In case you hadn’t heard, the NFL is tax exempt. Gregg Easterbrook calls attention to this in his 2013 book, The King of Sports. In an excerpt from the book published in The Atlantic, he writes that the NFL gained tax-exempt status via an obscure law passed in 1966 that added “professional football leagues” to the definition of organizations eligible for 501(c)(6) status.
“This decision has saved the NFL uncounted millions in tax obligations, which means that ordinary people must pay higher taxes, public spending must decline, or the national debt must increase to make up for the shortfall,” Easterbrook contends. He attacks the NFL’s tax-exempt status because of Commissioner Roger Goodell’s $30 million annual salary. The NFL pays its top executives over $60 million a year, according to Easterbrook’s reading of the league’s Form 990.
Easterbrook isn’t the only one to have noticed the NFL’s tax-exempt status. Sen. Tom Coburn, R-Okla., has been trying to lead an effort to change the league’s status for a while. He has proposed a bill to end the tax-exempt status of all professional sports leagues, a change that the JCT says will raise over $100 million over 10 years.
If you’re skeptical of that number, you are starting to notice one of the holes in Easterbrook’s and Coburn’s campaigns. The NFL brings in over $10 billion annually, so how can a bill to subject it to tax raise less than $10 million a year? Because only the NFL itself, and not its 32 member teams, is tax exempt. The league offices distribute all of the league’s enormous television and apparel revenue back to the teams. It is the teams that are extremely profitable. The league offices, which administer the rules of play, pay referees, and the set the schedule, run at a loss, according to the league’s attorney.
That doesn’t mean the NFL isn’t stretching the rules of a nonprofit. It is, and its officers seem to realize it. The league offices negotiate the lucrative television contracts with the networks that give the NFL most of its profitability (gate revenues are now easily dwarfed by the four major contracts with Fox, CBS, ESPN, and NBC). That is a service that is arguably prohibited under tax-exempt rules. The league also used to offer a loan program to its teams for stadium construction. David van den Berg examines that program in detail in Tax Notes this week. Perhaps realizing it might have made a mistake, the league ended the loan program and started another one in a taxable entity known as NFL Ventures (which also runs the NFL Network and other for-profit activities undertaken jointly by the teams).
Whether the NFL should lose its tax-exempt status is an interesting question, but it’s not all that important. In fact, it may be distracting people like Coburn from something more costly and insidious. Removing the league’s tax exemption would be a largely symbolic move that would raise little revenue and wouldn’t change much about how the league does business. Far more significant would be increased debate and transparency over publicly financed stadium construction and the tax favors that are doled out to keep teams from moving (a threat that Easterbrook argues is largely hollow). But that’s a subject for next time.