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Running Up The Tab

March 01, 1993
March 01, 1993

Table of Contents
March 1, 1993

Table of Contents
Baseball '93
Sports And Taxes
The Williamses
Samuelsson
Ryneldi Becenti
Point After

Running Up The Tab

Many people in sports see more pain than gain in President Clinton's economic plan

If the economic prescription Bill Clinton outlined in his speech to Congress last week works, the benefits for sports, and for society in general, will be enormous. There is no denying the grandness of the President's vision, which includes a call for sacrifice in the form of higher taxes (many) and government spending cuts (some), a package of highway-construction and infrastructure improvements to create jobs, and a reduction in the federal deficit that is meant to bolster the economy and make more attainable such other goals as safer streets and a cleaner environment. And the stronger the economy, the stronger sports should be. That's because jobholders are sports-ticket buyers. And because profitable companies are television sports advertisers. And because healthy television networks can pay big rights fees to teams and leagues.

This is an article from the March 1, 1993 issue Original Layout

For now, however, many people in sports see more pain than gain in the Clinton program. Neither in his speech nor while stumping for his economic plan afterward did the President mention sports, but in targeting wealthier Americans for hefty tax increases, he was targeting many pro athletes. In assailing business excesses, he was zeroing in on some of the perquisites of sports, at country clubs as well as at colleges and in the pros. For these reasons his sweeping economic plan shapes up as a tough sell not only on Main Street but also in locker rooms and team and league front offices.

Critics of the plan would agree with player-agent Leigh Steinberg, who voted for Clinton but who fears that the White House's proposed tax increases on corporations and individuals will stall the country's economic recovery. In regard to sports Steinberg believes that higher taxes on teams, athletes, sponsors and fans will reduce revenues, resulting in everything from higher ticket prices to cutbacks in charitable donations by players.

"The Clinton plan is potentially devastating for sports," says Steinberg. "It could seriously affect the entire structure of a team or a league. Money that has gone for all aspects of a sports franchise would go to the federal government instead. The question is, What is it that teams will choose to cut? Will it be non-playing personnel? Will it be salaries for players? Will it be a third set of football helmets? The plan could have more than a ripple effect. It could be a wave." Steinberg worries in particular about athletes' reactions to the program—in part, he jokes, because he fears they may be "less eager to pay their agents."

And many athletes have reacted restively. Another agent, Arn Tellem, says that on the morning after Clinton's speech, he received calls from half a dozen clients upset about the higher taxes they would have to pay if the President's proposals were enacted into law. "A lot of them said they're voting for Jack Kemp in 1996," says Tellem. "And a couple gave me a hard time because I supported Clinton, telling me, 'I told you so.' "

The public, of course, has trouble working up sympathy for well-paid athletes. But with professional team-sports salaries ranging from an average of $400,000 in the NHL to $1.2 million in the NBA, Clinton's proposal to raise the top individual income-tax rate from 31% to 36% of taxable income, plus an additional 3.6% tax on earnings over $250,000, obviously would hit many athletes hard. Michael Jordan, for example, the world's highest-paid athlete in 1992 with earnings, including endorsements, estimated by Forbes magazine at $35.9 million, may have paid as much as $9 million in taxes last year; under Clinton's plan, that tab could jump to some $12 million.

Bitter though such medicine would be, some athletes say they would swallow it without complaint. Portland Trail Blazer guard Terry Porter, who will make $2.2 million from the Blazers this season, says, "Most of the players are willing to pay the extra amount if it's going to help the country. I think it's time everyone started paying for his piece of the pie." Of a somewhat different mind is Dallas Cowboy wide receiver Michael Irvin, who has been invited, with the rest of the Super Bowl champions, to visit Clinton in the White House some time in March. After the President's speech, Irvin, who made $1.25 million in 1992, received a call from Cowboy running back Emmitt Smith. Irvin recounts the conversation.

Smith: "Michael, what is this man trying to do to us?"

Irvin: "When we get to the White House, we'll have to straighten him out."

