Since 1966, the tax code has allowed leagues to classify as 501(c)(6) charitable organizations — a classification used by trade and industry organizations — under the assumption that the leagues were promoting the general value of their sports. But Coburn’s amendment asserts that the leagues are not non-profits engaged in the promotion of their sports but instead are businesses interested solely in the promotion of their business; that is, the NFL isn’t so much concerned about promoting the general sport of football as it is concerned with promoting NFL football, because it is the NFL brand and the NFL teams and logos and products that make it a profitable business. The NFL, for instance, didn’t seem interested in promoting the general spread of football when a competitor league, the United States Football League, was formed in 1983. Likewise, the PGA Tour, NHL, and other sports leagues serve to promote their brand of their sports, not the sport as a whole.
In his 2012 Waste Book that chronicled government waste, Coburn said that taxpayers were losing as much as $91 million a year subsidizing professional sports leagues because of their non-profit status:
The National Football League (NFL), the National Hockey League (NHL), and the Professional Golfers’ Association (PGA) classify themselves as non-profit organizations to exempt themselves from federal income taxes on earnings. Smaller sports leagues, such as the National Lacrosse League, are also using the tax status. Taxpayers may be losing at least $91 million subsidizing these tax loopholes for professional sports leagues that generate billions of dollars annually in profits. Taxpayers should not be asked to subsidize sports organizations already benefiting widely from willing fans and turning a profit, while claiming to be non-profit organizations.
The 501(c)(6) provision, specifically amended in 1966 to add “professional football leagues,” states that “[n]o part of a business league’s net earnings may inure to the benefit of any private shareholder or individual and it may not be organized for profit to engage in an activity ordinarily carried on for profit.” That would seem a hard standard for most professional leagues to meet, given the amount of revenue they make and the benefits they provide to the people involved. Individual team owners, in fact, benefit substantially from the league’s structure and even its classification as a non-profit organization.
NFL teams pay membership dues totaling roughly $6 million per team, but they are allowed to write those off for tax purposes as donations to a charitable organization. As Andrew Delaney explained in the Vermont Law Review in 2010, the NFL, which collected $192 million in revenue largely through membership dues in 2009, then pours much of that money back into a stadium fund that allows owners to access interest-free loans as long as they secure taxpayer financing for either new stadiums or improvements to existing facilities. The NFL’s dues, then, go almost solely toward the enrichment of its franchise owners even as they are exempt from federal taxation (and often from state and local taxation as well). Taxpayers get hit on two fronts: not only do they lose out on federal tax revenues, they also end up footing the bill for new stadiums and stadium improvements (most recently in Atlanta and Minnesota, with ongoing efforts in Miami and other cities). But all of the benefit, much of which comes from the tax-exempt status, goes to owners and the NFL, as Delaney explained:
Technically, the city owns the stadium. Personal seat licenses or PSLs are sold through a public agency, tax-free. Profits are then used to pay down the owner’s share of the NFL loan. The money from the PSLs never goes directly to the teams, though the teams save millions of dollars in taxes and the loan from the NFL is paid down significantly, providing a very significant benefit to the owners.
Removing the tax-exempt status would force the leagues to acknowledge the reality that they are businesses, and they would be taxed as such. For the NFL, that would mean that membership dues and assessments would no longer be tax exempt, according to Delaney, and the profits run through the NFL’s or PGA’s tax-exempt organizations no longer would be either (the NFL runs multiple for-profit organizations, such as NFL Films, in addition to its non-profit partner). Instead, the leagues would be taxed much like corporations, and a wide range of tax write-offs would be available just as they are to other corporations. They would still be able to operate the charitable organizations they already have as tax-exempt 501(c)(3) charities.
It’s unclear how much of a benefit ending the tax-exempt status of professional sports leagues would bring directly to taxpayers, largely because the complexity of how the leagues have structured their businesses makes it hard to know how much they benefit directly from being tax-exempt (Major League Baseball claims that giving up its tax-exempt status in 2007 had no effect on its annual taxes, but there’s no way to know for sure). And it’s unlikely we will find out soon, since Coburn’s amendment isn’t likely to receive a vote when the Senate finally takes up the Marketplace Fairness Act sometime this week.
That’s a shame though, because a vote and legitimate debate about Coburn’s amendment would benefit the public, which often doesn’t get the full picture from sports leagues, owners, and lawmakers about how much of their money goes to subsidizing the sports we watch. Taxpayers in the past have been outraged when they find out how much subsidies for new stadiums are going to ultimately cost them, but by then, it’s almost always too late. And while the leagues we subsidize — either directly or indirectly — are popular among fans, whether those same fans are willing to shell out their tax dollars to help wealthy owners and franchises become even wealthier is impossible to know, since we almost never receive robust and honest debate about those subsidies. Coburn’s amendment is a chance to at least throw that into the national conversation about tax reform — and it’s a chance lawmakers shouldn’t be so hesitant to take.