A tax reform bill that will likely soon be signed into law will have a huge effect on the world of college sports and the fans who donate to them.
The proposed changes to the tax code include the elimination of a tax break that benefits major athletic programs. Currently, donations made to certain booster clubs or university general funds – which are often tied to the ability to purchase the best season tickets for a school’s sports teams – are tax deductible up to 80%. The subsequent tickets are not deductible, but the donations are often many times the face value of the tickets themselves, much like a Personal Seat License.
Jordan Wathen at The Motley Fool did the math to determine how that would affect, for instance, Louisiana State University’s football fans.
“In LSU’s case, a fan could deduct 80% of the $1,025 required donation as if it were any other type of deductible charitable giving. The taxpayer would score an $820 tax deduction, saving approximately $325 in federal income taxes at the highest marginal tax bracket of 39.6%. Thus, for the highest-income earners, the tax-adjusted price of some of the best seats falls to roughly $1,125 from the nominal price of $1,450.”
While this discrepancy may not seem terribly significant, sports business consultant Marc Ganis points out what he calls “the perceptive effect.”
“Certainly one of the things used to market (season tickets and suites) is the deductability,” he said. The loss of the deduction “may chill the sale to some people even more than the actual additional cost.”
Enough donor drop-outs could seriously hurt college sports programs, Alabama athletics director Greg Byrne pointed out on Tuesday. His concern, he said, stems from the fact that “the donations people make and through Tide Pride that can write off part of their ticket cost have allowed us to fund 21 programs, to obviously support our football program in the manner that we do, to go out and compete for championships.”
“It’s allowed us, from the opportunity standpoint, for thousands upon thousands upon thousands of young women nationally where we can provide great opportunities for young women to go to school on scholarships academically,” Byrne said, in a reference to Title IX.
Tide Pride, begun in 1987, raises “approximately $25 million” for the university each year, according to Alabama’s athletics website.
The law would also make colleges responsible for paying a 21% excise tax on annual compensation above $1 million that goes to any of the organization’s five most highly compensated employees; considering the lucrative nature of many collegiate athletic programs, coaches and athletic directors are often among this group.
“This is going to cost hundreds of millions of dollars a year,” Tom McMillen tells USA Today. McMillen is a former congressman who is now president and CEO of the LEAD1 Association, which represents athletics directors at schools in the NCAA’s top-level Football Bowl Subdivision. “It’s literally half a College Football Playoff (worth of money). When you put it at that kind of magnitude, it wakes you up a little bit.”
The College Football Playoff paid out $441 million last year, according to NCAA financial records.
Iowa State Athletic Director Jamie Pollard estimates his school is facing $700,000 in additional cost from this provision.
“That figure will have to either be passed on to ticket holders and donors, or taken out of the budgets of sports that are not … being targeted by the federal government,” Pollard said in an e-mail. “It is ironic that the compensation paid in those two sports, by sheer market pressure, will actually now generate an additional financial burden for athletics directors to try and solve in our industry. It will be interesting to watch the new wave of creative ideas and suggestions that will be developed by lawyers, agents and financial advisors, to try and get around the new excise tax.”
If, as expected, President Trump signs the GOP tax reform into law, it could mean sweeping changes to college sports – including the possibility for ticket price increases, program reduction, or even elimination of entire sports programs that don’t bring in as much profit as, say, men’s football and basketball.
“While we certainly do not know the exact repercussions, we expect that it would have a damaging effect,” said Alabama AD Byrne. “The philanthropic support of donors is instrumental, and although the amount of contributions from institution to institution varies, it is of equal importance across the board when you look at financial structures. Very few college athletics programs actually make a profit. Take that funding away, and it will be difficult to operate without making dramatic changes.”