CHICAGO — In Darryl Jacobs’ line of work, it’s a tough year to be a sports fan.
It has nothing to do with the performance of the Chicago tax attorney’s favorite teams. Instead, a tax code change that strips away a popular business entertainment deduction has cut into his ability to hobnob with clients at sporting events, theaters and concert venues.
Jacobs, a lawyer at Ginsberg Jacobs in Chicago, said the change already has affected the way his firm does business.
The firm bought half as many Cubs season tickets this year as it did last. Many of its White Sox season tickets, which used to be tax-deductible when used to entertain clients, are now being donated by the firm so that their cost can instead be deducted for charitable purposes.
“What I’m seeing from my clients — and us, too — we’re shying away from entertainment like concerts and sporting events,” Jacobs said. “It’s become a different environment now.”
Before this year, a business could deduct 50 percent of the cost of a ticket to an event when entertaining clients, whether for a White Sox game, a concert or a theater performance.
But under the tax act passed last year, that deduction is gone. Companies still are permitted to deduct 50 percent of the cost of businesses meals, including those that involve entertaining clients.
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That change has caused more than a few headaches for businesses who rely on perks to seal client relationships. And some business owners and sports industry watchers say the elimination of the deduction could cause ticket and suite prices across sports stadiums, theaters and other venues to stall or decline, as critical corporate clients cut back.
There are still a number of unanswered questions about the change, such as what counts as entertainment and what can be categorized as a meal. A hot dog at the ballpark? Dinner after the game?
The IRS is expected to issue more details about the tax code change this summer. Until then, while some businesses are making immediate changes in how they entertain, many others are “cautiously continuing what they did in the past,” said Brian Ray, a Maryland accountant who works for Hertzbach and Co.
Scott Spencer, president of Suite Experience Group, a California company that sells space in luxury suites, said that although it’s still too early to see the full impact of the tax change, he thinks many long-term suite leases will change hands in the next few years as contracts come up for renewal.
And prices may come down as well, as demand from heavy-spending corporate clients wanes, he said.
Any contract changes made by businesses because of the new tax law may begin with hockey, baseball and basketball stadiums, which tend to have suite contracts that last between three and five years, Spencer said.
The NFL has the longest contracts, he said. Suite contracts at AT&T Stadium, home of the Dallas Cowboys, can stretch up to 20 years.
Todd Lindenbaum, SuiteHop’s CEO, said that although he sees the tax change as a “catalyst for people to take a look at what they’re investing in,” he doesn’t think the change will lead to a significant slowdown in the purchase of entertainment packages or suite shares.
“Take the Masters (Tournament) in Georgia — that’s a bucket-list item. If you can take a client there, you can solidify a relationship forever,” he said.
But Darryl Jacobs sees a big potential impact.
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“People say it’s not a big deal because it doesn’t include meals, but when businesses cut back, those entertainment venues will suffer,” he said. “Baseball parks aren’t going to sell out as much.
‘When (businesspeople) eat less at the park, the vendors make less. I don’t think they realize there will be a real economic effect because of the reduction in spending at these events.”