -- and their associated tax implications -- that wasn't Bischoff's problem. Turner and/or Warner Brothers got to figure that shit out. Bischoff needed only to concern himself with running his piece of the business as best he could.

TK has a completely different deal. He owns AEW outright. I mean, technically the company is part of the Khan family's sports holding company, but for our purposes, it's its own thing. Which is to say that it's going to maintain its own finances and decide how to pay its taxes and/or repurpose its profits.

Friends, TK has shown a decided willingness to invest in anything other than taxes. So, for example, when he said that he “expects [his] wrestling division to be profitable this year, though an eight-figure investment in video game development will keep the company in the red for now,” you should read that as, "The company made at least $10M last year, but instead of paying $3M in taxes, they decided to build a video game platform with the whole $10M."

TK has also splurged on more free agents than he could ever possibly use, bought multiple giant new sets for his TV show, hired a TON of back office personnel, and done God knows what else with whatever money AEW has earned over the last few years. 

The one thing he definitely HAS NOT done is let AEW pay income taxes to the U.S. government. 

And why should he? The tax laws incentivize him to reinvest in his company on purpose. He's doing exactly what he's supposed to be doing with that money. Even if not everything works, he's still better off taking chances in the near-term and hoping for the best.