Op-ed argues for eliminating baseball skybox deductions.

NYT
Op-Ed Contributors
Throw Out Skybox Tax Subsidies

By RICHARD SCHMALBECK and JAY SOLED
Published: April 4, 2010

UNTIL the 1970s, Major League Baseball was a populist sport. Bleacher seats cost as little as a dollar, meaning middle- or even working-class fans could afford to take their families to a game a few times each season.

But in the years since, tickets to baseball games — along with other professional sports events — have skyrocketed in cost. Over the last two decades, the average ticket price for a Chicago Cubs game has increased 265 percent, more than four times the inflation rate. Add in parking, concessions and souvenirs, and a family trip to one of this week’s opening day games could easily cost a few hundred dollars.

There are many reasons for the price explosion, but a critical factor has been the ability of businesses to write off tickets as entertainment expenses — essentially a huge, and wholly unnecessary, government subsidy.

These deductions have led to higher ticket prices in two ways. On the demand side, they have fueled competition for scarce seats, with business taxpayers bidding in part with dollars they save through the deductions.

On the supply side, the large number of businesses bidding for expensive seats has driven the expansion of luxury skyboxes and a reduction in overall seats in new ballparks.

While baseball parks built in the 1960s and before held as many as 56,000 seats, the modern trend is toward smaller-capacity parks, with a higher percentage of total space dedicated to skyboxes. The new Yankee Stadium, the only major-league park built since 2000 with more than 44,000 seats, has 3,000 fewer seats than its 1923 predecessor but almost three times as many skybox suites.

Congress has occasionally expressed concern about deductions for business entertainment, including tickets to sporting events. In 1962, it placed limits on the deductibility of business entertainment generally. In 1986 it restricted the deductibility of luxury skybox tickets to the face value of non-luxury premium tickets, like center-court seats at a basketball game or behind-the-plate seats at a baseball game. For example, if a ticket to a skybox suite cost $500 and a seat behind the plate cost $100, a business could deduct only $100, subject to other limitations on deductibility.

That made sense when there was still a substantial price disparity between skybox seats and tickets for even the choicest non-luxury seats. But the price for non-luxury premium tickets has grown significantly in recent years — thanks in part to endless demand from businesses and the use of more sophisticated, Web-based pricing tools by the teams — rendering the skybox rule meaningless.

Ideally, Congress would get rid of business-entertainment deductions altogether — after all, they are little more than an excuse for corporate executives to consume luxury items at a discount, distorting markets and cheating the public out of substantial tax revenue.

Given corporate America’s passionate attachment to sports-related perks, a blanket elimination may be unrealistic, though. A more feasible but still effective approach would be to limit deductions for luxury skybox tickets to a low, fixed amount — say, $50 per seat, per game.

Such a limit would be fair, unambiguous and easy to enforce. But above all, it would help baseball return to its roots, when average folks — not corporate entertainers — were the ones filling the seats.

Richard Schmalbeck is a law professor at Duke. Jay Soled is a professor at the Rutgers Business School.