NFL

Congressman Slings Another Rock at NFL's Tax-Exempt Status

Politicians have attempted to strip the multibillion-dollar league of its tax-exempt status for years.

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||| NFL/flickr

The National Football League (NFL), which took in $9.5 billion in revenue last year, is classified as a 501(c)(6) "trade association of manufacturers" and thus not subject to taxation, a status it has enjoyed since 1942.

That could change if new Chairman of the House Oversight Committee Jason Chaffetz (R-Utah) has his way, though. The congressman announced legislation last week to strip the league of its tax-exempt status.

In a recent interview with CNN after the Super Bowl, Chaffetz asked, "Was that a nonprofit event going on or was that a for-profit venture? It's a for-profit venture. You tell people that the NFL is a nonprofit entity and they just start laughing and giggling. But it's not fair. If there's another side to that, then let the commissioner come in and make that case."

These thoughts were echoed in a press release from Chaffetz's office, which also calls into question the National Hockey League (NHL):

Professional sports organizations aren't fooling anybody. Organizations like the NFL and NHL are for-profit businesses making millions of dollars each year. These are not charities nor are they traditional trade organizations. They are for-profit businesses and should be taxed as such … Closing this loophole should be combined with closing several other loopholes in order to lower tax rates in a revenue-neutral manner.

The NFL's individual franchises are not tax-exempt, meaning that the large bulk of revenue, stemming from ticket sales, TV rights, and merchandise, is subject to taxation. Still, the league office's tax-exempt status has allowed it to avoid a reported $100 million in taxes over the past 10 years, according to a report from the Joint Committee on Taxation.

The league is not alone. The Association of Tennis Professionals (ATP), Professional Golf Association (PGA), and Ladies Professional Golf Association (LPGA) also benefit from this tax-exempt status. Major League Baseball (MLB) was once exempt but forfeited the status in 2007 when the IRS started requiring 501(c)(6) groups to disclose the salaries of executives making over $150,000. (It's for this reason we know NFL commissioner Roger Goodell earns $44 million a year.)

Chaffetz, who attempted but failed to pass a similar bill last year, picks up on the work of former senator Tom Coburn (R-Okla.), who fought for years to eliminate the NFL's tax exemption, and former House Ways and Means Chairman Dave Camp (R-Mich.), who proposed similar legislation last year.

Experts are skeptical that any meaningful progress will be made on the issue, however. Here's an excerpt from a Washington Examiner feature on the topic last month:

Sports lawyer Darren Heitner doubts such tongue-lashings will have much long-term effect on the NFL's popularity. "From a broad perspective, that scrutiny that comes up every so often is probably worth it if the league can save millions of dollars every year," he said. 

"I think that the politicians who are talking about doing this are really grandstanding," said Andrew Zimbalist, economics professor at Smith College. "I don't think there's anything substantial here. If they want to go after NFL profits, there's a much more direct and reasonable way to do that."

Neither Heitner nor Zimbalist believes the NFL would lose much money if it shed its 501(c)(6) status. "The NFL has very expensive accountants on retainer," Heitner said. "I think with a little ingenuity, it would be possible to show that not only does the NFL not make all that much money, but from the league's standpoint, potentially takes a loss."

Zimbalist agreed."If the IRS says to them or Congress says to them, 'You can't be a nonprofit anymore,'" he said, "what they would be able to do is simply distribute more to the teams or pay themselves higher salaries, and make any profits disappear from the central office. It would have no impact."

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  1. Organizations like the NFL and NHL are for-profit businesses making millions of dollars each year.

    A business as mismanaged as the NHL is turning a profit?

    1. Guessing TV rights fees.

    2. Only the Canadian side is profitable. Until the US side can get through their very bad contract with NBCSN, they will be bush league as far as TV money goes.

  2. sports shmortz

  3. ‘You can’t be a nonprofit anymore,'” he said, “what they would be able to do is simply distribute more to the teams or pay themselves higher salaries, and make any profits disappear from the central office. It would have no impact.”

    If they distributed more to the teams, the teams would owe tax. (Though yeah they have their own accountants.) The teams aren’t non-profits.

  4. Like the lawyer said, it won’t make an effective difference. The league will just pay out more in deductible expenses if it loses its NPO status. I don’t think the league’s potential accounting tricks are a reason not to, however.

  5. Libertarians and reason rightly objects to corporate income taxes as being a waste of time and damaging to the business climate. You tax corporations by taxing the dividends they pay to shareholders and salaries they pay to employees. Corporate “profits” are in many ways a mirage. If I own a corporation, I could run it as a break even or even a loss despite it being very profitable. I just pay myself a big salary as CEO or pay myself dividends as a stock holder. Reason is well aware of this and rightly objects to corporate income taxes.

    So why does reason suddenly decide the NFL being “not for profit” is such an outrage other than they don’t like the NFL and have let that dislike make them stupid here? It makes no difference whatsoever to call the NFL “nonprofit”. In a sense it is. The purpose of the league is not to make a profit. It is to manage the competition so that the individual teams make a profit. Any money that goes through the league that is not paid out in salaries goes right to the teams. The league management doesn’t exist to make a profit. It is just a conduit for money that goes to the teams who are there to make a profit.

