SI Vault
John F. Berry
February 09, 1987
Sports is big business, and two years ago when the normally pro-business Reagan Administration proposed an end to tax deductions for all business entertainment expenses, including such things as sports tickets and skyboxes, the reaction from pro and college sports administrators was swift and furious. Mounting a major lobbying effort in Washington, the National Association of Collegiate Directors of Athletics, the NBA, the NFL and the NHL, among others, predicted bleakly that such sweeping changes in the tax laws would lead to empty stadiums, decaying inner cities, distressed universities—in short, the end of civilization as American sports lovers have known it. While the major spectator sports were in the forefront of the battle and had the biggest bucks at stake, the whole spectrum of sport—from auto, speedboat and bicycle racing to skiing, boxing, and golf—was supposedly on the ropes.
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February 09, 1987

Skyboxes, Longhorn Alums And Other Taxing Matters

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All these changes, while dramatic enough, are a far cry from what might have been. Back in 1984 the Administration introduced its so-called Treasury I proposal, which called for elimination of the business entertainment deduction for all tickets to sports events. The Treasury Department's position paper argued that such favored treatment of business simply encouraged overspending by businessmen, permitting them to entertain at the taxpayer's expense, and led to increased ticket prices for everyone.

Reagan was not the first president to attack corporate expense account deductions. Those deductions have troubled all modern-day presidents, most notably Jimmy Carter, who railed against the "three-martini lunch" to no avail. But in 1984 when Reagan weighed in, Congress had caught the reform fever, too.

Professional teams have come to rely on corporations, with their lavish expense accounts, to buy up the most expensive seats and boxes. Business ticket purchases account for more than 60% of the NHL's annual gate receipts, 51% of the NBA's and 46% of major league baseball's. And while the NFL says it doesn't keep such figures, it is safe to assume its situation is comparable to that of the other leagues.

What would happen, the franchise owners worried, if corporations had to pay for their tickets like normal customers? Not waiting to find out, pro sports executives went to the committees of the House and Senate. Sports franchises lined up with other businesses similarly threatened by the proposed cut in expense account tax deductions.

The NHL, for example, joined a lobby called the MainStreets Coalition, which included representatives from such expense-account-driven businesses as restaurants, motels, hotels and theaters. Its chairman, Moon Landrieu, a former mayor of New Orleans and ex-secretary of the Department of Housing and Urban Development, crisscrossed the country warning of 600,000 lost jobs, devastated downtowns and cultural collapse if entertainment expense deductions were disallowed. "Entertainment is to sales what fertilizer is to agriculture," Landrieu told audiences. In Washington, meanwhile, Congress was hearing dire predictions of the sort contained in an NBA press release that intoned, "The majority of NBA teams simply could not survive if they lost the ticket-buying support of the business community."

Responding to this enormous pressure, not only from sports but also from a host of other affected businesses, House and Senate conferees took the existing 100% deduction for business meals and entertainment expenses and reduced it to 80%—a far cry from the original Administration proposal two years earlier to abolish such deductions altogether. As one senior congressional aide observed, "Congressmen and senators love to go to football games and golf tournaments where they get free meals and entertainment. They weren't anxious to kill that."

Some congressmen also love to play golf. In November, for example, Rep. Dan Rostenkowski, chairman of the House Ways and Means Committee, which helped fashion the new tax law, teamed with U.S. Open champion Ray Floyd to win the amateur part of the Skins Game. That helps explain why Congress gave professional golf special treatment in the new tax law. All PGA and LPGA tournaments raise money for charities. So Congress decided—after heavy lobbying from pro golf—that entertainment expenditures in connection with such tournaments would remain 100% deductible.

"We see that being very positive for tournament golf, and for us in particular," said David Kaplan, executive director of the Atlanta Golf Classic. "If the Coca-Cola Co. buys a pro-am spot for $2,500, it can deduct it all as a business entertainment expense. If it uses tickets to entertain clients, it can deduct the whole price."

The new act even takes into consideration foreign golfers, who are very important to the golf business these days. Foreign players have to limit their time in the U.S. to keep Uncle Sam from taking a tax bite from all their income, including that earned abroad. Under the new law, the number of days foreigners spend in the U.S. playing in charity events such as pretournament pro-ams is not counted against them.

High-priced skyboxes, often rented by businesses and deducted from their taxes as an entertainment expense, have helped underwrite many franchises and college athletic programs. Thirty-four publicly owned arenas and stadiums used by 47 pro teams have skyboxes; 26 colleges currently have skyboxes, ranging from Louisville with only 2 to Clemson with 100; at least a dozen more colleges plan to put in skyboxes.

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