How College Athletics Can Respond to Tax Changes

With April 17th days away, we’ve got taxes on our mind. And while the tax bill that went into effect in January has already impacted individuals, that bill has sports organizations, particularly college athletics, wondering how the bill will impact them over the next several years.

The MLB and NBA have already expressed concern about one of these changes, which limits the tax deductions of the swapping of assets to “real” assets (i.e., physical real estate). In effect, that means that teams could see a capital gains tax every time they exchange or trade players. That could lead to millions in taxes for the added value players bring to teams, while also opening up questions on what a player’s value truly is, and over what period of time that value would apply. This is uncharted territory for sports on several fronts.

College sports, while not affected by the “players as assets” change, may see one of their main revenue streams substantially cut: donations. For decades, athletics departments have relied on donations that give the right to the contributor to buy top-tier football and baseball tickets. The tax bill, however, removes the tax incentive (these contributions have historically been 80 percent tax deductible) on a federal level. While states could provide the tax benefit in lieu of federal taxpayers, an economist estimates the change will result in a 20 to 30 percent drop in donations.

At the end of 2017, some schools encouraged donors to front-load donations for two years to gain the tax benefits before they were eliminated. While that’s no longer an option with the bill in effect, there are several other methods colleges can take to keep donations (and ticket sales) coming in.

Promote olympic sports to targeted segments

Because of the implications of changes to donations, college sports officials have said that “Olympic sports” are now at risk. Those include volleyball, swimming and gymnastics, and they typically have to be funded by sports like football and basketball because they don’t generate enough revenue to pay for themselves.

Finding the right audience for these is more challenging than for events such as Big 10 football or March Madness, but certainly not impossible. Using niche audience segmentation, teams can combine information about past attendees of these events, those who have expressed interest in the different olympic sports, and other behavioral indicators. They can then reach those people in several ways:

Watch our on-demand webinar on 6 killer sports fan segments

Reach new donors or re-engage lapsed donors

We’ve talked before about some methods for increasing donation on digital channels (including clear calls-to-action, online payment options, and images with a clear focal point). Social in particular is great for attracting first-time and lower dollar amount donors, which unlike high value donations aren’t tied to valuable seats and can easily be set up to be recurring. And as an added benefit, understanding and reaching potential donors with targeted messaging will go a long way to offsetting the potential revenue losses from the tax bill.

And while organizations will see positive results with basic segments composed of donors from past years and seeking additional donations from current donors, since departments already do outreach to both of those segments, lookalike modeling can get them big results.

This would entail using data points you collect around past donors, with donation as the focal point. You would then take a look at:

  • Social behaviors
  • Event check-ins & purchased tickets
  • Brand affinities
  • Demographics
  • Geographic data

You would then build a profile of an “ideal” donor (and depending on how many there are, come up with tiers based on level of donation, and how “close” they are to a particular profile). Using that data, you go to the rest of your database—that is, those who have never donated before, but share other data points in common with those donors. You can rank order this list and provide it to development and giving associates for direct phone and email outreach. We’ve seen measured success in outreach to lookalikes with a personalized approach as opposed to traditional, general outreach to your broad database.

Maximize ROAS for ticket sales

There are three main revenue streams currently for college sports: media rights, donations and ticket sales. If donations tick down, departments will need to sell more tickets and/or reduce the spend for marketing and advertising.

Using the various data points we’ve mentioned up above, which teams can gather through WiFi login, contest entries and gated content, athletic departments can create targeted segments to use in ticketing campaigns not just to help sell olympic sports, but also to drive down return on ad spend for easier-to-sell events (like football and basketball). Collecting this data can also help for targeting to bring people into the stadium during a losing season.

Audience segmentation will especially be critical if teams need to raise general ticket prices to offset lost donation dollars in the next several years. While athletic departments keep an eye on the implications of the tax bill, they can also keep their other eye on making sure they understand their current audience to make sure all sports can thrive when the dust settles.

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