It was not surprising, then, that lobbyists fought desperately to keep the cost of skyboxes deductible as a business entertainment expense. They even tried to persuade Congress that skybox owners were really making a big sacrifice because they were sitting in the worst seats in the house, way up in the rafters, in order to subsidize the masses in those great seats down below. (Of course, others argued that the reason that ticket prices have soared generally is that high-priced skyboxes, paid for with corporate expense accounts, have set an upward price trend.)
Congress said no to the skybox lobbyists—but it sugared the bitter pill a bit. Under a so-called transition rule, the deduction for skyboxes will be phased out over three years, with a two-thirds deduction in 1987, a one-third deduction in '88 and finally no deduction come 1989. People who sit in skyboxes must also purchase tickets to the event, and those, of course, will be 80% deductible if they are used for legitimate business entertainment.
The effect of ending the skybox deductions is one of the great imponderables in sports business these days. At the Los Angeles Coliseum, where Al Davis moved his Raiders from Oakland, in part to profit from a richer market for skyboxes, construction continues on the boxes that will rent for $50,000 a year. "[The new law] doesn't appear to have too great an effect," says Al LoCasale, executive assistant to Davis. "But it's too early to know."
In Kansas City, meanwhile, Chiefs president Jack Steadman worries about 42 suites on which leases come up for renewal this year. The Chiefs need that income to pay their rent on the stadium to the city. "To lose that suite revenue would be devastating for us," Steadman says. And at the Metrodome in Minneapolis, where the Vikings receive income from 119 private suites (with rents from $28,000 to $32,000 apiece), general manager Mike Lynn echoes the cry of foul being heard throughout sportsdom, when he says, "I think it's unfair to change the rules in the middle of the game."
The Hartford Civic Center, where the Whalers play, recently spent $9 million on the construction of 45 skyboxes; 26 of them opened in '83 and 19 in '85. They rent for between $44,000 and $55,000 a year. David Andrews, the team's vice-president of finance and development, thinks the corporations that rent skyboxes will still do so. "In our case, the companies are favorably disposed to continue," Andrews says. "They may have to dig a little deeper, but we feel we have a good product, and that's what we're really talking about."
While lobbyists managed to burrow a three-year loophole into the skybox issue, they cut a veritable superhighway through the new law putting an end to tax breaks for financing the stadiums themselves.
The U.S. Treasury loses about $15 billion a year by permitting local governments to sell tax-exempt bonds to finance municipal projects such as airports, sewage-treatment facilities and mass transit, as well as sports stadiums and arenas. This federal tax exemption, which makes the bonds very appealing to investors, has amounted to a subsidy for sports, because franchises, colleges and developers stand to profit from use of the facilities. Under the new law, sports facilities would lose that exemption—though not immediately.
To ease the trauma of withdrawal from this federal subsidy, congressmen and senators managed to exempt from the new law certain pet projects in their districts and states, some of which were already under way, while others were only in the planning stages. The total number of exemptions was limited, and members of the House and Senate committees who actually wrote the new tax law were able to get more than their share of them. All told, this "transition rule" cost the Treasury (thus the taxpayers) $150 million in lost tax revenues from 22 sports exemptions, more than half of them claimed by House and Senate tax committee members.
For example, Oregon Republican Robert Packwood, who steered the tax bill through the Senate, saw to it that the University of Oregon got a $4 million exemption so it could spruce up Autzen Stadium, while Oakland Stadium got an $8 million exemption, compliments of House Ways and Means member Fortney Stark (D.-Calif.).
Because politicians don't like it widely known that they give away special tax breaks, the descriptions of these exemptions are sometimes carefully veiled, referred to vaguely by location and design. For example, Chicagoan Rostenkowski came through with an exemption of up to $250 million for what was described, in part, as "a stadium to be used by an American League baseball team currently using a stadium in a city having a population in excess of 2,500,000." The facility in question is a new ballpark for the White Sox.