Cincinnati Reds Win Legal Battle Over Promo Items Tax: Analysis
Wins proved hard to come by for the Cincinnati Reds this past season, as their 67-95 record marked their sixth-straight losing campaign and landed them in the National League Central Division’s basement. Despite that futility, they had cause to celebrate on Thanksgiving Day, as only a few hours prior to the holiday, the Ohio Supreme Court determined that the franchise need not fork over promotional products-affiliated taxes, a decision that should have positive effects on the relationship between promo entities and sports teams.
The legal confrontation between the organization and the state’s department of taxation dates back to last winter, with June 13 having commenced oral arguments in the matter. On Wednesday, a 5-2 verdict gave the Reds what one might call their first victory of 2019. Thanks to the ruling, the team won favor for its argument that it is selling bobblehead and other promo items at games, rather than giving them away, based on factoring the cost of the commemoratives into ticket prices.
— Ohio Supreme Court (@OHSupremeCourt) November 21, 2018
Now, we here at Promo Marketing love baseball, but we also know, despite its reputation as America’s pastime, that not everyone shares our adoration and that drawing crowds often calls for standout promotions. It’s no secret that teams have definitely upped their promo prowess via bobbleheads, so the entire Reds situation has some very interesting elements to it, especially since the vote did not yield a unanimous conclusion.
From the taxation department’s point of view, the goods that the organization distributed from 2008 through 2010 should have resulted in the collection of taxes, with levy proponents arguing that though local law exempts companies from paying taxes on products they purchase with intent to resell, the Reds’ decision to give them away as a component of the fan experience has not constituted and should not constitute adherence to the precept. Since the franchise needs to retain and strengthen its relationships with promo businesses, it does so, at least in part, by elevating ticket costs for games that will feature a giveaway—a practice, we presume, that many teams across the sports world replicate. We all know that organizations also have tendencies, regardless of a promo connection, to charge more when higher quality opponents come to town or when a game has elevated significance, so a bump in costs surrounding the execution of a promotion does not sound outlandish or even shocking.
That proved the Reds’ central theme in eventually garnering the favorable outcome from Justice Patrick Fischer and four of his peers. However, the counterargument is an interesting study in the overall connection between ticket costs and availability of promotional goods, as Justice Mary DeGenaro noted that since distribution of bobbleheads or other promo items is not always universal, there are some fans who could theoretically end up not receiving a commemorative and yet paying the same ticket cost, or even a greater one, as those who have had that product add to their game experience.
“Every ticket purchaser at every game helped pay for promotional items regardless of whether a promotional item was received—or was even offered—at a particular game, and that circumstance breaks the link between the payment of the ticket price and the offer of a promotional item,” the dissenting judge proclaimed.
In the minority, however, DeGenaro and the other disapproving justice would, if they wish to have the Reds pay anything on such interactions between the organization and its fan base, have to argue that the state law needs modification. Does this verdict, then, give bobbleheads exalted status? Fischer holds that the wobbly items and other promotional products would not create a loophole, as other teams, not necessarily in Ohio, might end up deciding to discount tickets for games or matches when bobbleheads are available, meaning they could still possibly draw large crowds yet see themselves needing to pay taxes on the products.
Therein, of course, may reside a very interesting case for the future of exchanges between promo businesses and teams looking to fill fields and stadiums (read: every franchise in every sport). The Ohio Supreme Court’s nod to the Reds’ marketing mindset is an overall positive for said businesses that sell to sports franchises, since those organizations can save a little cash by buying them if they do not have to worry about facing excessive taxation seekers. As we all know, “if” is a miniscule word with massive implications, so it will be interesting to see if other states’ taxation departments likewise look to implement fees on teams who call on bobbleheads to support their coffers.