“This week on national signing day, thousands of young students agreed to play sports for free for university programs paying literally tens of millions of dollars a year and giving free houses to their coaches. These exorbitant contracts to sports coaches from schools that receive federal tax-exempt status demand answers for the taxpayers that help fund these institutions,” Pascrell said in a statement. “My letters today are beginning the work of seeking those answers and our subcommittee will remain focused on this issue and further possible abuses of the tax code by schools enjoying tax-exempt status giving exorbitant contracts to athletic coaches.”
Pascrell’s inquiry centers on elite college football programs, their schools’ habit of producing lucrative contracts and expensive buyouts for coaches and whether such actions are consistent with those universities’ tax-exempt status. It also extends a recent history of politicians who have been critical of the ways the NCAA and its member institutions function as organizations shielded from federal taxes.
Colleges and universities are considered tax-exempt because they are educational organizations. The Tax Reform Act of 1976 affirmed the NCAA’s tax-exempt status when it declared that fostering amateur sports competition is considered a charitable purpose.
Pascrell’s letters detail recent coaching contracts that feature large salaries padded with generous incentives and other compensation.
Brian Kelly and LSU agreed last month to a 10-year, $95 million deal, which includes a $500,000 bonus for every season the Tigers win six games, among other incentives. The day before, Lincoln Riley signed a contract with USC said to be worth $110 million. Earlier in November, Mel Tucker and Michigan State agreed to a 10-year deal worth $95 million and Penn State inked James Franklin to a similarly sizable extension. LSU, for its part, also reportedly owes former coach Ed Orgeron approximately $17 million per the buyout terms of his contract.
“It is unclear how such lucrative compensation contracts further LSU’s overall educational mission and benefit your student body as a whole,” Pascrell wrote in his letter to LSU President William F. Tate IV. “These contracts also present a stark contrast to the benefits received by the university’s student-athletes, whose grants-in-aid each semester pale in comparison to their coaches’ compensation.”
Despite the chasm between some coaches’ salaries and those of the other employees at their schools or across their states, John D. Colombo, a professor emeritus at the University of Illinois College of Law, said such discrepancies are enabled under current law.
Colombo, who has written about tax exemption and college athletics, said college coaches’ salaries are measured against those of their peers, including the coaches of professional teams in their respective sports. A summer contract extension boosted Texas A&M Coach Jimbo Fisher’s average annual salary to more than $9 million, but that figure is on par with the pay of San Francisco 49ers Coach Kyle Shanahan and less than that of several NFL coaches who have won championships, as Fisher did with Florida State in 2014.
“The regulations under Section 4958 of the code explicitly allow tax-exempt charities to consider the salaries in the for-profit sector as well as in the nonprofit sector when hiring employees,” Colombo said. “So until college coaching salaries exceed those paid by the NFL, they probably aren’t an issue.”
Under the U.S. tax code, the ACC is considered a tax-exempt nonprofit organization, as is, for example, the National Symphony Orchestra. That designation protects the income the orchestra generates through ticket sales, just as the ACC does not owe taxes on the millions it receives in television revenue. But such organizations can be taxed through the unrelated business income tax (UBIT) if they engage in activities unrelated to their tax-exempt purpose.
“Let’s say that the New York Philharmonic decides to open a BMW dealership and start selling BMWs. That’s an unrelated business,” Colombo said, adding that critics have argued that college athletics should be subjected to the UBIT for over a decade.
“The argument is that modern college athletics is not part of the educational enterprise. It’s really a minor league for the pros, at least when we’re talking about the Power Five conferences,” he said. “But no one’s ever done anything about this, and no one really wants to do anything about it. … If you’re a senator or representative from the state of Ohio, do you really want to be branded as messing with the ability of Ohio State University to field the best coach possible for its football program?
“Is the amount some schools pay their coaches outrageous? Of course. But if Rep. Pascrell really wanted to do something about it, he could introduce a bill in Congress amending code Section 501(c)(3) to provide that no educational institution would qualify for exemption under that section if it paid any member of its athletic staff more than [a given amount] per year. Easy-peasy. Except we all know that legislation would be [dead on arrival].”