With the new tax bill passing the House and the Senate on Wednesday, major changes aren’t just coming to your taxes, but also to college sports.
President Trump is expected to sign the bill into law this week and already, major college programs are trying to figure out what it means for them. Here are a few keys and examples of what it all means and the affects it will have:
- Colleges pay a 21% excise tax on compensation above $1 million to the top 5 highest-paid employees.
- Elimination of tax deductions for donors tied to rights to ticket purchases.
- Elimination of tax deductions for businesses tied to entertainment costs for taking clients to games.
What is an example of each one?
- Tom Herman’s $5 million salary would cost Texas about $6 million after the excise tax
- Donors who “donate”, for example, $10,000 for the right to purchase four Oklahoma Sooners football tickets, can no longer write off 80% of that $10,000 donation (a.k.a. the “booster club” deduction) as an itemized deduction
- Joe’s Insurance in Ames, Iowa can’t write off the tickets he bought to Iowa State vs. TCU as a business expense in an itemized deduction.
What does it mean moving forward?
- It may slightly suppress salaries for college football and basketball coaches. USA Today reports there are over 90 head and assistant coaches in college football making over $1 million. That’s incredible. But I highly doubt it will lower salaries for a couple reasons: 1) college boosters are not reasonable and make deals with their emotions not their brains. 2) Agents and lawyers will find a way around it.
- Schools have already started “suggesting” that donors give their 2018 deposits before the end of 2017 to get a full deduction on their current taxes. But do universities have to scale back their asking price for donations for simply the right to go purchase tickets? The flip side is that if this tax bill sends the economy bonkers, then everyone will be making so much damn money then the deduction won’t be as necessary! We’ll see.
- Similar to #2. While Joe’s Insurance can’t write off the ticket purchase, his increase in business and profits from a lower tax rate and cost of doing business may offset his deductible item in football tickets, making the purchase of the tickets still worth it.
For the most part, we won’t really know how this plays out until everything is in full swing.
What to make of it?
College athletics, and universities in general for that matter, have brought this upon themselves. With tuition blasting past the rate of inflation the past couple of decades, and schools paying tens of millions of dollars to rid themselves of coaches winning eight games per year (looking at you folks in College Station), there is no way they are going to get an ounce of sympathy from the American public. Millions of people are drowning in the debt from these institutions, while others see the obscene dollar figures being spent on indoor practice facilities, and say to themselves, “cry me a river”.
Where this could see a toll, at least to start with, is in Olympic sports, or other non-revenue generators. If cuts have to begin, that’s where they would start. The sacred crows and money makers of football and hoops are unlikely to be touched, unless absolutely necessary. But if it school like West Virginia, just to use an example, realizes its spending tens or hundreds of thousands of dollars per year to send its Swimming and Diving teams to Lubbock, Texas and Ames, Iowa, and is starting to tighten budgets, there’s your affect. As long as the same number of men’s and women’s positions are eliminated, there would be no Title IX issue.
This has been an under-discussed topic in the tax bill that warrants closer eyes in the college sports world moving forward.