Activists demand to strip NFL of nonprofit status
From the Grid Iron to the Gravy Train: How the NFL Scored a Nonprofit Status
Those same fans funnel billions upon billions of dollars into the industry to buy everything from tickets to memorabilia. In fact, the National Football League collects upwards of $9 billion in revenue each year, making the league the most lucrative in the world according to Forbes.
On top of the massive profits the teams enjoy, the league also scores big with tax breaks handed down from the federal government, specifically income taxes. The teams themselves are considered for-profit entities and pay taxes -- however, the leagues, which set the rules, negotiate contracts, discipline players and come up with a programming schedule, do not.
“The NFL is exempt for federal and state income tax under section 501c6 of the federal tax code, which is very different from the sections that exempt charities and other philanthropic organizations,” Chair of the Nonprofit Organizations Practice at Venable Law Firm, Jeff Tenenbaum explains, “A 501c6 organization, which is typically reserved for trade and professional associations and chambers of commerce and some sports leagues, is a category that… carries with it exemption from paying federal and state corporate income tax on your net income.”
And, the NFL isn’t alone. The National Hockey League, the Professional Golfers’ Association, the U.S. Tennis Association and numerous other sporting leagues also enjoy similar statuses. So, how did such a situation come about?
Since the 1940’s, the NFL has received some tax breaks from federal and state governments. However, it wasn’t until 1966 that language was formally added to the national tax code which officially protected professional football. At the time, there were not one but two professional football leagues: the NFL and the American Football League or the AFL. On June 8, 1966, the two leagues formally announced plans to merge. The first ever Super Bowl was also held that very season. In order to merge, the leagues had to approach Congress to ask for an exemption to antitrust laws, which prohibit monopolies that limit competition.
Nitty Gritty Tax Law
After a lobbying blitz by both the NFL and the AFL, Congress eventually agreed to allow the two leagues to merge. During that same time, football lobbyists also pushed for the NFL to be explicitly added to federal tax code as a trade association. As a result, Section 6 of Unites States Code 26 regarding 501 exemptions was modified to read as such:
(6)Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
According to the IRS, in order to be considered a trade association and, therefore, tax exempt, the league’s activities must:
“Be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose.”
In its 2010 990 tax return form, the NFL described itself as a “trade association promoting interests of its 32 member clubs.” Whether or not promoting the interests of 32 member clubs equates to improving business condition is up to the IRS to decide.
Because the phrase ‘professional football leagues’ was added to the text, the NFL is protected, but the Internal Revenue Service takes that to mean other sporting leagues are as well. This is a notion Tenenbaum himself sees as suspect.
“I think the legitimate question is, ‘does the fact that they were written in so specifically, with some very particular, specific language, does that mean that Congress actually meant to exempt the NFL from taxes under section 501c6 or was Congress simply saying a professional sports league that broadly promotes a particular sport, that’s another category of what we mean by 501c6, the NFL may or may not be one of those. We really don’t know the answer to that.”
A Look at the NFL’s Playbook
To truly understand whether or not the NFL meets those criteria, a basic understanding of the organization’s structure is required.
The league’s origin goes all the way back to September 17, 1920, when team owners and football enthusiasts came together in Canton, Ohio to organize a central group that makes and enforces rules. Today, the NFL represents 32 teams in two conferences: the National Football Conference (NFC) and the American Football Conference (AFC).
The organization's main duties include hiring league employees, disciplining people who break the rules, negotiating television deals, distributing money from those television profits to teams, suspending players and coaches, handing down fines and, in serious cases, canceling contracts or striping teams of draft picks.
In order to be able to conduct its business, each team pays annual dues. According to Forbes, only about $500,000 of the league's money comes in annually from fines and penalties and less than $200,000 comes from investment income. Teams pay the organization about $6 million in dues annually. However, as SportsFans.org reports, team owners are not taxed on that money since it is considered a donation to a nonprofit organization.
In spite of the fact that the NFL in its entirety is the most profitable sport in the US, the league itself is actually operating in the red. In 2011 alone, the NFL reported $77 million in losses.
“The expenses outweigh the revenues so it is actually losing money. So the irony is if it were a taxable entity it wouldn’t be paying any tax because, like any tax-paying entity, if you exceed your revenues you don’t pay any tax, there’s no net income,” Tenenbaum points out.
But, how can a league which brings in over $250 million annually still report losses year after year? That's probably because the majority of the NFL's money goes to executives' contracts.
Roger Goodell Makes How Much?!
According to IRS salary transparency rules, tax exempt organizations can pay no more than fair market value compensation for services. It is also because of the fact that the NFL files taxes as a trade association that the public gets to know exactly what its executives make.