One athlete who has already minimized the pain of higher taxes is pitcher David Cone, who last December signed a three-year, $l8-million contract with the Kansas City Royals. Anticipating that Clinton would raise taxes, Cone prudently arranged to be paid $9 million of that sum up front, in 1992. If Clinton's plan is implemented, other athletes may do the opposite and ask for deferred pay in hopes that taxes eventually will be lowered again.

No doubt some athletes would try to recoup any money lost to Uncle Sam by seeking higher salaries from their teams. Asked how he would deal with this eventuality, San Francisco 49er president Carmen Policy had his response ready: "I would say, 'This is a time of sacrifice. The President has asked all to be patriotic. You should do your share.' "

Of course, if the Administration's proposals are adopted, teams would feel the squeeze, too. Club owners would see their tax bills rise, and large companies that own teams, such as Paramount Communications (New York Knicks and New York Rangers), Anheuser-Busch (St. Louis Cardinals) and the Tribune Company (Chicago Cubs), would get hit with an increase in the corporate tax rate from 34% to 36%. Another clement of the President's plan, a far-ranging energy tax, would result in higher heating and electric bills for arenas and increases in the cost of air-conditioning in domed stadiums. Businesses that sponsor sports telecasts would also be pinched and, as often happens in tight times, would probably pare their advertising budgets before they cut other things. Gerald Scully, professor of management at the University of Texas at Dallas and author of the book The Business of Major League Baseball, says that this, in turn, "could make television even less enthusiastic about spending big bucks for sports. If that happens, you're talking about significant sources of revenue."

Owners being owners, their natural reaction to higher costs and lower revenues would be to raise ticket prices. But this wouldn't be so easy, because most ticket buyers would also be feeling the sting of tax increases. With less disposable income, fans presumably would become more selective in choosing from the crowded menu of sports and other entertainment fare. And in the colleges as well as the pros, sports administrators are fretting in particular about the possible effects on ticket sales of a Clinton proposal to slash tax deductions for business entertainment from 80% to 50%. As many as half of all season tickets sold in the NBA and the NHL are written off as business expenses, and it is with pique that NBA deputy commissioner Russell Granik says, "If the expense is legitimate, you ought to be able to deduct it. If it's not legitimate, then you shouldn't. Why single out this expense? There's no proposal that your Xerox copying costs should only be 50 percent deductible or that when you buy [office| furniture, you can deduct only 50 percent. Why pick on entertainment?"

Luxury boxes, which are of increasing importance in stadium and sports-franchise financing, wouldn't be directly affected by a reduction in allowable writeoffs. That's because, even under current law, the cost of leasing such boxes is not tax-deductible. But the proposed 50% limit would apply to the lavish parties that take place in boxes and, in fact, to all sports-related entertainment. As a result, businesses might react by throwing fewer such bashes and by scrimping on the food and drink they serve at them.

Canapes and champagne aside, some experts believe that a 50% cap on entertainment write-offs would not, in most cases, seriously hurt ticket sales. "Once a corporation decides that having scats at a game is good for business, that decision isn't going to hinge on whether it gets a larger or smaller write-off," says Herbert Belgrad, chairman of the Maryland Stadium Authority, which operates Oriole Park at Camden Yards. Michael Megna, senior vice-president of Milwaukee-based American Appraisal Associates, who specializes in valuing sports franchises, says: "Remember when [in 1986] they dropped the allowable entertainment deduction from 100 percent to 80 percent? People screamed, but nothing much happened. Perhaps there would be a bit of a falloff in season tickets, but there would still be people buying." A 50% deduction limit, though, could inflict damage on teams in smaller markets, where companies looking for a way to unload season tickets without being branded civic traitors might now do so and blame it on Clinton.

Another source of anxiety is a Clinton proposal to limit deductions of salaries of corporate executives to $1 million unless those salaries are "linked to productivity." Conceivably, the measure could apply to high-paid sports administrators such as NBA commissioner David Stern, who is in the fourth year of a five-year, $27.5-million contract, but Administration sources say that it wouldn't ordinarily relate to athletes. A good thing, too, because in 1992 baseball alone had 264 players who earned $1 million or more. If clubs couldn't fully deduct those salaries, many of their exaggerated cries of poverty would become all too real.

