The University of Wisconsin is among the top 10 schools when it comes to athletic department donations last year.
It’s no secret that colleges with big sports programs make a lot of money off their teams. There are ticket sales, TV deals, merchandise, not to mention the rah-rah atmosphere they encourage on campus.
But at least one source of college sports-related revenue could be curtailed thanks to changes in the tax code taking effect this year.
In the past, schools could offer donors the opportunity to buy access to preferential seating at athletic events and up to 80% of the cost of these so-called seat licenses was tax deductible. But the Tax and Jobs Act, passed late last year, gets rid of that deduction.
What’s at stake isn’t chump change. Last year, the 10 schools who received the most money in athletic donations took in between $32 and $55 million per school, according to data released Tuesday by the Council for Aid to Education. Though those numbers reflect all donations to the schools’ athletic departments — not just those that give donors access to preferential seating — advertising the perk is one of the major ways college athletic departments lure money in.
“It’s clear that universities have used this as a central strategy with their donors who are interested in athletics,” said Peter Fissinger, chief executive officer of Campbell and Company, a firm that consults with nonprofits on fundraising strategy.
A quick spin through some of the websites for the foundation arms for schools that raised the most for their athletic departments confirms Fissinger’s assessment. In some cases the colleges require a minimum donation ranging from several hundred to multiple thousands of dollars to have access to certain seating areas at football and basketball games.
Other colleges use a point system where donors are rewarded with points based on how much they give. The more points they have, the bigger priority they get in buying desirable seats.
The ability of college athletic departments to capitalize on the current tax treatment of these donations indicates that they’ll likely be able to figure out another way to lure in gifts from donors interested in athletics, Fissinger said.
Some colleges are already adjusting. “I know that some [athletic directors] asked for some people to prepay for the year, or a couple of years in some cases, or even several years,” said Tom McMillen, chief executive officer of the LEAD1 Association, which represents major athletic directors and sports programs.
That way donors could make their gifts while the tax deduction was still in effect.
College athletic departments may tweak their fundraising strategy by still encouraging donors to give towards priority seating even if they can’t get the deduction anymore, Fissinger said.
Schools could also change the way they talk about donations to athletic departments, said Elizabeth Zeigler, the chief executive officer of Graham-Pelton Consulting, which works with organizations on fundraising. They could emphasize that these donations also support student athletes who don’t participate in revenue generating sports like football or basketball. “Universities need to be able to communicate more about why the gifts are important,” she said.
But the impact of the tax code change will likely vary based on the popularity of a school’s athletic program, said Richard Schmalbeck, a professor at Duke University’s Law School, who has studied and criticized the tax deduction. At schools with very popular football and basketball programs where seating is in demand, getting rid of the tax deduction may free up more tickets, creating more supply, but it’s unlikely their price will go down because top programs won’t want to signal that the value of the ticket is suddenly less.
But ultimately, the tickets could lose value over time, as inflation rises and ticket prices stay the same. Over the past several years, the prices of these desirable tickets have fluctuated, but getting rid of the deduction could cause them to flatten.
At schools where tickets aren’t selling out, prices may actually rise, McMillen speculated. Without the tax deduction, fewer people could be interested in buying seat licenses, curbing a source of revenue for the schools and pushing them to raise the prices of the actual tickets.
On the upside, all university capital campaigns, which are typically run separately from athletic department ones, rely on gifts that are much bigger than those associated with those that buy access to priority seating, Schmalbeck said. And there’s still a large population of fans who want access to prime seats at a college football or basketball game, even if that access isn’t tax deductible.