Those very tax forms reveal that current NFL Commissioner Roger Goodell made nearly $29.5 million in 2011 alone. That’s almost triple the $11.6 million he pulled the year before. Those big checks almost guarantee that Goodell is perhaps the only sports commissioner who makes as much as or more money than the athletes themselves. New England Patriots quarterback Tom Brady, for instance, made a mere $18 million by comparison, and former Indianapolis Colts Quarterback Peyton Manning had a salary of $23 million in 2011.
RT America reached out to the NFL, NHL as well as the PGA on multiple occasions. None of the leagues chose to comment on their tax exempt status.
Flag on the Play: Petitioning the NFL’s Tax-Exempt Status
Because of the revenues the NFL as a whole pulls in along with the massive salaries its executives enjoy, a number of people have spoken out against the tax exempt status, even fans themselves.
Lynda Woolard is a longtime New Orleans Saints fan and yet she started a petition on Change.org to call for an end to the NFL’s nonprofit status.
“I started the petition because I saw a real imbalance of power in the league," Woolard told RT. “So, to me, I was trying to think of a way to really give the fans a voice.”
So far, the petition has been signed by over 304,000 people. There’s also a letter attached to the bottom of the petition for the public to send to members of Congress, which a number of people have taken advantage of. Woolard, who runs a nonprofit charitable foundation herself, says the biggest obstacle to overcome is lack of awareness. But she has gotten ample support.
“Sports Fans Coalition at Sportsfans.org contact me and say they would like to go to Washington on the petition signers’ behalf and try to find someone to sign on to put this into the upcoming budget hearings that are coming up. So we do have a Champion in Washington.”
The Senator Who Called ‘Off-Sides’
The Sports Fans Coalition isn’t the only group in Washington that’s taking the NFL to task. Republican Senator Tom Coburn released a Government Waste Book in 2012 detailing just how much money this sports loophole is draining from the American economy. Coburn argues that taxpayers are losing millions annually.
“Hardworking taxpayers should not be forced to provide funding to offset tax giveaways to lucrative major professional sports teams and leagues,” the Government Waste Book reads, “Based on publicly available information about the NFL and NHL alone, barring major leagues from using the non-profit status may generate at least $91 million of federal revenue every year.”
In April, Coburn introduced an amendment to Senate bill 743 or the Marketplace Fairness Act of 2013, which would amend the IRS tax code. The bill passed the Senate in May, though Coburn’s amendment never came up for a vote.
Read more here
From the Grid Iron to the Gravy Train: How the NFL Scored a Nonprofit Status
Those same fans funnel billions upon billions of dollars into the industry to buy everything from tickets to memorabilia. In fact, the National Football League collects upwards of $9 billion in revenue each year, making the league the most lucrative in the world according to Forbes.
On top of the massive profits the teams enjoy, the league also scores big with tax breaks handed down from the federal government, specifically income taxes. The teams themselves are considered for-profit entities and pay taxes -- however, the leagues, which set the rules, negotiate contracts, discipline players and come up with a programming schedule, do not.
“The NFL is exempt for federal and state income tax under section 501c6 of the federal tax code, which is very different from the sections that exempt charities and other philanthropic organizations,” Chair of the Nonprofit Organizations Practice at Venable Law Firm, Jeff Tenenbaum explains, “A 501c6 organization, which is typically reserved for trade and professional associations and chambers of commerce and some sports leagues, is a category that… carries with it exemption from paying federal and state corporate income tax on your net income.”
And, the NFL isn’t alone. The National Hockey League, the Professional Golfers’ Association, the U.S. Tennis Association and numerous other sporting leagues also enjoy similar statuses. So, how did such a situation come about?
Since the 1940’s, the NFL has received some tax breaks from federal and state governments. However, it wasn’t until 1966 that language was formally added to the national tax code which officially protected professional football. At the time, there were not one but two professional football leagues: the NFL and the American Football League or the AFL. On June 8, 1966, the two leagues formally announced plans to merge. The first ever Super Bowl was also held that very season. In order to merge, the leagues had to approach Congress to ask for an exemption to antitrust laws, which prohibit monopolies that limit competition.
Nitty Gritty Tax Law
After a lobbying blitz by both the NFL and the AFL, Congress eventually agreed to allow the two leagues to merge. During that same time, football lobbyists also pushed for the NFL to be explicitly added to federal tax code as a trade association. As a result, Section 6 of Unites States Code 26 regarding 501 exemptions was modified to read as such:
(6)Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
According to the IRS, in order to be considered a trade association and, therefore, tax exempt, the league’s activities must:
“Be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose.”
In its 2010 990 tax return form, the NFL described itself as a “trade association promoting interests of its 32 member clubs.” Whether or not promoting the interests of 32 member clubs equates to improving business condition is up to the IRS to decide.
