Appeal of Boston American League Baseball Club

OPINION.

Smiti-i:

The facts in this appeal are fully set forth in the findings of fact. Counsel for the taxpayer contends that the profit derived from the transactions resulting in the sale of players Carl W. Mays and George H. Buth should be spread over the number of years the players were required to play under their contracts with the Boston Club. In making this argument, special attention was-called to Buie 28 of the National Base Ball Commission, quoted above. It was argued that the profit was earned in the same proportion that the players rendered services under the contracts assigned to the New York Club, and that, even though the players-reported as provided in the releases but failed to play for the full period prescribed in their contracts with the taxpayer, the taxpayer would be required to return a proportionate part of the money received under the releases to New York.

There appears to be no basis for such contentions in the provisions of Buie 28 of the National Base Ball Commission or in the contracts of release and assignment. Buie 28 merely provides for the return of the consideration if the player fails to report in good physical condition to the club to which he is released or fails to contract with said club. It has nothing to do with the failure to play under such contracts after he has reported.

There is no question in our minds as to when the profit was derived by the taxpayer from the release of player Mays. The contract of release ivas signed July 29, 1919. His contract to play with the taxpayer during the seasons 1919, 1920, and 1921, was assigned on the same date. The player involved in the transaction reported immediately and on August 15, 1919, the New York Club paid to the taxpayer the balance due under the contract. The transaction was initiated and concluded within the year 1919, and the income derived therefrom was income of that year.

The release and assignment of the contract which the taxpayer had with player Euth and the supplemental contract between the taxpayer and the New York Club were executed on December 26, 1919. On the same day the New York Club paid to the taxpayer $25,000 cash and gave it three promissory notes for the balance of the consideration, such notes being endorsed and bearing interest at the rate of 6 per cent per annum, as provided in the contract of sale. One of the provisions of this agreement reads:

Second: It is understood and agreed that in the 'event that the said Player George H. Ruth shall not report to the party of the first part on or before the first day of July, 1920, this contract and the said assignment may, at the option of the party of the first part, be canoelleH. * * * (Italics ours.)

At the hearing of this appeal it was argued on behalf of the taxpayer that, in the event that Euth did not report to the New York Club on or before July 1, 1920, the contract of sale with the New York Club was null and void under Eule 28 of the National Base Ball Commission (quoted in the findings), and that, in such event, it would be obligated to repay to that club all of the consideration it had received from it under the contract of sale. We do not think that this is so. The New York Club reserved to itself the right to determine whether it would consider , the contract of sale void in case Euth did not report to it at the time contemplated by both parties. If he did not report, the New York Club might have elected to have him report to some other club to which it might sell his services.

The contract of sale entered into on December 26, 1919, was a valid contract until it was canceled. The consideration for the contract ($100,000) was received by the taxpayer in 1919 in the form of cash and promissory notes. There is nothing in the evidence to indicate that the notes were worth less than their face value, and, in the absence of such evidence, we conclude that they were. The facts are, therefore, that the taxpayer received income to the extent of $100,000 in 1919 from the sale of Euth under a contingency that this amount might have to be returned in the event that Ruth did not report to the New York Club. We do not think that this contingency affects the income character of the receipt of the $100,000 consideration in 1919.

In the argument of this appeal counsel for the taxpayer claimed that the total amount of consideration received by the taxpayer upon the sale of the services of Ruth was only $95,000; that under its agreement the taxpayer was obligated to and did pay to the New York Club $5,000, as provided for in the contract of December 26, 1919. No evidence of such payment was submitted, however, and it must be held that the taxpayer realized taxable income of $100,000 upon the sale, as determined by the Commissioner.