The newly enacted tax legislation has certainly been a source of confusion and consternation for most of our members. In response, the ALSD is compiling data on this topic (scroll to the bottom of this page), one that is certain to pop up in conversation at this year’s annual conference and tradeshow.
When looking at the issue holistically, there seems to be two primary issues, one of which affects how colleges operate, and one how professional venues operate.
For colleges, the big issue is how to handle donors to a school’s athletic department. In general, donor programs tied to receiving access to the best seats have been eliminated. A person or company can no longer write this access off as a charitable donation.
“We had a potential suite client tell us that he spoke to his accountant, and if he bought a suite, put a sign in it, and held a handful of meetings in it every year during non-event hours, he could write it off as a downtown office. We have no idea if this is credible, but that’s the first attempt at a loophole that we’ve heard.”
For professional teams, the purchase of suites is no longer deductible as an entertainment expense. Thus, a $100,000 suite would be taxed at the individual rate, without the 50% deduction that was allowed previous to the new law.
The issue though, as with all things in the tax code, is not quite as simple as it appears. For example, on the college side, fans and alumni can still give to the school (just not the athletic program) and write-off 100% of the gift as a charitable donation.
And on the professional side, corporations may lose the 50% deduction, but the tax rate for the entire company just dropped from 35% (or higher) to 21%, representing a huge net savings.
The downstream impact for premium seating on most companies should be minimal.
Most teams and universities will not even be affected by the new law until tax season in 2019. There is time to figure out the best strategies based on individual situations.
In the meantime, below is a representative sample of “takes” on the subject at hand, from you, the members of our ALSD community.
A veteran member in a senior leadership position says:
“Don’t forget the positive side. The corporate tax was reduced, so [corporations’] revenues will go up while losing the 50% ticket write-off. And the F&B is still a write-off for suites and all-inclusive clubs, which is new. That is what our people have told us.”
A suite sales manager for a professional team says:
“Our VP of Business Strategy spoke with a tax attorney at one of our partner companies. He said that prior to the tax change, technically only 50% of the base price of the tickets was deductible anyway, not the suite premium. Meaning that, for example, on a $1,000 suite ticket that was really a $150 ticket and a $850 premium, only $75 of the ticket would have been deductible anyway, as well as any F&B cost if that was included in the ticket. So with the change, not a huge dollar amount of deductions are going away. However, in reality, he suspects that many companies were deducting 50% of the full $1,000 seat anyway, which I would agree with based on conversations with clients.
“I think [the new tax law] will be a factor, yes. However, I think it won’t resonate with many suite owners until they are filing their 2018 taxes in 2019, so I believe the impact will be greater next year. If we split the pool of suite owners into three rough groups: 1) corporate clients that use the suite for biz dev, 2) wealthy individuals/families, and 3) business owners who run the suite cost through their company but use it for a mix of business and personal, I think that this change will have the greatest impact on the third group, just as is the case in any economic downturn. If you are recognizing the business expense without a true ROI justification, when the belt gets tightened, it will get scrutinized. We will see how it all plays out though.”
A premium seat director for a professional team says:
“We’ve heard some comments about [the new tax law]. Some clients wrote checks early to renew their seats before January 1, 2018. I don’t really think we’ve heard an alarming response about B2B clients not being able to do their suites anymore, however.
“Our personal belief is that it is simply a new adjustment for some of our B2B clients. This tax law may benefit some businesses, may not affect some businesses at all, and may be a minor detriment to some businesses – due to the lowered tax on business expenses in general.”
“The hope is the tax decrease, 35% to 21%, will have a larger impact than a corporation’s inability to write [a premium seat] off.”
A senior sales director for a major U.S. arena says:
“We have heard from a couple clients and prospects that they are no longer allowed to write-off their seats/suites. We had a potential suite client tell us that he spoke to his accountant, and if he bought a suite, put a sign in it, and held a handful of meetings in it every year during non-event hours, he could write it off as a downtown office. We have no idea if this is credible, but that’s the first attempt at a loophole that we’ve heard.
“It’s too early to tell if it will affect our business. The hope is the tax decrease, 35% to 21%, will have a larger impact than a corporation’s inability to write [a premium seat] off.”
A premium sales manager for a European soccer club says:
“In the UK, we had similar concerns with the introduction of the Bribery Act. This led to many large financial and commercial organisations completely changing the way they bought hospitality. Many businesses had to reassess their spending and cut back in certain areas, and many clients, who were offered tickets to a game, had to decline hospitality or make sure the ticket value was under a certain amount (circa £150). The initial changes in the law meant that it did slow the hospitality market as many were fearful of being caught for wrongdoing. However, it hasn’t been the end of the hospitality market.
“The trend has changed now where more and more clients are focused on the return on investment. Previously, companies would buy hospitality and not worry too much on what the return was, but now everyone is looking at the impact of their spending and the quality of the hospitality they use. Companies would also assess the value of the clients they are entertaining, so you will need a price range to fit the needs for businesses looking to entertain at different levels. This is actually a good thing, as you are now an integral part of the marketing/sales plan. If you’re not, then you will need to review how you operate, which can only make you more competitive.
“As the secondary market is legal in the U.S., more people may turn to this avenue to entertain clients, so I would be interested to see how this goes for you all. We don’t work with the secondary market, which protects us a little, but not completely.
“Overall, my learnings from the change were: To make sure you can give solid evidence on the return on investment; Acknowledge the change and amend your product range accordingly; Look at how you can add more value to your offering; Make sure your relationships are strong with your clients; Understand changes in the law and help educate your clients. Be prepared to lose some, to win some.”
Stay tuned as the year and understanding for tax reform unfolds. The ALSD is committed to staying on top of the latest strategies and best practices, and sharing those lessons learned across our platform. If your university or team comes across relevant information on this topic, please write to ALSD Editorial Director Jared Frank at firstname.lastname@example.org.
In the meantime, read and digest the articles below, aggregated by the ALSD to further help our members be well-read and well-informed on this most important topic.
- How Tax Reform Impacts Baseball
- When is an entertainment an expense?
- How to Respond to the Objection, “I Can't Deduct These Seats Any More!”
- Fewer ballgames, more steak dinners: Corporate entertaining changes after tax deduction goes away
- Expect New Tax Code to Stimulate Growth in Secondary Market for Luxury Suites
- Tax law could hit home in major way for collegiate athletic departments
- Tax Reform: Focus on the Sports Industry
- Republican tax bill takes aims at college athletics, stadium financing
- Taking Clients to Ballgames? The GOP Tax Overhaul Just Made It Costlier
- Wall Street Era of Deducting $65 Dry-Aged Steaks Could Be Over