The truth about baseball subsidies: They suck

Mike Riggs Contributor

Next to farm subsidies, I can’t think of anything dumber than sports subsidies. As Matt Welch put it not too long ago, “In very much the same spirit—only much, much worse—that rich rock stars never have to pay for guitar strings, rich baseball owners (i.e., all of them) never have to pay anything close to full market price for their most important asset: their home stadium.” Team owners have two stock responses to the argument that they should pay for their own damn venues: The first is that public-funded private venues boost local economies. The second is, “Shut up and pay up, or we’re moving to a city where the people do what they’re told.” In Sunday’s New York Times, professors Richard Schmalbeck and Jay Soled pointed to another type of nefarious subsidy: Tax exemptions for tickets, which in turn lead to price inflation.

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.

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.

I don’t know that the public has been “cheated” out of that public revenue–one could argue that local and state governments already have too much tax revenue at their disposal–but exempting ticket sales does mean that team owners are even less likely to pay back their publicly-funded stadium costs. It also means young Americans will miss listening to their dads complain about the cost of domestic beer and their easily burned bald spots.