Section 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
So reads the website of the Internal Revenue Service.
Does anything strike you as odd in that statement? It should.
Three simple words in the IRS’s Internal Revenue Code, “professional football leagues,” effectively classifies the National Football League as a nonprofit, tax-exempt, entity. It doesn’t say professional sports leagues. Just football.
According to a Business Insider article, this has to do with “lobbying efforts by Pete Rozelle in the 1960’s to earn an antitrust exemption for the merger of the NFL and the AFL.” These exemptions were attached to a bill that was going to easily pass through Congress and had absolutely nothing to do with football.
More from the IRS on how these tax-exempt leagues are expected to operate:
To be exempt, a business league’s activities must be devoted to improving business conditions of one or more lines of business as distinguished from performing particular services for individual persons. (Ask the retired players, and even come current ones how this is going one year removed from a lockout and countless lawsuits over player benefits and health issues.) No part of a business league’s net earnings may inure to the benefit of any private shareholder or individual and it may not be organized for profit to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only enough income to be self-sustaining).
It’s hard to fathom how an operation like the NFL, which generated somewhere around $9 BILLION in revenue last season, could comply with those expectations.
According to the NFL’s Form 990 filings—the forms that nonprofits file with the IRS, and are available to the public, with financial information about the organization—the league operated in the red for at least the last two years.
The Nonprofit Law Blog explains that nonprofits may not be required to pay taxes on related income, revenue earned from the sale of goods and services. Unrelated business income can be taxed, though, and the blog describes such income as such:
- a trade or business
- regularly carried on
- not substantially related to the organization’s exempt purpose
So the $9 billion in revenue isn’t figured into the league’s operating costs, and that’s how you get the $42.3 million and $52.2 million operating deficits. And, on a separate but related and awfully surprising note, Roger Goodell’s eight-figure salary accounted for a quarter of the operating deficit each year. Further, the total compensation of the league’s eight paid executives (which includes Former Commissioner Paul Tagliabue, who was compensated over $8.5 million and worked an average of 0 hours a week, which makes sense considering he’s retired) basically made up the entire operating deficit.
Can you hear me gagging through my words?
The NFL skates by having that $9 billion classified as business-related income. It’s sickening.
Not long ago, I looked at a Forbes article on the worth of the League’s teams. The 32 “members” of the NFL, on average, are worth about $1 billion—two thirds of the teams are worth over $1 billion, and “America’s Team” is worth just north of $2 billion.
So much money is involved in this league, it’s amazing. Having not known about this, it completely changes the way I look at the business of the league. It makes the whole lockout-that-was situation look even worse if you ask me. How could the NFL be OK with this? Better yet, with all of the focus on the economy, wasteful spending, and finding new revenue, how has the government allowed this to continue?
According to Rick Cohen of Nonprofit Quarterly, one Senator is hoping to put an end to the NFL’s tax-exempt status.
Cohen looks at Senator Tom Coburn’s (R-Okla.) 2012 edition of his annual “Wastebook” on government-allowed pork. In Cohen’s “Wastebook” he points to “the $91 million provided by American taxpayers for allowing the NFL and the National Hockey League—yea I just learned this one too—to classify themselves as nonprofit organizations.”
“It’s hard to countenance the idea of high rollers at the NFL using their (c)(6) tax exemptions at the Super Bowl in Indianapolis to avoid paying taxes for hotel rooms, meals, auto rentals, and even fuel, as the Wastebook says they did,” says Cohen.
Greed just runs rampant through the NFL, and it’s starting to become a real turnoff. While the league has a nice thing going in the Play 60 program, I can’t think of much else that would put it on the same level as a, say, an Alzheimer’s Association, or American Cancer Society, or the Red Cross.
What say you, readers, on the tax-exempt status of the organization that rules your Sundays, and Monday nights, and Thursday nights (for those that pay for their network)? Should it stay, or does it need to change?