As for major events this spring, those dealing with corruption, recruiting violations, and gambling will all have little long-term impact as each is already a long established part of college sports. Where the greater impact will take place is in the increasing tax burden on college athletics, which is unprecedented in scope. Already tenuous, the financial health of college athletics is based on five major tax breaks/subsidies that could all be gone in the next round of tax reform with May 4, 2018, as the date to mark for when its time to reflect on what happened.
On that first Friday in May, the Congressional Research Service (CRS) issued a report, “College and University Endowments: Overview and Tax Policy Options.”
CRS is a non-partisan institution that provides Congress with background on issues.
It is indeed ominous that this report was issued. At present, if the college athletics industry was a publicly traded index fund it would be difficult to find any investors, as more than 80% of FBS programs lose money even with the five tax breaks/subsidies.
The four major Federal tax breaks that could soon be fading and will most definitely be gone if players are paid or allow to profit from images or sponsorships are:
Television revenues and corporate sponsorship are not taxed
In the words of Mike McIntire who writes extensively on the subject for The New York Times, “…college sports remain largely tax exempt, the beneficiary of a public subsidy that is increasingly difficult to defend.” This will only be more “difficult to defend” in the future.
Scholarships not being taxed
College sports scholarships are easily worth six figures and more thanks to the “extraordinary benefits.” These are not taxed, which could be around $40,000.00 if the IRS and state authorities came in heavy. Expect that to happen if players are paid or allowed to profit from images or sponsorships. With the average college student in the United States graduating nearly $40,000.00 in debt with much of that going to fees to support athletics, it is not difficult to imagine support for scholarship athletes to be taxed, especially if they start receiving salaries.
There are still plenty of tax breaks for ticket purchases, facilities construction, and related areas. These are always targets in tax reforms. It was that was last year and it will be in the future.
Salaries for administrators in non-profits
As little support there would be for athletic scholarships to not be taxed, there is even less for administrators at non-profits such as colleges and conferences having seven and eight-figure compensation packages. In a country that has seen massive change at the national level in elections in 2006, 2008, 2010, 2014, and 2016, do not expect much support to protect massive pay for higher-ups at non-profits.
Student loans to pay for athletic fees
At power five schools, more than $2 million in student fees goes to the athletics department, well over $100 million annually. The average college student graduates nearly $40,000.00 in debt. Obviously, much of that money borrowed that is subsidized by the American taxpayer goes to support college sports. Since attendance at colleges sporting events is falling, its tough to argue that every student is a fan. But all pay these fees at the schools that charge for it, and the average one graduates nearly $40,000.00 in debt.
It used to accepted “wisdom” that if Washington, DC came after colleges sports, all the schools had to do was trot the coaches up to Capitol Hill to tell stories and all would be well.
Not so much anymore. Colleges sports was creamed in tax reform last year and it will only get worse. One Member of Congress I interviewed told me they never even heard from the major universities in their district regarding the most recent tax reform.
Washington, DC, and state governments are not enamored with institutions of higher learning and other non-profits for many compelling factors. Seven- and eight-figure compensation packages for administrators is merely a start for this enmity, but a damn good one. The others are a function of a basic numbers game: pretty much every college town is liberal and the majority of state governments along with all three branches of the Federal Government are conservative! More and voters can’t stand higher education in this country, as revealed in many polls. As a former high ranking government official and corporate chief executive officer remarked about this, education is the only thing that makes the government look efficient!
Summing it up nicely for Inside Higher Ed, on May 8 of this year, just four days after the May 4 CRS Report, Catherine Bond Hill wrote that, “Several national polls make it clear that that the public and policymakers are not happy with higher education institutions.”