NEW YORK (CNN/Money) - You already know that most sports teams get millions in taxpayer support for the stadiums and arenas they play in. But did you know that the fans with the deepest pockets are getting more than $1 billion in annual tax breaks for their support?
About $5 billion a year is spent on luxury suites and expensive "club seats" that provide the closest view to the action, along with amenities such as waiter service. And the U.S. tax code is helping most of those buyers pay the tab, which can reach $500,000 a season.
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| Most fans enjoying luxury suites and other prime sports seats have federal tax breaks paying part of the tab. |
The business entertainment deduction isn't what it used to be -- it only allows half the cost of entertainment to be deducted. But there's no cap. So the six-figure suite can be expensed the same way a $50 lunch tab is.
The entertainment deduction has as much chance of disappearing as television broadcasts of professional sports. Lobbyists and members of Congress are among the prime beneficiaries. And eliminating it would hit many small businesses, such as restaurants, that depend on businesses spending more freely. But even defenders of the deductibility of business entertaining admit there can be problems with it.
"Entertaining customers is a cost of doing business," said Scott Moody, senior economist for the Tax Foundation, which spends far more time decrying taxes than tax breaks. "The reason it was limited is it was being abused. As soon as you allow businesses to deduct costs, the big question arises what is costs should be deductible. You might see luxury boxes as abuse of that provision, but at least all businesses can utilize the entertainment deduction in some way."
But the total costs of the deduction as they apply to buying the best seats at the nation's stadiums and arenas is heftier than most people imagine. Easily 80 percent of the $5 billion in luxury tickets sold annually are purchased by businesses, according to a sports industry trade group that monitors such things. That means a $2 billion tax deduction. At a 35 percent corporate income tax rate, that translates to about a $700 million tax break.
Add in the amount spent on food and drinks while at the games, and the tax savings number easily hits $1 billion.
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Team Marketing Report reports that the most expensive luxury suite in the nation is $500,000 for the American Airlines Center, the home of the Dallas Mavericks basketball team and Dallas Stars hockey team. Among the cheapest on a per-game basis is the $40,000 for the Tampa Bay Devil Rays baseball team. That relative bargain price still seems to cross the line into "excessive," even if the seats weren't in the ugliest sports venue watching one of the worst teams in professional sports.
The teams which are already playing in tax-subsidized homes are benefiting from this deduction as well. An end to the deduction would drive up the after-tax costs to the businesses buying tickets, likely reducing demand.
"Teams would respond, probably by increasing the perks that go with corporate season ticket holders, or there might be moderate reduction in price of those prime tickets to try to fill the corporate seats," said Scott Davis, principal of Strategic Marketing Decisions, which has worked on pricing decisions for the Sacramento Kings. "Even if they kept the kept the corporate seats at same price, they might have less of them, and have more seats at a lower price."
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But there's not much chance of the deduction going away. And thus teams will push for more and more new taxpayer-supported stadiums so they can have more taxpayer-subsidized luxury suites and prime club seats.
So if you stop by your local stadium or arena Tuesday after dropping off your tax return at the post office, take a look at the folks in the prime seats. You helped buy them their tickets.
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