Tax Reform Act Tackles a Thorny Ethical Issue

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. 

Getting tickets to college sporting events can be a costly ordeal. Competitive programs often require fans to make large donations just for the privilege of doling out even more money for tickets. A Motley Fool article points out that in many cases, universities require donations that exceed the face value of their seats. This season, Louisiana State University's football fans paid a mere $425 for each seat near the 50-yard line at its home games, but the school required an additional donation of $1,025 to its Tradition Fund, thus bringing the total price to $1,450 per seat.

As the article points out, universities with competitive sports teams have long been able to command a higher price for season tickets, thanks to how the donations are treated under tax law, allowing the 80% deduction, for "the right to purchase tickets for seating at an athletic event in an athletic stadium."

Most schools stuff most of the would-be ticket price into the required donation. In LSU's case, a fan could deduct 80% of the $1,025 required donation as if it were any other type of deductible charitable giving. The taxpayer would get an $820 tax deduction, saving approximately $325 in federal income taxes at the highest marginal tax bracket of 39.6%. Thus, for the highest-income earners, the tax-adjusted price of some of the best seats falls to roughly $1,125 from the nominal price of $1,450.

The tax savings that college sports fans enjoy may run into the hundreds of millions of dollars, though they've never been estimated by a government agency. In 2012, Bloomberg determined that 34 schools reported these donations totaling $467.2 million in ticket-related donations from fans in the 2011 fiscal year.

With the tax reform act looming, athletic directors worry that enough donor drop-outs could seriously hurt college sports programs. The donations people make have allowed colleges and universities to fund programs, to support football programs and enable schools to go out and compete for championships.

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 dollars for the donation.

To me this is an issue of equity. Each individual would-be-ticket holder doesn’t have the same opportunity, because of resource constraints, to make the donation and get preferred seating so there is an equal access issue here. This is not to say everyone should get the same seat. An individual’s resources should be used for preferred seating (i.e., 50-yard line), if that’s what they want. But, to get access to a 50-yard-line seat for a donation on top of the ticket price seems to me an unfair system that favors the wealthy. If I can afford $1,000 for a 50-yard-line ticket, then I shouldn’t be expected to make a donation on top of it for equal access to those seats.

Blog posted by Steven Mintz, aka Ethics Sage, on January 16, 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.