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Tax Deductible Two Part Tariff (at least the first part)

2017 September 22
by Phil Miller

From the Chicago Tribune:

What I don’t understand, however, is the law that allows ticket buyers to write off 80 percent of their “preferred seating donation” as a charitable contribution for federal tax purposes.

That’s right. High rollers in the swankiest suites can subtract $4,500 from their taxable income, a benefit worth up to $1,782 off their tax bill, as though they had given that money to a soup kitchen or hurricane relief.

Put another way, for each such privileged fan, the federal government effectively provides a $1,782 ticket subsidy.

<snip>

Now, normally, under tax law, if you get something in return for a donation to charity, you can only deduct from your income the amount of your donation above the value of what you’ve received. If you pay $500 a plate for a charity dinner, for example, and the meal is worth $50, you can only claim a charitable contribution of $450.

Pretty simple. Pretty obvious.

And, in the mid-1980s, when these preferred-seating donation scams first arose, the Internal Revenue Service issued a common-sense ruling that a mandatory donation linked to the purchase of seasons tickets was a quid pro quo and so not deductible for tax purposes.

Legislators representing schools in the powerful Southeastern Conference “went crazy,” said University of Illinois emeritus law professor John D. Colombo, a specialist in tax laws governing charitable organizations. And in 1988, Congress added subsection 170(l) to the IRS code that specifically allowed for an 80 percent deduction on donations to “institutions of higher education” that granted “the right to purchase tickets for seating at an athletic event.”

The pro sports analogy to this collegiate two-part tariff, at least here in the States, is the personal seat license (PSL).  Fans buy a PSL from a team which essentially gives them the right to buy season tickets to that team’s home games.  Would it be OK to allow PSL buyers to deduct 80% of the PSL price from federal income taxes?  Of course not, because there is no facade that pro sports teams are charitable organizations.

If an organization is classified as a “non-profit” for tax purposes, this only means that it is a non-profit in an accounting sense.  It does not necessarily follow that the “non-profit” cannot seek maximum economic profits.  It just means that they have to show a zero accounting profit on their books.

I think it is pretty clear that major college football (and basketball) programs, if not athletic departments in general, are profit-maximizers in the economic sense.  You can call them non-profits, charitable organizations, or whatever.  But just because they are non-profits for tax purposes does not mean they aren’t profit-maximizers.

Via Skip Sauer on Twitter

Operating Losses in the NBA

2017 September 21
by Phil Miller

From an article entitled “A  confidential report shows nearly half the NBA lost money last season.  Now what?” from ESPN.com:

Despite a flood of new national television cash, 14 of the NBA’s 30 teams lost money last season before collecting revenue-sharing payouts, and nine finished in the red even after accounting for those payments, according to confidential NBA financial records obtained by ESPN.com.

The article itself is very interesting and the authors touch on many things that I talk about in my Sports Economics classes.  In any case, I am skeptical of the claims of widespread financial losses of major sports teams.  The authors touch on this.

The players union and its economists have long claimed that teams use accounting techniques to make them appear less profitable than they really are. The union, which is focused on basketball-related income more than teams’ balance sheets because that is what determines their split, has the power to review some team’s books by conducting its own audit of five teams per season. It rarely exercised that power until 2015. According to several sources familiar with the matter, the union audited five teams for the 2016-17 season. The new CBA will allow it to audit 10 teams, starting this season.

Years ago, Deadspin obtained and published financial statements of so-called small market (i.e. small demand) baseball teams and showed, not surprisingly, that even teams from little markets make healthy profits despite claims to the contrary.

NBA link via Omoleso Ogunnowo.

Risky Girls?

2017 September 18
by Kurt Rotthoff

This news article in Popular Science caught my eye: “Girl soccer players are five times more likely to return to the game after a concussion than boys”.

“After parsing through two years of data on concussion patients, Miller and his team found that girl soccer players, on average, were five times more likely to have returned to the field that same day as boys were, and that overall, 40 percent of the players—both boys and girls—continued playing on the day they were injured.”

The data sample is small (87 kids aged 7-18), but it is my understanding from (mainly) the behavioral finance literature was that boys, in general, were more risky and girls were more risk adverse (please let me know if I am wrong). This article seems to imply the opposite. Are girls more risky at some things, or are we just not measuring this well in certain areas?

Kurt W. Rotthoff as new Contributor at The Sports Economist

2017 September 11
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by Kurt Rotthoff

I am happy to join the great group of Sports Economists that post here at The Sports Economist. A day before I wrote my first post, someone had brought to my attention an interview I did in the San Francisco Chronicle titled “Do college football coaches earn their million-dollar keep?” from 2015. Given that the interview is two years old, I first wonder what I said; then I wonder (more importantly) if what I said then is what I would still say today.

Here is what I said:

“Imagine a booming business, but only the top 20 people make money — none of the other workers are allowed to get paid,” said Kurt Rotthoff, an associate professor of economics and finance at Seton Hall University. “These players are on the field performing and bringing the fans. But they’re not allowed to get paid while bringing in more and more money.

