The Nonprofit Football League

Philip Klein calls the NFL’s tax-exempt status “bad policy that exemplifies the problems with the nation’s disastrous tax code”:

The NFL’s nonprofit status was enshrined into law in a 1966 act meant to protect the league from antitrust issues surrounding its merger with the rival AFL (which was considered a lesser league until my Jets pulled off the greatest upset in football history in the 1969 Super Bowl). The same law added, “professional football leagues” to the part of the tax code listing entities granted nonprofit status.

Though the league distributes lucrative television and licensing revenue among the 32 teams, which do pay taxes on their earnings, the teams also send dues to the NFL league office. The office does not pay taxes on those dues, and the fees could be deducted from the teams’ taxes.

The NFL reported total revenue of $326 million for the 2012 tax year, according to its most recent publicly available filing with the Internal Revenue Service. During that year alone, the NFL paid $44.2 million in compensation to commissioner Roger Goodell. Goodell earned $105 million over the course of the five-year period from 2008 through 2012, according to a CNN report – more than any player.

Well, it might fall under the religious exemption, no? At this point, it requires blind faith to believe in its future. But Jordan Weissmann notes that revoking the NFL’s tax-exempt status “wouldn’t drastically change its finances”:

Only the league office, which considers itself a trade association for its clubs – just like the U.S. Chamber of Commerce or the National Dairy Council—is a nonprofit; the teams themselves are purely for-profit. As a result, pro football’s copious TV revenues are taxed once they’re passed down to the franchises. A separate, for-profit company called NFL Ventures, co-owned by the teams, handles the league’s merchandising and sponsorship earnings. Finally, the league office often operates at a loss—in 2011 it finished more than $77 million in the red, while in 2012 it only had $9 million left at year’s end. Without profits, of course, there’s nothing for the government to tax. …

Congress itself doesn’t think the NFL’s tax bill would be that big. [Tom] Coburn has suggested that taxing the NFL and NHL alone would raise about $91 million per year. But the Congressional Joint Committee on Taxation – probably a bit more credible in this instance – believes ending tax exemptions for all sports leagues would bring in just under $11 million per year. Booker hopes his bill would raise about $100 million over a decade, which would go to support domestic abuse programs. That’s a mere trickle compared with the geyser of cash the NFL generates each year.

However, he adds:

If money isn’t really the issue, what is? It’s about principles. Letting the NFL operate tax-free makes a mockery of the entire concept behind nonprofits, which is that we should give a special break to organizations that do the useful, unprofitable work normal corporations won’t.

Update from a reader with expertise on the subject:

As an accounting professor specializing in nonprofits, I wanted to reiterate the view that the NFL is not really avoiding any taxes with its status (true, it has a lot of revenues, but it shows even more expenses, so the profits are really held by the for-profit teams). I would also like to add that one big benefit of the NFL’s nonprofit status is that it requires the NFL to make its financial statements and executive pay public (without the required form 990, we never would have known that Goodell got a $40 million bonus in 2013). Here is a bit more on the misconceptions about the NFL’s nonprofit status.

In short, does the NFL deserve its nonprofit status? Probably not. Does stripping the status accomplish anything? Again, probably not.

By the way, thanks for your team’s consistently great work.