Monday, January 27, 2014

Five Myths about the NFL's Nonprofit Status

As the Super Bowl approaches, the National Football League (NFL) finds itself in the spotlight. Inevitably, this spotlight leads to various rumors and outrage about the NFL's nonprofit status. Here I will discuss five key myths that are helping to spark the outrage (see the most recent Form 990 of the NFL here for more). In doing so, I should state that I am not trying to defend the nonprofit status of the NFL but merely to point out that perhaps it is more innocuous than it may first sound.

Myth #1: The NFL claims to be a charity

Fact: The term charity typically refers to a 501(c)(3) nonprofit organization. The NFL is not organized as a charity; rather, it files as a 501(c)(6) nonprofit organization. Thus, the NFL is only claiming to be a business league (an entity that works for the common interests of a business group). This also means that any attempts to claim your ticket price as a charitable donation are ill-advised.

Myth #2: Taxes on ticket revenue and media revenue are avoided because the NFL is a nonprofit

Fact: The NFL is just the league office for the 32 team league. The teams themselves collect the vast majority of the key revenues and each is a for-profit entity that must pay taxes on the profits it receives. The nonprofit organization part, the NFL, charges dues to the teams and pays administrative salaries and other expenses to its main offices on behalf of its member teams but does not reap all the profits of professional football.

Myth #3: The NFL dodges millions in corporate income tax by being a tax-exempt nonprofit

Fact: Believe it or not, the NFL consistently reports losses (its most recent Form 990 shows a loss of over $77 million). Again, this is not the teams themselves. But, if the NFL were being used as a tax shelter, it's not working since it is only housing losses. To be fair, taxes are complicated and there may be some indirect ways in which the nonprofit status can help shield the organization's member teams from tax liability, but these are secondary and I have seen no evidence that they are material.

Myth #4: The NFL issues tax-exempt bonds to pay for stadiums

Fact: This is a more subtle argument, and it is attributable to Andrew Delaney's informative and entertaining article in the Sports and Entertainment Law Journal (Vol. 1, 2011, pp. 63-90). To be clear, the NFL does not issue tax-exempt bonds, but it does "encourage" it's teams to secure some public financing for new stadiums by conditioning its own (interest-free) lending to teams on such financing. In effect, it uses its leverage to push for public financing assistance for its teams. This isn't really an issue with its nonprofit status, though, as much as a question of antitrust law (for-profit leagues could try similar tactics). And, since the NFL's own lending to its teams is below-market interest, it is hardly an attempt to shift income toward the tax-exempt entity.

Myth #5: The NFL commissioner, Roger Goodell, makes ungodly amounts of money

Fact: Ok, some myths are true. Thanks to reporting requirements of nonprofits, we can all verify that Goodell's reportable compensation for the year ended March 31, 2012 was $29.4 million. Perhaps this fact (that compensation is now required to be disclosed) will ultimately be what gets NFL brass to move away from their nonprofit status.

In short, it may be hard to find a good justification for the NFL's tax exempt status. However, I'm also hard pressed to find a reason why stripping this status would have a material effect on tax collections. That said, I would be very interested in hearing arguments/evidence to the contrary.

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