“That money has to go somewhere — and a lot of it ends up in the coaches’ pockets.”

Later in the article:

And that was before the Buckeyes and coach Urban Meyer ($4.5 million annually, sure to balloon) won the national title Monday night over Oregon. So are skyrocketing salaries — 11 coaches make at least $4 million annually — simply capitalism at full throttle? No way, Rotthoff argued.

“Any organization that disallows payments to people is not any form of capitalism,” said Rotthoff, the professor who specializes in the study of sports finances. “It’s the antithesis. In a capitalistic world, the players would negotiate their own salaries. It’s a regulated monopoly system.”

I am happy to say I would say the same thing today. Although I am excited about the start of another college football season, this issue still exists (and is getting larger as football generates more revenues).

I look forward to continuing to post on research in the field, topics of interest, and thoughts that will (hopefully) promote discussions in the comments.

NAASE sessions at the 2017 MVEA’s

2017 April 6
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by Phil Miller

Michael Davis, Nick Watanabe, and I are organizing North American Association of Sports Economists (NAASE) sessions at this fall’s Missouri Valley Economics Association (MVEA) annual meeting.  This year’s meeting is scheduled for Oct. 26 – Oct 28 in Kansas City, Mo at the Marriott Country Club Plaza.

If you are interested in presenting, you can submit an abstract to me (phillip.miller@mnsu.edu), Michael (davismc@mst.edu), or Nick (nmwatana@olemiss.edu).  You can also contact any of us for more information, and please share this information with your colleagues and students.

The deadline for submissions is August 11th, 2017*, but the sooner the better.

Lastly, the MVEA has a cash award for the Best Graduate Student Paper, so we also encourage submissions by graduate students.

*The original post listed the year as 2016.  It also listed the date as August 16th.  Both the date and the year are now correct.  My bad.

My Remembrance of Bob Tollison

2017 February 15
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by Skip Sauer

Public Choice will be publishing a collection of remembrances of Bob Tollison. Here is my contribution, “Robert D. Tollison: Father of Sportometrics, Friend and Colleague.”

Despite what the NFL will tell you, hosting the Super Bowl is not good for a city’s economy

2017 February 5
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by Skip Sauer

Here’s my piece at the Washington Examiner on the simple economics of the Super Bowl: http://washex.am/2jPxOxJ

 

Bottom line:

Mega-events displace other economic activity, business visitors, conventions, and other travel to the host city that would have taken place but go elsewhere during Super Bowl week. That’s why there’s not a single published academic study — and there have been numerous attempts — which finds a measurable uptick in local economic activity or tax revenue of any Super Bowl in the history of the NFL…..

The Super Bowl manages to throw off hundreds of millions in cash to the NFL, a few hundred million in vigorish to bookmakers, and millions again to the creative geniuses on Madison Avenue. This all happens every year, no matter where the game is played. For residents of the host city, however, only a small minority will notice an impact on their wallets. For those who go to the game, it could take a while to pay the bill.

Robert D. Tollison

2016 October 27
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by Skip Sauer

Robert Tollison was a great economist, and as nice a man one could ever meet. Bob passed away suddenly on Monday morning at the age of 73.  I’d like to share a personal remembrance of him, and to highlight his work in sports economics, to which he made many significant contributions.

I met Bob for the first time at the 1989 meetings of the Southern Economic Association. I had read several of his papers during my grad school days, and by then he was the Duncan Black Professor of Economics and Director of the Center for Public Choice at George Mason. I remember well being introduced to Tollison and him saying in his soft but steady voice, “It’s nice to meet you. I read your recent paper in the JPE. It’s a very good paper.” Cigars were lit and liquor flowed that night but I was already on cloud nine.

On to sports.  Bob was a sportsman as well as an economist, and it was quintessentially natural for him to combine the two passions.  He played basketball for Wofford College, and later with friends and colleagues.  He was a big fan, particularly of the Clemson Tigers, and followed the games closely.  But he was a sharp critic of the NCAA, and was involved as an economic expert for three decades in litigation which challenged a number of the monopolistic practices of the college sports cartel.  Much work remains to be done on this front, but the victories of college athletes in the courtroom are due in part to Bob’s work on their behalf.

bob-t-at-work

Bob at work

Of course, it was Bob’s scholarship on the economics of sports that put him in position to attack the NCAA. He had a nack for being early on the scene of emerging fields in economics and he thus helped define them.  His 1992 book with Arthur Fleisher and Brian Goff, The National Collegiate Athletic Association: A Study in Cartel Behavior catalogued a variety of NCAA policies which had more to do with suppressing economic competition than enhancing competition on the field itself.  

