For more than 30 years, colleges and universities have leaned on an obscure tax rule that allows sports boosters to make tax-deductible contributions to their teams. Athletic fundraisers around the country say that’s an advantage that generates millions in annual revenue—and one that’s threatened by Republican tax legislation.
The issue revolves around donations that confer the right to buy top-tier football and basketball tickets. Modeled after seat licenses in pro sports, these “contributions” have historically been 80 percent tax deductible and have become one of the three main revenue streams in college sports. Ticket sales and money earned from media rights are the other two.
The bill approved by the House Thursday would remove the tax incentive tied to those donations. Congressional tax writers say other kinds of tax relief in the bill are more important. “If seat license revenue is important to state-based colleges and universities, then states themselves can provide this tax benefit rather than federal taxpayers,” a House Ways and Means Committee spokesperson said in an email.
A plan being debated in the Senate includes a similar measure. If passed, the change would make effectively make those contributions more expensive, and colleges and universities fear that would have a chilling effect on giving.
Take Louisiana State University, for example. Between the athletic department and its foundation, the perennial power receives more than $60 million per year in donations tied to seat licenses. If that drops 20 percent as a result of the new tax code, senior associate athletic director Robert Munson says, “that is a number we cannot possibly absorb.”
It could erase the roughly $10 million a year that the Tigers contribute to the academic part of the institution, he said, and could even make the department reliant once again on funding from the school’s general coffers.
“On the surface it may look like, ‘Oh, a bunch of rich people don’t get a tax deduction,’ but what it’s really going to do is hurt athletes,” Munson said.
The federal government expects to increase federal revenue by $200 million a year as a result of the change, according to estimates from the Joint Committee on Taxation. It’s not clear how much it will cost colleges and universities.
Jon Bakija, an economist at Williams College, calculated that the change could result in a 20 to 30 percent drop in giving. Mark Mazur, director of the Urban-Brookings Tax Policy Center, suggests the change will be negligible. “Demand for those tickets is so high," Mazur said. “These aren’t donations with no strings attached.”
Even a small decline could hurt many schools. The University of Virginia receives roughly $20 million in annual athletic donations tied to seat priority, and it still needs millions in student fees to cover its costs. The department doesn’t anticipate getting any more help.
“We have zero room for error,” said Dirk Katstra, executive director of the Virginia Athletics Foundation. Like their peers around the country, UVA administrators are working with the university’s governmental affairs team to lobby local senators and representatives.
The change would take effect in 2018 if passed, meaning schools would probably change the terms of their existing donor agreements so that the annual cost to the donors remains the same. Future contributions would be a bigger issue.
James Maurin, a retired Louisiana businessman who has given more than $1 million to LSU athletics over the years, says it won’t change his giving. “I’m affluent enough, and I’m a big enough fan.” But he said he expects the new tax plan could result in a 30 percent dip in donations overall.
“I fear that it will be devastating,” said Maurin, who served as chairman of the school’s Tiger Athletic Foundation from 2011-12.
History of a Loophole
Previous efforts to make these donations non-deductible have failed. When the Internal Revenue Service tried in 1986, LSU led a successful lobbying effort in opposition. In 1988, Congress voted to explicitly add colleges and donations tied to premium sports tickets to the tax code. That created the 80 percent deduction on the books today.
Schools reacted by creating seat licenses if they didn’t have them already, an added benefit to donors that in turn led to greater fundraising. Universities with existing programs made them bigger. LSU has renovated its football stadium three times in the past 20 years to add premium seating, such as suites and skyboxes. Now more than 10,000 seats out of the 102,000 in the stadium require donations.
In 2012, Republican presidential candidate Mitt Romney discussed cutting the provision should he win office.