College athletics administrators nationwide are crunching the numbers — not on touchdown passes or fairways hit, but on the effects of the federal tax overhaul on their big-money programs.
The Republican bill, much of which went into effect Jan. 1, includes two elements relevant to college sports: the elimination of an 80 percent deduction for donations tied to season tickets and the creation of a 21 percent tax on salaries for nonprofit employees earning more than $1 million.
To buy season tickets at many major college sports events, buyers must also make a donation to get a “seat license.” The seat-license donations, the formerly deductible portion, range from $25 to $2,000 at Baylor University, Athletics Director Mack Rhoades said.
Whether season ticket holders continue buying without the opportunity to deduct 80 percent of the connected donation remains to be seen.
“It’s our hope that people are still going to donate, still give,” Rhoades said. “Those donations are used and go toward our Baylor Bear Foundation, which helps offset the costs of scholarships for us. I think and hope that people will still do that and support our 535 student-athletes. The impact that they can have on their lives directly is really what this is about more than anything, and I hope it’s less about specific seat location.”
Baylor’s athletics department sent its season ticket holders and fans several notices before the new year telling them about the elimination of the deduction. Rhoades suggested donors complete 2017-18 commitments and prepay on 2018-19 plans by the end of last year to claim the deduction.
U.S. Rep. Bill Flores, R-Bryan, said the elimination of the deduction is unlikely to deter college sports fans. A season ticket holder at his alma mater Texas A&M University, Flores said his goal on tax reform was relief for working class families. His successful push to spare graduate students from paying taxes on tuition waivers, for example, fell into that sphere.
“When Kyle Field was renovated down at Texas A&M, the seat license went up substantially,” Flores said. “I was getting a deduction for 80 percent of the value I was paying for seat licenses, which was tens of thousands of dollars, and I’m losing that deduction. This one hurts personally, but is it the right thing for working class America? Absolutely. I’m still going to buy my seats at A&M, and my expectation is all of our passionate Baylor fans will continue to buy their seat licenses irrespective as to whether they get a deduction or not.”
Rhoades said the push to donors in December gave Baylor a $1.2 million increase in donations compared to December 2016.
The athletics department operates on a more than $100 million annual budget, according to a university source familiar with it.
A spokesman for House Ways and Means Committee Chairman Kevin Brady, a Texas Republican, told the Austin American-Statesman in November the deduction was the “epitome of a special interest loophole.” Flores said most members of Congress were uncomfortable with the deduction.
Eliminating it “freed up money to make available for tax cuts for working class Americans,” he said.
Keeping the seat licensing issue deduction was one of nine issues on Baylor’s tax wish list, which also included the protection of student loan interest deductions. The interest deductions made it into the final bill.
An opponent of the season-ticket change in the tax law is Tom McMillen, president of the advocacy group the Lead1 Association, which represents about 130 college athletics directors. McMillen said the move could sway fans considering whether to buy season tickets and make donations, while also limiting funding for the “Olympic sports.”
“You’re going to end up getting rid of non-revenue and low-revenue sports,” McMillen said. “So the point of it is, if you treat college sports like a business from a tax perspective, the folks that are going to get hurt are your Olympic sports: the 57,000 kids who are swimmers and softball players and field hockey and all those teams. And that’s kind of unfortunate because the college system is really the Olympic development system in this country.”
Cutting money to football programs is not an option, because they generate the most revenue, he said.
The other athletic interest point of the law is a 21 percent tax on nonprofit salaries more than $1 million. The tax is applied to the portion of the salaries past $1 million, and there is a similar tax in the for-profit world, Flores said.
According to its most recent public tax filings, five Baylor employees earned more than $1 million between June 1, 2015, and May 31, 2016. Four of them were in athletics: former head football coach Art Briles, former defensive coordinator Phil Bennett, head men’s basketball coach Scott Drew and head women’s basketball coach Kim Mulkey. Former President Ken Starr also made more than $1 million.
Rhoades said 2018 will be an educational year as his department, and its faithful donors, comply with the overhaul.
“We encourage all of our donors to consult with their tax experts,” Rhoades said. “We’re certainly not in a position to tell anyone how to handle their own tax deductions.”