America's Sport Audited

On June 8, 1966, the American Football League and the National Football League announced that they intended to merge. Five months later, on November 8, 1966, an act to “suspend investment credit” on some types of real property was amended to confirm the tax-exempt status of large football leagues: “[anti-trust laws] shall not apply to a joint agreement by which the member clubs of two or more professional football leagues, which are exempt from income tax under section 501(c)(6) of the Internal Revenue Code of 1954, combine their operations in expanded single league so exempt from income tax.”
Nearly 50 years later, a Change.org petition titled “Revoke the Tax-Exempt Status of the National Football League” reached 300,000 signatures; 500,000 signatures are needed to deliver it to Senator Tom Coburn (R-Okla.), who is currently sponsoring the Properly Reducing Overexemptions for Sports (PRO Sports) Act. “It’s absolutely revolting that they receive a tax exempt status,” a comment on the petition’s page reads. “Who exactly do they benefit other then [sic] themselves. I can’t even afford to buy a ticket to a game. How many tickets do they donate to needy kids to go watch a game?”
The NFL, of course, is not tax-exempt because of any social services. “The issue is pretty easy to demagogue,” said Daniel J. Flynn, author of The War on Football: Saving America’s Game. Flynn makes the demagoguery seem inevitable, but the reasons behind the issue’s sensitivity are not intuitive. The full story involves a brief history of tax law, shifting attitudes toward nonprofits, and feverish football fan culture.
Anatomy of a tax break
The route taken to purge the NFL of its tax-exempt status is not a lawsuit or an investigation: the league violates no tax codes and annually publishes its IRS Form 990 for public scrutiny. Various numbers have been thrown around, but looking at the 2011 990 reveals some interesting figures. First, the NFL’s revenue less expense in 2011 and 2010 was negative. Second, Commissioner Roger Goodell’s $30 million salary is four times larger than the NFL’s second most highly-compensated employee. Third, nearly $700 million of the NFL’s $875 million assets are held in “notes and loans receivable.” This indicates that the NFL would not pay much in taxes even if it were a company, while highly-compensated employees do pay income taxes. It also shows that the NFL is more similar to a bank than anything else.
Given the money that flows through the organization, the $100 million in tax dollars that Coburn’s bill is supposed to save is relatively insignificant. Since the bill also affects the National Hockey League and Professional Golf Association, that $100 million doesn’t even exclusively come from taxing the NFL. In an interview with the HPR, Andrew B. Delaney of the law firm Martin Associates said, “Without a complete overhaul of the tax code, [revoking the tax-exempt status] will have little effect on the coffers” of either the government or the NFL. The public looking to make a significant monetary impact could potentially protest Boeing’s $13.2 billion taxpayer subsidies. But the NFL remains the focus.
The real reasons for the tax-exempt status today involve the advent of microwave transmission technology for television. In 1962, CBS was able to secure the rights to all regular-season games of the NFL for $4.65 million.
“Nobody saw the NFL network being something before cable,” Delaney explains. In decades preceding the advent of widespread cable TV, local stations were segmented, meaning that there was no prospect of a national network developing. Soon, microwave transmission of broadcasts allowed TV stations to cover much larger regions, in turn making regional (and then national) broadcast rights much more valuable. Part of the trouble, then, stems from technology outpacing the law—legislators seemed not to anticipate needing to regulate broadcast rights that spanned the entire West or East coast.
The desire to revoke the tax-exempt status isn’t the result of any legal wrongdoing. In fact, from 2007 to 2009, the IRS conducted an audit of the NFL and “concluded that it was fully in compliance with the laws,” writes Jeremy Spector, an outside tax consultant for the NFL at Covington LLP. Goodell pays income tax on his salary; the teams pay sales and income tax on concessions and ticket sales. They even established a separate for-profit arm, NFL Ventures, to handle the controversial stadium loan program.