No such comfort is to be found in a Clinton proposal that would affect private golf, tennis, yacht and city clubs. If the President has his way, dues to such clubs will no longer be tax-deductible as a business expense. As with many of the other elements in his economic plan, Clinton is aiming to eliminate what he sees as perks for the rich, but the clubs reply that the rich don't need the write-offs; the deductions, they say, mainly benefit middleclass business people. Moreover, they contend that the revenue raised by eliminating such write-offs—an anticipated $900 million over four years—would be largely offset by the blow to the economy caused by the loss of country club jobs. Still, this measure will play well to the millions of Americans who don't belong to private clubs.

In view of Clinton's aversion to perks, it was a source of some embarrassment last week when reporters noticed a five-foot-wide path gouged along the driveway that circles the White House's South Lawn. At a press briefing, presidential press secretary Dee Dee Myers was besieged by reporters, one of whom asked, as if this were Watergate II, "How about a simple yes or no answer to the question: Are you building a jogging track out there?" The White House soon came back with an answer—yes—and an explanation that the track was needed because Clinton was tying up traffic while jogging on Washington streets, something that a president devoted to eliminating gridlock obviously shouldn't be doing. The White House hastened to add that the track's $30,000 cost was being met with private funds.

If nothing else, the fuss over the track suggests that the battle over his economic plan will take Clinton down some strange paths. As he wages that fight, a jogging track doesn't seem excessive. After all, his morning run is one of the few athletic endeavors of a president whose plan could greatly affect sports. And, really, if Clinton wants other citizens to tighten their belts, shouldn't he make sure he's fit enough to tighten his own?

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PHOTOCYNTHIA JOHNSON/TIMEPHOTOJAMES KEYSERA New York City billboard keeps score on the U.S. debt.PHOTOPETER READ MILLERJordan's taxes would take a big bounce under the plan.PHOTOCRAIG MOLENHOUSEThere might be a lot of empty tables at country clubs if dues are no longer deductible.

TAXING SITUATION

Clinton's plan would raise the top income tax rate from 31% to 36%, plus 3.6% on earnings above $250,000. Assuming taxable income to be 85% of gross income, here's how such a plan would have affected the 10 highest-earning U.S. athletes in 1992. Earning figures are from Forbes Magazine.

ATHLETE

SPORT

SALARY OR WINNINGS

OTHER INCOME

TOTAL

ADDITIONAL TAXES

1. Michael Jordan

Basketball

$3.9

$32.0

$35.9

$2.6

2. Evander Holyfield

Boxing

$27.0

$1.0

$28.0

$2.0

3. Arnold Palmer

Golf

$0.1

$11.0

$11.1

$.810

4. Andre Agassi

Tennis

$2.0

$9.0

$11.0

$.804

5. Joe Montana

Football

$3.5

$6.0

$9.5

$.694

6. Jack Nicklaus

Golf

$0.2

$9.0

$9.2

$.672

7. Jim Courier

Tennis

$3.0

$6.0

$9.0

$.657

8. Monica Seles

Tennis

$2.5

$6.0

$8.5

$.621

9. Larry Holmes

Boxing

$8.0

$.2

$8.2

$.599

10. Michael Chang

Tennis

$1.5

$6.5

$8.0

$.584

*Figures are in millions

SQUEEZE PLAY

The Clinton proposal to eliminate corporate deductions for salaries over Si million probably wouldn't apply to pro athletes, but what if it did? This table lists the U.S. baseball teams with the top 10 payrolls in 1992 and shows the additional taxes each club would have to pay (assuming a 34% corporate tax rate) if deductions were limited.

TEAM

NUMBER OF $1 MILLION PLAYERS

MILLIONAIRES' TOTAL SALARIES

NEW TAXES TEAM WOULD PAY

Oakland

15

$40.0

$8.52

N.Y. Mets

13

$36.6

$8.02

Boston

15

$38.3

$7.91

Los Angeles

14

$34.5

$6.97

Cincinnati

14

$31.5

$5.96

N.Y. Yankees

13

$30.8

$6.05

Atlanta

11

$24.9

$4.73

Pittsburgh

9

$25.3

$5.54

Chicago Cubs

10

$26.6

$5.64

San Francisco

11

$26.6

$5.33

'Figures in millions