Earlier this year, Tom McMillen was catching up with some members of the United States Congress. McMillen, a former professional basketball player and congressman himself, said he wanted to know why the sprawling tax reform bill seemingly targeted college athletics revenue.

“They told me they felt college sports started looking more like a business,” McMillen said. “And they feel like athletic departments should be taxed more like a business.”

Last month, the NCAA reported generating $1.06 billion in revenue for the 2016-17 school year, and some athletic departments have recently reported record revenues. McMillen is president and CEO of LEAD1, an organization that represents athletics directors and programs at the FBS level. While college sports remain largely tax exempt, McMillen said he fears the tax law rolling out in 2018 could hurt non-revenue-generating sports.

Two of college sports’ largest income streams, television revenue and corporate sponsorships, are not taxed. But athletic departments such as the one at Syracuse University have started navigating a new terrain under the tax law. Among the law’s provisions: A nonprofit’s five highest paid employees will generally subject their employer to a new 21 percent excise tax of some of their pay if they make more than $1 million a year in taxable compensation.

Daily Orange File Photo

Boeheim, the university’s head basketball coach, was paid $1,957,449 in reportable income by SU in Fiscal Year 2014. Also under the law, any contributions linked to the right to purchase season tickets are no longer considered charitable donations.

On Tax Day, here are five takeaways from the law and its effects on schools such as SU:

Charitable donations

In December, SU Athletics representatives worked extra hours to accommodate fans wishing to take advantage of a prepayment. Fans who prepaid for tickets by the end of the 2017 calendar year likely would have preserved the 80 percent tax deductibility that was part of a season-ticket plan, which often requires a donation. Before the start of the year, that donation was deductible, which is why SU encouraged fans to prepay and take advantage of the deductible for tickets covering 2018-19 and 2019-20 seasons.

For decades, SU and other colleges had required fans to make a mandatory donation to buy the right to seats. At SU, the Orange Club Premium Seating Plan started when the Carrier Dome opened in 1980. Seats near the playing surface require a season ticket and an annual donation to SU’s Orange Club.

Alexandra Moreo | Senior Staff Photographer

But the right to buy the best seats at the Carrier Dome, and hundreds of other college football and basketball venues, won’t come with a tax deduction any longer. Experts said there will be fewer donations as a result because fans will not be able to write off donations associated with purchasing expensive seats.

“There really is no magic bullet to resolve this issue,” said Scott Donaldson, a partner and director of exempt organization tax services at Ernst & Young. “The bottom line impact to your donors is it raises their out-of-pocket costs on their season tickets in premium seating areas roughly 30 to 40 percent.”

Non-revenue-generating sports

Last month, Syracuse Director of Athletics John Wildhack told The Daily Orange that he “would be fearful, very fearful, what would happen to the non-revenue-producing sports,” if athletes were compensated.

While athlete compensation is not part of the tax law, McMillen said Olympic sports will feel the effects of the elimination of the tax break and possibly experience a decline in contributions. There are not many defenses against provisions affecting athletics, he said, because of the commercialization of basketball and football.

“I think that was unfortunate,” McMillen said. “Most sports don’t make money. The big two support Olympic sports. I fear a lot of them will be cut in coming years.”

Excise tax

Men’s basketball and football coaches at large universities, as well as some athletic directors, will force universities to pay hundreds of thousands of dollars more in taxes under the new law.

Almost every coach in the Atlantic Coach Conference league in recent years has been paid more than $1 million as a salary, 990 forms and school announcements show. Nonprofits have to foot the bill under this provision, not individual employees.

Boeheim earned $2,151,736 in FY 2015. It’s unlikely Boeheim’s annual salary has dipped below $1 million since then.

The excise tax on high earners is an attempt by Congress to discourage schools of paying employees seven-figure salaries, said Erika Mayshar, a partner at McDermott Will & Emery.

“This was intended to place nonprofit organizations and for-profits on more equal footing,” Mayshar said. “This provision isn’t just a revenue raiser. It also reflects the hostility toward the country’s largest nonprofits with highly-compensated executives. A lot of our clients have been feeling that.”

John Petosa, a professor of practice at the Martin J. Whitman School of Management, said Congress was “taking a shot at big-time sports.”

mguti100@syr.edu | @Matthewgut21

Published on April 16, 2018 at 8:10 pm

Contact Matthew: mguti100@syr.edu | @MatthewGut21