    This is a completely stupid issue. Worse still, supporting it just gives credence to leftists ideas about greedy corporations and the evils of corporate profits, which is most certainly a very bad thing.

    1. Bread and circuses, John. This is just the government giving people circuses and spectacles to draw the plebs attention away from what’s really going on.

    2. Where in this article is a single sentence implying that “Reason” thinks the NFL should pay taxes?

      1. The entire article. It reports the entire thing as a serious issue. Why write about it and not point out the artificiality of the claim if not to endorse the claim? What possible other point could this post have?

        1. The point of the post is’ “Reason readers enjoy the NFL and here are some Senators that want to strip tax-exempt status from the NFL”. I know you like to ferret out the secret Progressives on the Reason staff, but there is nothing here. Let it rest.

        2. Once upon a time, a news organization could print an article without advocating for one side or the other.

          I was thinking along the same lines as you regarding corporate taxes.

          I could quite easily support the opinion that Reason is against revoking the non-profit status considering that the article ends with the claims that it probably would have no effect if revoked.

    3. Way off-base, John. There is no anti-NFL slant in the article.

      The bigger question is, why are GOP Senators so eager to tax sports leagues? I thought they were the party of low taxes and small government?

      1. I think reporting this as anything but a sham and making the points I just made is to give it credence as being a serious point. And since when does reason refrain from pointing out GOP populist idiocy? This is a great example of GOP populist idiocy and gets played without any mention of that or criticism of it.

        1. In his defense, the writer is the winter 2015 Burton C. Gray Memorial Intern at Reason. Perhaps he’ll read these comments and get more bitchy and libertariany in his future articles?

          Otherwise, John you may think about switching to decaf. You’re awfully wound up.

          1. Fair enough. I think author missed an excellent opportunity to explain the nature of corporate taxes and how artificial and stupid they are.

    4. The purpose of the league is not to make a profit. It is to manage the competition so that the individual teams make a profit.

      I suspect its to manage the competition so that the teams and the NFL makes a profit, and the teams use the NFL as a tax shelter to delay payment of taxes on the net revenues held by the NFL.

      I’m torn on this one. OTOH, tax avoidance yay. OTOH, cronyism boo.

      1. I suspect its to manage the competition so that the teams and the NFL makes a profit, and the teams use the NFL as a tax shelter to delay payment of taxes on the net revenues held by the NFL.

        So what? Companies do that kind of thing all of the time. First, unless you can show me that the NFL is withholding payment from teams, how are they “deferring taxes”? I have never heard of them doing it and I seriously doubt they are. There is also the time value of money. The teams want their revenue now. And if they are looking for a way to defer taxes there are a hundred easier ways to do that at the team level.

        There is nothing to be torn about here. If you say the NFL subject to taxes, you will effectively make the teams pay taxes twice. The league will pay taxes on the revenue before it is divided and then the teams will pay on it again when they pay themselves or make a profit.

        Moreover, it would be impossible to fairly calculate the “NFL’s profit”. the league takes in however many billion dollars in TV revenue. The teams, however, are the ones who incur the cost associated with doing that. The NFL doesn’t pay any player salaries or other costs associated with putting on the games that produce that revenue. The teams do. So how is it fair to tax the NFL on the revenue when they can’t deduct the cost incurred by generating it?

    5. Look at john defending the nfl again. What a surprise.

      1. Corporations are what they are and taxes on their profits stupid no matter what the corporation. If you don’t like the NFL, don’t watch it. But the fact that you don’t like them has nothing to do with the question of whether the league itself, rather than the teams should be taxes. Taxing the league is stupid and counter productive and feeds into leftist bullshit about corporations.

    6. John,

      The NFL brings this shit on themselves because they are horrible crony capitalists. If they didn’t shake down tax payers for their stadiums, no one supports this shit.

      However, they suck so hard at the govt teat that it is hard to feel sorry for them when the govt turns on them.

      1. Every corporation would do that if they could. You can’t blame people for gaming the system. You blame the government for setting up the system so that they could game it.

        Regardless, if you don’t like NFL subsidies, you should argue against them and get them stopped not buy into screwing them on their taxes.

  6. The NFL should become a church.

    1. It is how I spend my Sundays…

      1. See? It’s already halfway there. And lo, did the defensive end smite the offending quarterback.

        1. But The Referee sayeth unto the defensive end, “Do not even looketh at the quarterback. You smitith the quarterback, and shall be cast into Hell for all eternity.”

          1. A player shall not touch a tight end as a QB touches a center. It is an abomination.

  7. Alt-text is tax-free.

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  9. Whatever you say about the NFL would apply to commodity marketing boards (the non-governmental ones) & trade ass’ns.

  10. This article is intentionally deceptive. The NFL League central office is nonprofit.

    The individual teams, their owners, coaches, players, other employees, etc. pay taxes. A LOT of taxes.

    1. The NFL’s individual franchises are not tax-exempt, meaning that the large bulk of revenue, stemming from ticket sales, TV rights, and merchandise, is subject to taxation.

  11. The the NFL executives pay themselves higher salaries to make the NFL have “no profit”, then more tax revenue will come from their higher salaries.

    What’s exceedingly annoying about these sports organizations is all the public money spent on building their venues.

    Make them pay for their own damn playhouses!

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