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Running Up The Tab
Jerry Kirshenbaum
March 01, 1993
Many people in sports see more pain than gain in President Clinton's economic plan
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March 01, 1993

Running Up The Tab

Many people in sports see more pain than gain in President Clinton's economic plan

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No doubt some athletes would try to recoup any money lost to Uncle Sam by seeking higher salaries from their teams. Asked how he would deal with this eventuality, San Francisco 49er president Carmen Policy had his response ready: "I would say, 'This is a time of sacrifice. The President has asked all to be patriotic. You should do your share.' "

Of course, if the Administration's proposals are adopted, teams would feel the squeeze, too. Club owners would see their tax bills rise, and large companies that own teams, such as Paramount Communications (New York Knicks and New York Rangers), Anheuser-Busch (St. Louis Cardinals) and the Tribune Company (Chicago Cubs), would get hit with an increase in the corporate tax rate from 34% to 36%. Another clement of the President's plan, a far-ranging energy tax, would result in higher heating and electric bills for arenas and increases in the cost of air-conditioning in domed stadiums. Businesses that sponsor sports telecasts would also be pinched and, as often happens in tight times, would probably pare their advertising budgets before they cut other things. Gerald Scully, professor of management at the University of Texas at Dallas and author of the book The Business of Major League Baseball, says that this, in turn, "could make television even less enthusiastic about spending big bucks for sports. If that happens, you're talking about significant sources of revenue."

Owners being owners, their natural reaction to higher costs and lower revenues would be to raise ticket prices. But this wouldn't be so easy, because most ticket buyers would also be feeling the sting of tax increases. With less disposable income, fans presumably would become more selective in choosing from the crowded menu of sports and other entertainment fare. And in the colleges as well as the pros, sports administrators are fretting in particular about the possible effects on ticket sales of a Clinton proposal to slash tax deductions for business entertainment from 80% to 50%. As many as half of all season tickets sold in the NBA and the NHL are written off as business expenses, and it is with pique that NBA deputy commissioner Russell Granik says, "If the expense is legitimate, you ought to be able to deduct it. If it's not legitimate, then you shouldn't. Why single out this expense? There's no proposal that your Xerox copying costs should only be 50 percent deductible or that when you buy [office| furniture, you can deduct only 50 percent. Why pick on entertainment?"

Luxury boxes, which are of increasing importance in stadium and sports-franchise financing, wouldn't be directly affected by a reduction in allowable writeoffs. That's because, even under current law, the cost of leasing such boxes is not tax-deductible. But the proposed 50% limit would apply to the lavish parties that take place in boxes and, in fact, to all sports-related entertainment. As a result, businesses might react by throwing fewer such bashes and by scrimping on the food and drink they serve at them.

Canapes and champagne aside, some experts believe that a 50% cap on entertainment write-offs would not, in most cases, seriously hurt ticket sales. "Once a corporation decides that having scats at a game is good for business, that decision isn't going to hinge on whether it gets a larger or smaller write-off," says Herbert Belgrad, chairman of the Maryland Stadium Authority, which operates Oriole Park at Camden Yards. Michael Megna, senior vice-president of Milwaukee-based American Appraisal Associates, who specializes in valuing sports franchises, says: "Remember when [in 1986] they dropped the allowable entertainment deduction from 100 percent to 80 percent? People screamed, but nothing much happened. Perhaps there would be a bit of a falloff in season tickets, but there would still be people buying." A 50% deduction limit, though, could inflict damage on teams in smaller markets, where companies looking for a way to unload season tickets without being branded civic traitors might now do so and blame it on Clinton.

Another source of anxiety is a Clinton proposal to limit deductions of salaries of corporate executives to $1 million unless those salaries are "linked to productivity." Conceivably, the measure could apply to high-paid sports administrators such as NBA commissioner David Stern, who is in the fourth year of a five-year, $27.5-million contract, but Administration sources say that it wouldn't ordinarily relate to athletes. A good thing, too, because in 1992 baseball alone had 264 players who earned $1 million or more. If clubs couldn't fully deduct those salaries, many of their exaggerated cries of poverty would become all too real.

No such comfort is to be found in a Clinton proposal that would affect private golf, tennis, yacht and city clubs. If the President has his way, dues to such clubs will no longer be tax-deductible as a business expense. As with many of the other elements in his economic plan, Clinton is aiming to eliminate what he sees as perks for the rich, but the clubs reply that the rich don't need the write-offs; the deductions, they say, mainly benefit middleclass business people. Moreover, they contend that the revenue raised by eliminating such write-offs—an anticipated $900 million over four years—would be largely offset by the blow to the economy caused by the loss of country club jobs. Still, this measure will play well to the millions of Americans who don't belong to private clubs.

In view of Clinton's aversion to perks, it was a source of some embarrassment last week when reporters noticed a five-foot-wide path gouged along the driveway that circles the White House's South Lawn. At a press briefing, presidential press secretary Dee Dee Myers was besieged by reporters, one of whom asked, as if this were Watergate II, "How about a simple yes or no answer to the question: Are you building a jogging track out there?" The White House soon came back with an answer—yes—and an explanation that the track was needed because Clinton was tying up traffic while jogging on Washington streets, something that a president devoted to eliminating gridlock obviously shouldn't be doing. The White House hastened to add that the track's $30,000 cost was being met with private funds.

If nothing else, the fuss over the track suggests that the battle over his economic plan will take Clinton down some strange paths. As he wages that fight, a jogging track doesn't seem excessive. After all, his morning run is one of the few athletic endeavors of a president whose plan could greatly affect sports. And, really, if Clinton wants other citizens to tighten their belts, shouldn't he make sure he's fit enough to tighten his own?

[This article contains a table. Please see hardcopy of magazine or PDF.]

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