Because the phrase ‘professional football leagues’ was added to the text, the NFL is protected, but the Internal Revenue Service takes that to mean other sporting leagues are as well. This is a notion Tenenbaum himself sees as suspect.
“I think the legitimate question is, ‘does the fact that they were written in so specifically, with some very particular, specific language, does that mean that Congress actually meant to exempt the NFL from taxes under section 501c6 or was Congress simply saying a professional sports league that broadly promotes a particular sport, that’s another category of what we mean by 501c6, the NFL may or may not be one of those. We really don’t know the answer to that.”
A Look at the NFL’s Playbook
To truly understand whether or not the NFL meets those criteria, a basic understanding of the organization’s structure is required.
The league’s origin goes all the way back to September 17, 1920, when team owners and football enthusiasts came together in Canton, Ohio to organize a central group that makes and enforces rules. Today, the NFL represents 32 teams in two conferences: the National Football Conference (NFC) and the American Football Conference (AFC).
The organization's main duties include hiring league employees, disciplining people who break the rules, negotiating television deals, distributing money from those television profits to teams, suspending players and coaches, handing down fines and, in serious cases, canceling contracts or striping teams of draft picks.
In order to be able to conduct its business, each team pays annual dues. According to Forbes, only about $500,000 of the league's money comes in annually from fines and penalties and less than $200,000 comes from investment income. Teams pay the organization about $6 million in dues annually. However, as SportsFans.org reports, team owners are not taxed on that money since it is considered a donation to a nonprofit organization.
In spite of the fact that the NFL in its entirety is the most profitable sport in the US, the league itself is actually operating in the red. In 2011 alone, the NFL reported $77 million in losses.
“The expenses outweigh the revenues so it is actually losing money. So the irony is if it were a taxable entity it wouldn’t be paying any tax because, like any tax-paying entity, if you exceed your revenues you don’t pay any tax, there’s no net income,” Tenenbaum points out.
But, how can a league which brings in over $250 million annually still report losses year after year? That's probably because the majority of the NFL's money goes to executives' contracts.
Roger Goodell Makes How Much?!
According to IRS salary transparency rules, tax exempt organizations can pay no more than fair market value compensation for services. It is also because of the fact that the NFL files taxes as a trade association that the public gets to know exactly what its executives make.
Those very tax forms reveal that current NFL Commissioner Roger Goodell made nearly $29.5 million in 2011 alone. That’s almost triple the $11.6 million he pulled the year before. Those big checks almost guarantee that Goodell is perhaps the only sports commissioner who makes as much as or more money than the athletes themselves. New England Patriots quarterback Tom Brady, for instance, made a mere $18 million by comparison, and former Indianapolis Colts Quarterback Peyton Manning had a salary of $23 million in 2011.
RT America reached out to the NFL, NHL as well as the PGA on multiple occasions. None of the leagues chose to comment on their tax exempt status.
Flag on the Play: Petitioning the NFL’s Tax-Exempt Status
Because of the revenues the NFL as a whole pulls in along with the massive salaries its executives enjoy, a number of people have spoken out against the tax exempt status, even fans themselves.
Lynda Woolard is a longtime New Orleans Saints fan and yet she started a petition on Change.org to call for an end to the NFL’s nonprofit status.
“I started the petition because I saw a real imbalance of power in the league," Woolard told RT. “So, to me, I was trying to think of a way to really give the fans a voice.”
So far, the petition has been signed by over 304,000 people. There’s also a letter attached to the bottom of the petition for the public to send to members of Congress, which a number of people have taken advantage of. Woolard, who runs a nonprofit charitable foundation herself, says the biggest obstacle to overcome is lack of awareness. But she has gotten ample support.
“Sports Fans Coalition at Sportsfans.org contact me and say they would like to go to Washington on the petition signers’ behalf and try to find someone to sign on to put this into the upcoming budget hearings that are coming up. So we do have a Champion in Washington.”
The Senator Who Called ‘Off-Sides’
The Sports Fans Coalition isn’t the only group in Washington that’s taking the NFL to task. Republican Senator Tom Coburn released a Government Waste Book in 2012 detailing just how much money this sports loophole is draining from the American economy. Coburn argues that taxpayers are losing millions annually.
“Hardworking taxpayers should not be forced to provide funding to offset tax giveaways to lucrative major professional sports teams and leagues,” the Government Waste Book reads, “Based on publicly available information about the NFL and NHL alone, barring major leagues from using the non-profit status may generate at least $91 million of federal revenue every year.”
In April, Coburn introduced an amendment to Senate bill 743 or the Marketplace Fairness Act of 2013, which would amend the IRS tax code. The bill passed the Senate in May, though Coburn’s amendment never came up for a vote.
Read more here