Should You Write That Letter of Recommendation?
Tax on College Endowment is Counterproductive

Donors to College Sporting Events Beware of the Tax Reform Act

The Rich Lose 'Pay to Play' Donations

In case you are not aware, the recently passed tax reform bill is likely to have a huge effect on funding college sports including 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.

So, imagine you want to buy s Bamaeasons tickets to all the University of Alabama football games next year. [Who wouldn’t want to see Tua Tagovailoa at work]. The University requires a $4,000 donation for the opportunity to buy the season’s tickets at $2,000. In past years, 80 percent of the $4,000 was tax deductible. The taxpayer would get a $3,200 write-off saving approximately $1,268 on taxes assuming a 39.6 percent highest marginal tax rate bracket. So, the taxpayer winds up paying $732 net for the season’s tickets. Not a bad deal, but not any longer. 

The logic for the tax law change is the $2,000 was given as a quid pro quo. You expected to be able to buy season’s tickets [which would be sold out for Alabama games normally] and you get it at a reduced rate for your “donation.” There was a quid pro quo so it’s not a charitable deduction given out of the goodness of your heart.

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 deductibility,” 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. His concern 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.

I’m not sure the lawmakers were thinking about this situation when they passed the tax reform act and it wouldn’t surprise me if they amend the law once that get back home and hear from their constituents. My guess is the universities will find a way around the law anyway so it may not make a difference. Why not just have the donor add to their annual giving rather than link it to season tickets?

The issue is one of fairness. Is it fair (or right for that matter) that high-paid executives get to write off a “pay to play” donation against their taxes? It doesn’t seem so to me simply because of the motivation to make the payment. It’s to get you a seat at the table. It also seems unfair that the wealthy get an opportunity that is not available to the average Joe who can’t come up with the extra $4,000. Don’t we have enough inequality in society already? Isn’t the tax bill basically righting a wrong? What do you think?

Blog posted by Steven Mintz, aka Ethics Sage, on January 11, 2018. Dr. Mintz is a Professor Emeritus from Cal Poly San Luis Obispo. Visit his website to find out more about his services and sign up for his newsletter.

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