Thursday, April 15, 2010

Sports and taxes, a perfect marriage

Sports and taxes, a perfect marriage
By Evan Weiner - The Daily Caller 04/15/10 at 1:21 PM

Today is T-Day — as in Federal Income Tax Day. The 1040s and their tax relatives have to be finished and sent to the Internal Revenue Service. But those aren’t exactly the only taxes that individuals will have to pay.
In the United States, there are all sorts of taxes that people pay that end up going to sports, and all of these “hidden” sports taxes are rarely noticed. The United States government has created tax breaks for corporations that buy big-ticket sports items, like club seats and luxury boxes, that allow a fifty percent write-off of the cost of the ticket.

The higher the cost of the ticket, the more corporate can write off, and that has a trickle-down effect on people who cannot write tickets off as a business expense. (Minnesota Twins fans have found out just what a new stadium means, as ticket prices are more than thirty percent more on average.)

The government has given big-time colleges and university sports programs a tax-exempt status, which means that college football factory schools that play, say, in the Rose Bowl do not have to pay taxes on their share of the revenue generated. Owners can depreciate players’ contracts like an individual taxpayer can depreciate a car.

Every day, it’s tax day for sports.

Some athletes even have to pay “the Michael Jordan tax.” In the 1990s, California lawmakers passed a bill that taxed athlete’s earnings for the days they spent playing in the state. There are similar taxes in New York and Philadelphia. Conversely, a good many athletes have moved to Florida or Nevada because they don’t have to pay state income tax there.

A myriad of taxes go to pay municipally built sports facilities. Every day, it is tax day as people pay restaurant, motel, hotel, car rental, sewer and water and other taxes to assist sports owners, whether it is in Florida, Arizona, Texas, Washington or Ohio.

In Pittsburgh, proceeds from slot machines help to pay for the new Penguins arena. In Minnesota, “racinos” slot machines at race tracks could end up financing a new Vikings football stadium. “Racinos” have saved the standard bred racing industry in Delaware, West Virginia and New York. The racetracks would be malls today without the casinos, but the casinos would not exist without the standard bred racing.
Americans love sports, even if they cannot any longer afford to pay high prices for games. But why aren’t sports teams held accountable for raising taxes to pay off the debt at municipally owned venues which, in many cases, has forced municipalities to cut services for the elderly, for education, and even for snow removal?

As Jim Bouton, the former Major League Baseball pitcher and author of the greatest book ever written about sports, Ball Four, once said, “Hey it’s our guys.” Americans love sports and their teams, and sports can do no wrong — even if the evidence suggests otherwise.

Politicians go after sports teams because they figure if their city is big league, then businesses that create good jobs will locate in their burg. The stadium and arena will be economic engines (that’s actually not quite true, since most stadium/arena jobs are not exactly permanent). Of course, there is no evidence that any of their assumptions true, but why let facts get in the way of a good yarn?
In 2003, financially strapped Pittsburgh elected officials, who had just opened a new baseball park and imploded the old Three Rivers Stadium even though there was still debt on the extinct building, were breathing a sigh of relief that an expected heavy snowfall fizzled out, and with good reason. They saved a million dollars for every inch of snow that did not fall. That was the cost of cleanup in 2003. They could not afford big snows because of cost.

In New York City, Mayor Michael Bloomberg plans to cut a large number of city workers because of a gaping budget deficit, yet Knicks fans, some of whom are facing the Bloomberg chopping block, are hoping that the Jim Dolan family-owned Madison Square Garden business can lure Lebron James with a contact offer of, say, $14 million a year. That would roughly be equal to the Garden’s property tax value, if the Dolan’s were paying property tax on the building.

Because one of the Garden’s previous owners, Sumner Redstone and Gulf and Western, somehow convinced New York politicians that the Knicks and the National Hockey League Rangers were no longer financially viable in Manhattan and had to move, New York City and New York State waived collecting property taxes on a piece of valuable Manhattan real estate between Seventh and Eighth Avenue and 31st and 33rd Streets.
Most major markets, mid-size markets and a good number of smaller markets around the country are subsidizing sports enterprises. Louisiana politicians in 2002 decided to hand New Orleans Saints owner Tom Benson some $186 million over a nine year period as thanks for not moving his football from the Crescent City. Benson will get two more stipends, each for about $23 million, in July 2010 and in July 2011. Louisiana Governor Bobby Jindal and Benson recently renegotiated a new deal that cuts the amount of the stipend and caps the handout at $6 million a year under a new lease arrangement, but Benson gets a building near the stadium which he will renovate and then rent out to the state, which will move offices into that building. Benson will also build an entertainment center around the Superdome, which officials think will be an economic engine.

