Tickets, Technology & Tax Reform
Do you have season tickets to a major sports team or know anyone who does? Have you purchased tickets to a single-game sporting event recently and noticed that those big corporate boxes don’t seem as full as they used to? When it comes corporate tax considerations related to the buying, selling, and paying for event tickets, much has changed, largely due to both technology advancements and federal tax reform.
Corporations have always been frequent purchasers of season tickets to major sports teams. Game tickets are frequently used as employee perks, for entertaining customers or for donations to charitable organizations. Prior to recent tax reforms, many people enjoyed going to see a game with tickets purchased and provided courtesy of a business, and that business enjoyed a tax deduction funded (albeit partially) by Uncle Sam. Under the old rules, almost any entertainment expense that could prove to be remotely related to your business was 50% deductible.
However, Uncle Sam’s tax deduction for tickets to sporting events was eliminated under the Tax Cuts and Jobs Act as of January 2018. So those same expenses (with very limited exceptions) are completely non-deductible, effectively increasing the cost of a ticket by as much as 25% depending on your tax rate. Talk about a tax hike!
Corporations must now re-think their approach to client entertainment and consider various scenarios: Should they buy the expensive field box seats or luxury suites? Buy tickets to fewer games? Or perhaps resell some of their tickets to others on the “secondary market” using a technology solution such as StubHub?
Technology Takes Over Scalping
Not long ago, extra game tickets would be sold to ticket agents or brokers, who then sold the tickets to interested purchasers, many times, quite literally, on the streets or in parking lots. Then came smartphones and transacting business online, allowing people to purchase (and sell) their single-game tickets using an online ticket broker. This proved to be a much more transparent process as it allowed both parties to view their options and make informed decisions with less risk to the buyer. As you would expect with the laws of supply, demand and information at work, tickets for “hot” games frequently sold for a multiple of face value whereas inferior games would sell for less.
However, just as we’d become comfortable with the whole online purchasing thing, we are now being told that this is “old” technology and that the proliferation of e-tickets has spawned smartphone apps to buy and sell tickets instantly. The novel idea here is that this exchange happens in “real-time” and because of that, you can literally wait until minutes before the game to buy your tickets, watching the price drop before your eyes and choosing to click “purchase” only when the ticket hits your strike point.
This sounds like a great deal for the purchaser, but not for the seller, particularly if the seller is a season ticket holder who might be trying to resell tickets to several games (many of lesser quality), or – coming full circle – for the national corporation that holds tickets for several teams in several cities and is hoping to recoup some of its investment to make up for the less-than-attractive tax break.
Many commitments to purchase season tickets for the 2018 season were made before or shortly after the tax reform, maybe without contemplation of the combined effect of both technology and the new tax laws. I think it is safe to say that the longstanding mantra of the season ticket holder “well, if I don’t use them, I’ll just sell them” is dead, since you are no longer certain that tickets will sell at face value, or potentially at all. And honestly, why buy season tickets if you can buy tickets for any game at or below face value?
Does the New Tax Law Mean the Demise of the Season Ticket?
Granted, the majority of season tickets are owned by individuals directly and they have never been able to deduct their cost. But couple that with the ability to buy regular season single game tickets at will, and almost always at or below face value, and you have to say that the season ticket may be going the way of Blockbuster. There is just a better/cheaper way to access the product, and the tax incentives no longer add up.
I, for one, am very interested to see where the season ticket renewals and general ticket sales ultimately fall out year over year. As a Yankees fan, I have nothing better to do anyways…at least for the rest of this year!
I would love to hear from those of you whose companies are struggling with (or have made) decisions on how to approach future seasons.
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