Event operators may feel the sting of the recent GOP tax overhauls, as it may have the unintended consequence of making businesses think twice before treating clients with tickets. The tax overhaul, signed by President Trump on December 22, eliminated a 50 percent deduction for business-related expenses for “entertainment, amusement or recreation,” which takes away some of the advantage of owning such access for client relations.
According to a piece on Bloomberg.com, businesses that used the entertainment deduction extensively included law, investment, accounting, and lobbying firms. They’ll likely be taking a look at those expenses going forward to determine whether or not the benefits outweigh the cost, now that the tax advantages have been taken away.
“I am a long-time, long-suffering season-ticket holder to the New York Jets, so a lot of time, I take clients,” said Charles Capetanakis, a lawyer and certified public accountant at Davidoff Hutcher & Citron LLP, a mid-sized law firm in New York. Eliminating the deduction “is really going to hurt the small businesses that need to promote their business by entertaining clients.”
Given that the tax burden many companies will see under these new laws will be significantly reduced in other ways, it’s entirely possible that this will not amount to anything substantial for businesses which would seek to continue offering their clients and potential clients the same kind of perk they always had. But smaller businesses might use the change to operate differently.
“Each company will have to decide for itself whether the high after-tax cost of [entertaining clients at events] makes good business sense,” according to Ed Sturm, a managing director at Deloitte Tax LLP.
College sports programs have also had to contend with a major shift in how they currently operate due to the changes brought by this tax code rewrite. Donations that were frequently tied to the types of season tickets fans have access to also stopped having a tax advantage to them. High profile athletic departments were among the most vocal opponents of the tax reform, pushing unsuccessfully to have the cash-generating way they do business make it through untouched.
Obviously we won’t begin to see the impact of these changes immediately, but with many sporting events seeing slack demand already, this could exacerbate an already alarming trend in ticket sales, as potential buyers saw some big reasons to invest vanish this year.