Mr. Brand Goes to Washington

Does the NCAA deserve non-profit status?

The head of the National Collegiate Athletic Association, Myles Brand, made an unscheduled trip to Washington this fall, reminding us once again what a singularly weird situation we have in American sports. Two of the most popular sports leagues in the country—Division 1 men's basketball and football—just happen to come attached to non-profit institutions.

Most Americans who care seem happy to throw money at D-1 men's basketball and football, but the NCAA can't exactly embrace popularity and profit. These leagues have supposedly committed themselves to the virtues of modesty, competition, amateurism, and, as hard as it may be to believe, academics. Their unpaid athletes have to pretend to be students even if they have no interest in a degree, and their athletic departments have to pretend to forward the academic mission of their respective institutions even if they're only interested in getting the best players and capitalizing on their efforts. The leagues do this not only to justify their place on campus, but also to justify the huge tax breaks the NCAA and its member schools get for their amateurism.

This was the setting for Brand's bizarre Washington trip this fall, when the House Ways and Means Committee essentially asked Brand the kind of questions any pro league would love to answer: how had his organization had become so out-of-control successful—and what, by the way, did he intend to do about it?

When it comes to D-1 football and basketball, Congress is right about commercial success. The evidence is all over the papers. As USA Today pointed out recently, Division 1 head football coaches now regularly earn salaries of $1 million or more. By the time the current contract runs its course, the NCAA will have received over $6 billion from CBS for the broadcast rights to the March Madness basketball tournament. None of this money is taxed, and that fact hasn't escaped the notice of Congress.

Before coming out to Washington, Brand received a long letter full of pointed questions from Congressman Bill Thomas (R-California). Thomas asked how an organization apparently dedicated to the amateur collegiate athlete ends up with such a commercial, and commercially successful, product. Furthermore, Thomas wondered, why exactly does a rich organization like the NCAA deserve tax free status year after year? In response to the inquiry, NCAA spokesman Erik Christianson told the Indianapolis Star that when it comes to non-profits, it doesn't matter how much money you take in; it only matters how you spend it.

Who's right depends on how you interpret tax law. Congress seems to be skeptical of the notion that bigger, more commercial NCAA productions like March Madness fit within the NCAA's academic mission. If they conclude that it doesn't, the profits could be taxed as unrelated business income. There is a three-part test to determine what is and is not unrelated business income and a case, however strained, can be made for both sides.

More pertinently, it doesn't matter who's right. Americans like their collegiate football and basketball the way it is, which is probably why Congress and the IRS have dropped this subject every time they brought it up.

What's been largely overlooked in this NCAA/Congress showdown is how little of a showdown it actually is. Many of the issues Thomas brought up in his letter have already been addressed by Brand. The NCAA had already been working to improve student-athlete graduation rates and grade point averages. He has also been trying to slow down rapidly escalating men's D-I football and basketball coaching salaries. In other words, he's trying to make NCAA athletes seem more like actual students, and he's trying to make collegiate athletic departments seem more like other college departments.

This is the sort of whitewash act the NCAA will need to keep up as their marquee sports grow in popularity and as their second tier sports, like soccer, women's basketball, or lacrosse, begin to catch on. That may be enough for Congress, which decided that amateur sports deserved the non-profit exemption in the first place. Forty years of precedent suggests that the NCAA will keep its non-profit exemption as long as what it does appears to be what Washington thinks of when it thinks of amateur sports.

So long as the big teams take the field every fall, most people won't care too much about the NCAA and its balancing act (beyond a small number of angry professors), but the basic economic lesson in all this bears repeating. It may sound like a good idea to try to force the market to serve a virtue like amateur athletics rather than profit, but you'll never take the profit out of the NCAA. Skilled recruits will still seek off-the-ledger compensation for their letters of intent; coaches and athletic directors will compete for recruits in unsanctioned ways; schools will still get subsidies for their stadiums and practice facilities; and the market for top-notch coaches will continue to push salaries skyward.

Meanwhile, fans will continue to write off contributions to the team as charity. And the NCAA will make regular pilgrimages to Washington for another game of charades.

Aaron Steinberg is a freelance writer in Washington, D.C.