The state will continue paying Benson, but the rules have changed a bit. Benson will become a major real estate developer, thanks to the new deal, and he stands to make a great deal of money. If the money does not materialize, he will get a state handout.

In Glendale, local officials are trying to keep the Phoenix (soon to be called the Glendale or Arizona) Coyotes in the city-built arena. Glendale has approved a lease agreement with a potential Coyotes owner, Chicago White Sox and Bulls front man Jerry Reinsdorf. Reinsdorf’s group is expecting vast subsidies from a financially challenged Glendale, and Glendale seems to be willing to work out deals that would make sure that the National Hockey League team would get generous revenue streams to keep the team in the arena. The Goldwater Institute is looking into blocking the Glendale-Reinsdorf deal.

In nearby Mesa, officials are trying to reach a deal that would keep the Chicago Cubs in the city for spring training after the team’s lease expires in a couple of years. A proposal to charge an additional tax on the sale of tickets at “Cactus League” or spring training games in Arizona was met with stiff resistance from the other teams that train in the Phoenix area. But Arizona politicians are looking for other tax schemes to keep the Cubs in Mesa, including tax increment financing.
In Maryvale, Arizona, local elected officials know the Milwaukee Brewers deal with the city to use the city’s facility for spring training is done in two years, and city officials know that they will have to come up with a financial plan to keep the team in Maryvale or the franchise will be gone, possibly to Phoenix, where the Oakland A’s facility needs an upgrade. Phoenix is broke, though, and the Arizona Sports and Tourism Authority is facing an economic shortfall of $10 million.

The federal government is the backbone of sports in the United States. Because of a loophole in the Tax Act of 1986, municipalities can only use eight percent of the revenues generated inside of a publicly funded facility to pay down the hundreds of millions of dollars worth of debt. Other deals that have been cut with sports owners include hikes in water taxes, sewer taxes, car rental taxes, hotel and motel taxes and restaurant taxes to build new or renovate old facilities. There was even a “sin tax” in Cleveland to build a new baseball park, with some of the funding coming from a sales tax hike on cigarettes and alcohol.

You name it; politicians will tax it for sports facilities.

Cable television provides yet another revenue stream. Because of the Cable Television Act of 1984, many people are totally unaware that they are supporting sports through cable fees. The legislation signed by President Ronald Reagan created something of a socialist cable television apparatus, in which everyone who buys into the basic expanded tier of television also pays for all the channels on the tier and supplements sports networks like ESPN – whether they watch the channel or not.

That legislation has enabled ESPN (and others) to become financially successful without worrying about advertising support. In turn, ESPN, TNT, Versus and regional sports cable networks are paying billions of dollars in sports fees to various leagues and teams, with just a fraction of their 95 million subscribers actually watching the product.

It’s one of many ways that the government is aiding sports. It is not quite taxation without representation — in fact, it’s not even quite taxation — but the mechanisms allow sports owners to generate revenues that go to pay athletes, managers, and coaches and allow college programs to pay millions of dollars for football and basketball coaches.

This week is tax week, but it is always tax day in the United States for sports. Without taxes, big time sports in the America would have been downsized a long, long time ago.

Evan Weiner is an author, columnist, lecturer and radio/TV commentator on the “Politics of Sports Business.”

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1 comment:

Gian Turner said...

After reading the blog post, I finally understand the benefits of paying sports taxes in relation to revenue stream. I am very much interested to learn more about how the City of Glendale will sustain the presence of the Phoenix Coyotes which is a promising hockey team. I just hope the City of Glendale can consider the presence of the team as a revenue stream. People keep noticing the Phoenix Coyotes performance in every game held in a sports center in Denver. In fact, other sports club Glendale area noticed the popularity of the said team.