Punting Sports Advertising : Proposed bill could cause more turmoil than any blocked kick

A statute imposing hardships on businesses won't necessarily cost a politician votes. Tax law revisions that fail to raise their projected revenue are old hat. But some recently proposed budget bills could cause some serious Joe Sixpack backlash. They could affect football.

This is the third in a series of posts about proposed budget revisions that would affect how the tax code treats advertising expenses. Today’s piece covers how they might affect sport.

It's not just football, of course, that could feel an impact from legislation that would force companies to account for advertising differently from other expenses. Every sport at just about every level relies on sales of signage, broadcast commercials, and bobblehead sponsorships for a significant portion of its revenue.

The specifics of the bill involve allowing businesses to deduct only half of their advertising expenses in the year they spend the money, with the other half amortized over a five- or ten-year period. The American Advertising Federation estimates “Even a modest reduction that limits the amount a business may deduct of its total advertising spending could cost the nation 1.6 million jobs and $419 billion in economic sales activity.”⁽¹⁾ While I can’t verify those specific figures, I can certainly determine that the policy will result in less spending on advertising and that jobs will thus be lost. Because Plunkett Research estimates the annual U.S. sports advertising spend at $31.5 billion,⁽²⁾ we can surmise that a not-insignificant number of the lost jobs will be sports-related. Sports, in fact, gets hit on both ends of the ad spectrum. Teams and leagues sell advertising to those who want to reach their fans, but they also buy advertising to attract those spectators to their games.

Sports presents a useful laboratory for how many of the proposed law’s premises might work in practice. The first blog in this series touched on the difficulty of defining advertising in a digital world and sports really runs up the score on that topic. The tricky business of defining how PR fits into the ad spectrum will affect all industries, but sports presents special challenges. If you mention your marketing campaign in a press release, do you have to account for the time you spent writing differently from the one about placing your DT on Injured Reserve? Teams sell the backdrops they use in back of their press conferences. Should that placement be an advertising or a PR expense for the sponsor?

In sports, sponsorships often include ancillary benefits that are difficult to quantify. The sponsor itself, for instance, might do a press release about the sponsorship it just bought. How do the ad police figure out if classifying the release copywriter’s fee as PR instead of advertising is a violation? Companies buy sports sponsorships in part because they benefit in a number of areas. Their earned media could end up having a similar impact to that of their signage, but regulators would measure it completely differently. Come to think of it, it might be asking a lot for tax officials to have to master all the subtleties of sports sponsorships, especially as they’re simultaneously trying to learn every other industry’s marketing nuances.

How about statistics? If a radio commercial cites an obscure statistic, does the baseball operations department have to change the way they account for the stats program that provided it because it was now used not only for talent evaluation but also for advertising? The fantasy sports industry (much of it ad-supported) really needs clarity on the deductibility of sports stat-keeping.

How do we treat merchandise? Is it advertising if someone pays you for the privilege of wearing your brand? If so, does the team have to amortize settlements from trademark-infringement lawsuits?

The bill’s reasoning tilts precariously on the notion that ad costs should depreciate over a number of years because all advertising retains a proportional amount of its impact for that period. Some sports ads do become iconic. But the immediacy of sporting events and constant customer re-evaluation of its brand ambassadors based on those events dooms much messaging to a more transitory status.

For instance, does the commercial the Texas Rangers did with Josh Hamilton a couple of years ago retain some value for the club now? Or does it in fact provide a negative return since he has departed for a bitter rival amidst a cacophony of fan resentment? There is no precise way to measure such effects. Heck, if the Angels can’t accurately determine the impact of Hamilton’s bat on their lineup when risking some $125 million on him for five years, the Rangers surely can’t calculate an accurate monetization of the residual effects of his old TV spot over the same time. Perhaps someone needs to write sports advertising’s version of Moneyball.

Some sports entities, especially colleges, operate on a not-for-profit basis. If your name goes on a structure built for the purpose of helping student athletes learn to lift weights better, is it advertising or is it a donation? Right now, it’s the latter.⁽³⁾ If that status continues, one would expect to see a significant shift of dollars into college sports and any other sporting entity that can manage to get itself classified as a not-for-profit (insert Phoenix Coyotes joke here).

If the budget proposal does pass, one can imagine to see all kinds of legal maneuvering by teams and every other kind of business to get what they do classified as something other than advertising. Will that activity make the economy more productive? Well, no. But it does provide a potential way out for some of you. If you think you’re going to lose your job selling sports ads, go into lobbying.

Rush Olson has spent two decades directing creative efforts for sports teams and broadcasters. He currently creates ad campaigns and related creative projects for sports entities through his company, Rush Olson Creative & Sports.

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Footnotes

⁽¹⁾ “Threat to Advertising Deductibility,” American Advertising Fedration. http://www.aaf.org/default.asp?id=1430 (accessed December 8, 2013).

⁽²⁾ “Sports Industry Overview,” Plunkett Research, Ltd. http://plunkettresearch.com/sports-recreation-leisure-market-research/industry-statistics (accessed December 8, 2013).

⁽³⁾ Eric Dexheimer, “Does big-time college football deserve its big tax breaks?” Austin American-Statesman. http://www.statesman.com/news/news/state-regional/does-big-time-college-football-deserve-its-big-t-1/nRbKy/ (accessed December 8, 2013).