Tax code change puts an end to a decades-long charade.
To understand the new tax code, you have to first understand how universities have been pricing high-end (premium) seats in their football and basketball facilities.
Courtesy: South Bend Tribune
Here’s how it works. Universities designate some seats as “premium seats,” often grading those seats differentially–from more to less desirable to fans and, hence, from more to less costly. For example, seats at midfield, lower deck, are more desirable, while those at the 20-yard line, upper deck, are less so. Both seats are designated as “premium seats.” End-zone seats are not.
A seat license fee is then attached to the premium seats. A seat license fee is the right to purchase a season ticket for that seat. Let’s say the fee for the midfield seat is $500 and the fee for the 20-yard line seat is $300. If a buyer agrees to pay either fee, then he or she is authorized to purchase the associated season ticket. Total cost to the purchaser = seat license fee + ticket cost. The price printed on the ticket shows the ticket cost only.
But just being willing to pay the seat license fee isn’t enough at many schools. Access is restricted at those schools, calibrated through a point system that’s based on how much a donor has contributed to the school over a set period of time. At some schools, overall charitable giving to the school is included. At others, only athletic giving counts. For an example, take a look at the system used at Syracuse University.
The tax code comes into play this way.
A tax deduction was given to those who paid seat license fees because those fees were considered by the I.R.S. to be a charitable contribution to higher education.
Here’s how it worked (explanation courtesy of Forbes):
“…the payor may treat 80% of a payment as a charitable contribution where: (1) the amount is paid to or for the benefit of an institution of higher education…and (2) such amount would be allowable as a charitable deduction but for the fact that the taxpayer receives (directly or indirectly) as a result of the payment the right to purchase tickets for seating at an athletic event in an athletic stadium of such institution.”
How did the code get established? The Journal of Philanthropy describes it this way:
“The Internal Revenue Service in 1984 issued regulations that seat donations did not qualify for a tax deduction because fans received something material in return. Congress, however, intervened. Led by football-loving lawmakers in Texas and Louisiana, it passed a law in 1988 making 80% of seat donations deductible.”
Gilbert Gaul, the author of Billion-Dollar Ball, says that the I.R.S. tried for decades to get this deduction eliminated from the tax code but could never secure Congressional co-sponsors. Why? Universities lobbied to keep the law in place–and for good reason, too. For example, Gaul reports that in 2013 the University of Florida generated over $30 million dollars via seat license fees. Among athletic elites, UFL’s take is typical, not anomalous.
But the new tax code, in effect this year, eliminates seat license fees as a charitable deduction to higher education. The big question now is whether this change will have an impact on major university athletic budgets.
To get our arms around that question, it’s important to get a better sense of the overall nature of athletic philanthropy. That includes recognizing the increasing prominence of athletic philanthropy in the overall landscape of university giving and seeing just how much donor-giving contributes to major college athletic budgets.
The Council for Aid to Higher Education follows the numbers (2017 figures were just released) and, only a few days ago, those numbers were analyzed by Jillian Berman in MarketWatch. The numbers are compelling, too, both in terms of the amount of money being donated to higher education and the amount/percent of that money that goes to athletics.
Courtesy: Huffington Post
In 2017, the ten schools that took in the most donor-contributed money to athletics brought in an aggregate total of nearly $400 million dollars for sports.
The University of Michigan tops that last. In 2017, Wolverine donors gave nearly $460 million dollars to the school for all purposes. $56 million of those dollars–the highest amount in the country and 12.3% of total donor giving at U of M–went to athletics.
Also notable in the 2017 data is how much, proportionally, is being given to athletics. At Auburn, Louisville, and Arkansas 33% or more of all donations went to sports.
But the question still remains: Will the elimination of the seat license tax deduction lead to fewer fans purchasing premium seats? I doubt it. Fans who can afford to pay the seat license fee–sometimes called “scholarship seating”–aren’t likely to drop their tickets just because they can no longer claim a tax deduction. Even if some do, others will gobble up tickets that are dropped.
I predict major schools will still take in millions each year from seat license fees and they’ll also continue to hit up alumni and others to make philanthropic contributions to athletics. I say that because this horse left the barn a very long time ago.
But for the sake of offering something more than speculation, let’s look at what the Star Tribune (Minneapolis) found when it investigated what Minnesota Golden Gopher fans will do. Here’s a typical response.
“Nate Peterson, 39, has had Gophers football season tickets for 17 years. His two seats are on the 10-yard line, seven rows up at TCF Bank Stadium. He pays $330 per ticket and has an additional $300 seating donation attached. He said he’ll continue buying those tickets.”
What the tax code change will do is put an end to a charade, a joke. Seat licenses fees never really constituted a charitable contribution and those who can afford to pay shouldn’t have gotten a tax break.
Congress, finally, got this one right.