The noble nonprofit expectation
The real cause of outcry over the NFL’s status is tied to the role that the public expects nonprofits to play in alleviating wealth disparities in society. The NFL is clearly not a nonprofit in the popular sense of the word. Harvard University, for instance, is an organization that exists to mainly serve educational purposes, and therefore qualifies as a 501(c)(3) organization, along with Christ Church Cambridge and the Phillips Brooks House Association. In contrast, the NFL has been a 501(c)(6) “business league” since its application was accepted by the IRS in the 1940s; the public law 89-900 merely confirmed its status. Other 501(c)(6) groups include the Massachusetts Bar Association and the U.S. Chamber of Commerce, both trade associations that exist to help their members. Thus, it’s unsurprising that 69 percent of respondents in a Farleigh Dickinson University Public Mind survey answered that the NFL was not a nonprofit, while only 13 percent knew that it was.
When public money is involved, the public expects something to show for it. “We just don’t think it’s right that the NFL … takes further advantage of our tax system,” said Ryan Rudominer, cofounder of Sack NFL Tax Breaks. “One would think at a time when we have a $640 billion deficit, it would be a no-brainer for members of Congress in Washington to back the PRO-Sports Act.”
It is an additional frustration that tickets are prohibitively expensive for some fans—a frustration only exacerbated by the recent media coverage surrounding the wealth gap in America. “The economic landscape was very different [in the mid-20th century],” writes Gregg Easterbrook in The King of Sports: Football’s Impact on America. “Football stadiums might be viewed as you would view a public library today; you could see a game there for $10 in today’s dollars.”
Imagine the discomfort of taxpayers who feel that their “forced donations” to the American government fund an organization that does not provide any conventional “public goods” and furthermore compensates its employees far beyond football fans’ salaries. Donors are uncomfortable with 501(c)(3) charities spending more than 15 percent on “non-charitable” activities such as fundraising, whereas nonprofit watchdogs suggest 35 percent as a reasonable proportion. The outrage following revelations that the American Red Cross set aside nearly half of the $564 million raised in the wake of 9/11 for “other operations and future reserves” is another instance of the public’s reluctance to give money to causes that don’t directly help someone ‘in need.’
Culture of ownership
The consensus that fans should not be asked to finance their teams’ activities might be less bizarre had it not been reached in a country where many people “speak” with donations to causes they find worthy, or if the consensus was also that football was an unworthy cause. Granted, the latter claim is becoming easier to make. “Football has suffered such terrible publicity,” sportswriter Frank Deford told NPR. The football news that has reached non-sports fans includes the Miami Dolphins’ locker room harassment, a 4,100-plaintiff concussion lawsuit, and rampant sexual assault. Football is, at times, the media’s whipping boy; and yet, football fandom grows: just as constituents detest Congress yet believe their congressperson worthy of reelection, many football fans combine passionate support of their team with suspicion and mistrust of the NFL an organization. “Even as a defender of football, I don’t think [the NFL] should be tax-exempt,” said Flynn.
Rudominer said that his organization “[doesn’t] think loving the game of football and the NFL needing to pay its fair share in taxes are mutually exclusive.” The organization instead aims to “pressure the league to end its anti-fan behavior, pay its fair share, and play by the same rules as everyone else.”
Explaining the clash
Woolard’s Change.org petition reads, “The NFL has methodically worked to shift all the power to their side, leaving players,employees and PARTICULARLY THE FANS little say in what goes on with the league. We deserve a say, but do not wish to boycott our teams!” In other words, we, as fans, want the NFL to play by the same rules as everyone else. We love football, as long as we can maintain the belief that we own it.
Perhaps these tax breaks are particularly abhorrent because they’re a betrayal from within: the perception that our heroes are not subject to the same everyday hardships—including taxes—as we are is more alienating than anything else. Perhaps the NFL League Office has never claimed to be a charity, but it doesn’t seem as if the fans want the NFL to be a charity. They want fair play, a level playing field—various sports metaphors that belie a longing to bridge the gap between football fans and football heroes.