Earlier, he and Brian edited and contributed to Sportometrics (1990), a book which more accurately captures Bob’s approach to sports economics, indeed economics in general.  Bob defined sportometrics as “the application of economic theories to the behavior of athletes in the real world to see if we can explain what they do, and to see if what they do can help us explain the behavior of people in other professions.”  Since then there have been scores of sportometrics papers, some published in the most prestigious economics journals.  But Bob was there first.  His 1984 paper with Bobby McCormick in the JPE, “Crime on the Court,” exemplifies this.  When the ACC added a third referee to conference basketball games in 1978, the experiment offered an opportunity to explore Gary Becker’s model of the economics of crime and punishment, using fouls called on basketball players.  The added referee increased the probability that a foul would be detected.  Hence if actual fouls were unchanged, the number of fouls *called* in a game would increase.  But player behavior is likely adapt to the increased probability of being called for a foul, and the number of actual fouls would decrease as a result.  McCormick and Tollison found that the number of foul calls decreased by over 30% with the addition of the third referee, suggesting that this policy innovation resulted in a cleaner game.  The NBA followed suit in 1988 by adding a third referee to its games.

This just scratches the surface of his work in a field of study he helped to create. I’ve created a list of his contributions to sports economics which you can see here.

I’m lucky and privileged to have had Bob as my colleague at Clemson for the past 13 years. His door was always open. His desk had a crossword puzzle on it more often than not, but if you walked in to his office you had his full attention. You were never more comfortable talking with a scholar than when you were with Bob.  He did more in his life than most would accomplish in a dozen lifetimes, but he has gone too soon, and we will miss him like no other.  Bob loved The Sports Economist blog, and I know he’d be happy to be remembered here.

championgolfers

Bob Tollison, Mike Maloney, John Warner and Skip Sauer, “Champion Golfers” with their prizes.

P.S.  There are a number of appreciations of Bob Tollison that have appeared.  David Henderson’s recollection of his time at the Council of Economic Advisers — “Bob Tollison was the best boss I ever had”  — is unique and particularly good.  Also good and informative is the appreciation by The Public Choice Society. Mike Maloney is collecting these and posting them on his webpage.

2016 October 11
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by Phil Miller

From Craig Calcaterra at NBC Sports:

The Dodgers first NLDS game was not a sellout. It was reported as 53,901 — a huge number of fans — but not a sellout in the cavernous Dodger Stadium, which has a listed capacity of 56,000. Today, things may be bleaker. As of an hour ago, get-in price for today’s game was as low as $6.95 on secondary markets, which are said to have a “huge glut” of Game 4 tickets:

<snip>

Yesterday’s less-than-capacity crowd could have something to do with it being scheduled for 1pm on a Monday when people have to go to work and school. Today’s glut, however, is being fueled by both a day game — it’s a 2pm local start — and the fact that the time of the game was not set until after midnight Los Angeles time last night by virtue of Major League Baseball scheduling dependent on the outcome of the Cubs-Giants game, which went into the wee, wee hours. The 2pm start holds now, but if the Cubs had won, the Dodgers game would’ve been moved to 5pm local time, and no one in Los Angeles knew when the game would’ve been until after midnight last night.

It’s hard enough to fill a stadium that holds 56,000 people. It’s harder still to fill a 56,000-seat stadium on a weekday. It’s harder still, however, to fill it when the game time could change by three hours depending on what happens the early morning of that day’s game. And then you have to remember that Yom Kippur begins at sundown tonight, meaning that a 5pm game — which would’ve ended after sundown — was going to preclude a certain number of fans from attending in the first place, likely causing many to hold off purchasing tickets.

My quick take is that these are all valid points on why attendance was below capacity yesterday and why it likely will not be at capacity today.  But MLB taken as a whole wants this year’s most-popular draw in the playoffs (the Cubs) in its most-valuable television time slot.   Unfortunately, that has left Dodgers fans in some limbo.

The Length of College Football Games

2016 September 16
by Phil Miller

A recent article in the Wall Street Journal tackled the issue of game lengths in major college football.

One morning last week, a plane left Los Angeles at 8:01 a.m. PDT. It was carried across the country by an extraordinary tailwind and made it all the way to Washington, D.C. by 3:02 p.m. ET. Total flight time: 4 hours and 1 minute.

Later that day, a football game between Florida State and Ole Miss kicked off at 8:06 p.m. It smacked into the sport’s ordinary headwinds—short touchdown drives, long television breaks and a longer halftime—and the fourth quarter wasn’t over until 12:10 a.m. on Tuesday. Total game time: 4 hours and 4 minutes.

The article’s author, Ben Cohen, this year’s average game length so far is almost 3.5 hours, 20 minutes longer than in 2006.

Apparently, it’s largely Baylor’s fault.

One strange truth of this sport is that faster offenses lead to slower games. More first downs result in more clock stoppages, and more touchdowns result in more television commercials. In other words, the more exciting a team is, the more excruciating its games are.

It’s almost impossible now for a high-scoring, highly entertaining matchup to wrap up in a reasonable amount of time. That’s why it makes sense that one fast team is most responsible for the sport’s epic slowdown: Baylor.

I’d offer three more causes.

  1.  There are more/longer commercial breaks
  2.   Halftime lengths are longer (20 minutes rather than 15 minutes   that old dudes like me remember from back in the day).
  3.   The official review of plays.

One way to shorten games while keeping 1, 2, and 3 would be to let the clock continue to run after a first down, except for the last, say, 2 minutes of each half.

What are some other causes?  What are some other fixes?