It’s tax day, and while millions of Americans scramble to finish their tax returns, a select group of organizations that collectively made billions of dollars last year will not have to pay federal income taxes, as usual. We’re talking, of course, about sports leagues.
The National Football League, National Hockey League, and PGA Tour lead a list of professional sports leagues that qualify as 501(c)(6) non-profits, the same tax-exempt designation used by business leagues and trade associations. To the IRS, these leagues are similar to organizations like the U.S. Chamber of Commerce and the American Medical Association. They work to promote their industries, not as for-profit enterprises, and therefore should not have to pay federal income taxes.
Additionally, the NCAA is considered a 501(c)(3) organization, just like charities and advocacy groups including the Red Cross, Amnesty International, and the Salvation Army.
These tax exemptions have drawn substantial criticism in recent years, particularly for the NFL. Several members of Congress have pushed, unsuccessfully, to strip the NFL and other leagues of non-profit designations. While support for these bills have been tepid, it is the rare issue that has drawn bipartisan support. Republicans such as former Oklahoma Sen. Tom Coburn and Utah Rep. Jason Chaffetz have joined Democrats such as New Jersey Sen. Cory Booker and Washington Sen. Maria Cantwell in calling for an end to tax exemptions for sports leagues.
There is significant debate about whether outrage over these tax exemptions is justified. The pro sports leagues defend their nonprofit designations as proper, and point out individual sports franchises — which rake in the vast majority of the billions generated by television contracts, tickets sales, and merchandise — are all for-profit, and thus pay taxes on their income.
“The League Office has always been a nonprofit because it does not engage in income-producing or profit-making activity,” NFL spokesman Brian McCarthy wrote in an email.
While the NCAA is the beneficiary of a massive, 14-year, $11 billion television contract for its annual men’s basketball tournament, spokeswoman Gail Dent emphasized in an email that most of that money will be distributed to schools.
Still, with eye-popping salaries such as the $44 million NFL Commissioner Roger Goodell made in 2012, some think the IRS should reconsider these exemptions.
“The idea that a person becomes a multimillionaire running a nonprofit that is supposed to provide a service that can’t be provided by the market is absurd,” Ken Berger, the president and chief executive of Charity Navigator, said in a 2014 New York Times story about Goodell’s pay. “The notion that every taxpayer is subsidizing an organization whose leader is making $30 million or more is a waste.”
Not all sports leagues file as nonprofits. The National Basketball Association doesn’t, and neither does NASCAR. After filing as a 501(c)(6) for years, Major League Baseball gave up its nonprofit status in 2007 and said in subsequent stories about tax exemptions for sports leagues that “there was no business … benefit” to filing as a nonprofit. Still, financial advisers for the NFL and other leagues that have remained nonprofits apparently think the exemption is worthwhile.
There is another possible reason why MLB decided to change its tax status that doesn’t involve the size of its tax bill: Nonprofits have to publicly disclose what they pay some executives. In 2008, the IRS made changes requiring nonprofits to list more top-paid employees than ever before on financial disclosure forms. The NFL fought the change.
Former NFL executive vice president for communications Joe Browne explained the league’s objection to the New York Times.
“I finally get to the point where I’m making 150 grand, and they want to put my name and address on the form so the lawyer next door who makes a million dollars a year can laugh at me,” Browne said.
The NFL lost its fight. The league’s disclosure the next year included Browne’s pay: $2.2 million.
While Browne argued there’s no public value in disclosing his salary and others, Sen. Chuck Grassley (R-Iowa) replied: “Disclosure helps keep everyone honest.”
In that spirit, below are financial figures for several nonprofit sports organizations. All information comes from 2013, the last year data for all organizations is available.
Total revenue: $327 million. Executive compensation: Commissioner Roger Goodell made $44 million, 297 other employees made at least $100,000.
Total revenue: $41 million. Executive compensation: Commissioner Gary Bettman made $8.9 million, 82 other employees made at least $100,000.
Total revenue: $1.1 billion. Executive compensation: Tom Finchem made $4.9 million, 202 other employees made at least $100,000.
Total revenue: $103 million. Executive compensation: Commissioner Michael Whan made $770,000, 21 other employees made at least $100,000.
Total revenue: $92 million. Executive compensation: Mark Young, CEO ATP Americas and Chief Legal Officer, made $644,000, 27 other employees made at least $100,000.
Total revenue: $874 million. Executive compensation: President Mark Emmert made $1.7 million; 87 other employees made at least $100,000.