The NFL is a non-profit organization. That means it conducts itself as an enterprise which promotes a “common business interest and not to engage in a regular business of a kind ordinarily carried on for profit,” according to the Internal Revenue Code.
Dave D'Alessandro of the Newark Star-Ledger reports while individual teams operate as for-profits, the league itself does not, and therefore enjoys federal tax-exempt status on its earnings. Sometimes, it even avoids taxes at the state and local level. For example, NFL employees aren’t charged tax when they stay at a hotel during the Super Bowl.
The NFL paid its top eight executives roughly $53.8 million in 2012, including $11.6 million for its current commissioner (Roger Goodell) and $8.5 million for its former commissioner (Paul Tagliabue).
“This really flies under the radar,” says a young litigator from Vermont with sports/entertainment law expertise that we met the other day named Andrew Delaney. “You ask your average guy on the street what he knows about the NFL, and the conversation is likely to be about how the players are overpaid or how the players need to behave in public. Most people don't even know that the NFL is in any way a non-profit.”
Delaney’s interest in the subject first came up in 2010, when as a law student he wrote an article for the Arizona State Sports and Entertainment Law Journal. The paper was entitled “Taking a Sack: The NFL and its Undeserved Tax-Exempt Status,” and some of the facts contained therein weren’t known to most people – least of all the Senate Finance Committee.
But somehow, it found its way to the staff of Oklahoma Senator Tom Coburn, who cited many of the facts in Delaney’s paper to craft an amendment that he has attached to the Marketplace Fairness Act this past Thursday.
This is not a new quibble for Coburn – he’s also going after the PGA and NHL -- but now he's given it a name: It's called the Property Reducing Overexceptions for Sports Act (PRO Sports Act). And when it comes up for a vote, we could see the end of the NFL’s tax exempt status forever.
Coburn, who never has much of an agenda other than cutting waste wherever he detects it, thinks that “based on the publicly available information about the NFL and NHL alone, (revoking) non-profit status may generate at least $91 million of federal revenue every year.”
Delaney calls the NFL a “glorified tax shelter,” which is an ironic term, considering that NFL Ventures turned a profit of $1.295 billion in 2010 according to the documents given to Deadspin last year.
NFL teams write off the $6 million annual membership dues as a "charitable donation" to the league, and the NFL in turn takes that $192 million and puts it into a stadium fund that gives owners interest-free loans as long as they secure public financing for their new or renovated stadiums. That means we’re left with two bills: Not only do taxpayers lose out on federal tax revenue, we pay for new stadiums that generate profits which enrich only the owners.
“Losing its tax-exempt status would work an extraordinary hardship on the NFL,” Delaney believes. “Many of its subsidiaries are for-profit enterprises. So the biggest change will be that the membership assessments will not be tax write-offs for the individual teams. And the NFL would, at least theoretically, have to pay taxes on that income.”