Professional Sports
Organizations and
Tax-Exemption
Taylor Cotter
12/18/2014
1
Table of Contents
Table of Contents ............................................................................................................................... 1
Executive Summary............................................................................................................................ 2
Introduction ...................................................................................................................................... 3
The National Football League ............................................................................................................. 3
The Audience ..................................................................................................................................... 5
Recommendations ............................................................................................................................. 9
Conclusion ....................................................................................................................................... 11
Bibliography .................................................................................................................................... 12
2
Executive Summary
Is it fair that an entity capable of making $8 million in 60 seconds does not pay taxes? The
National Football League is considered a non-profit organization by the Internal Revenue Services of the
United States. While the NFL’s thirty-two teams pay taxes, the league office does not, and has received
criticism for many years.
Congress is the audience for the report, and this report will often refer to Congress and ways they
can implement change. The report will also address the current efforts of Congress, but it will explicitly
juxtapose what Congress is doing and what Congress ought to be doing. A small minority of
congressional members has proposed bills to remedy this issue, but the bills have not been passed to the
house or senate. Senator Tom Coburn and Representative Jason Chaffetz have introduced a bill that
would revoke the NFL’s tax-exempt status, as well as the status for other professional sports
organizations who earn over $10 million a year. Senator Cory Booker has proposed a similar bill, except
he calls for the potential tax payments the NFL would make to be allocated to anti-domestic violence
programs.
However, writing bills is not the only way to achieve change. Direct contact and conversion
between Congress and the NFL could fast-track a resolution. Congress could develop and present a deal
with the NFL where each organization compromises. If a tactic such as this is not successful, Congress
should pressure the NFL by threatening to tax the thirty-two NFL teams. An act like this would lead to
tension between the NFL League Office and the league members.
The issue that the NFL is considered a non-profit is not widely known in the United States.
Congress has the ability to make changes, and with multiple bills drafted and proposed, passing and
enacting the bills is the next logical step.
3
Introduction
As a child, the thrill of catching a touchdown pass in football is exhilarating. For a brief moment,
nothing seems to matter and joy consumes the mind and heart. Sports have this effect on children and
adults. The entertainment value of playing and watching sports is large, and athletes often serve as role
models for young children. On the surface, football is great. It unites families and friends on Sunday
afternoons, it makes getting through Mondays bearable with its Monday night games, and it makes grown
men tackling each seem normal. But what goes on behind the scenes, behind the field goals and
interceptions? Who governs American football? The answer: The National Football League (NFL).
Professional sports organizations are wealthy, powerful, and influential, yet they are often
criticized for their poor ethical standards. The NFL’s stance on domestic violence and the way in which
the NFL management team has handled this issue have recently made headlines. In addition to this, the
relationship between professional sports organizations and taxes is also intriguing. The NFL is structured
as non-profit organizations, with gives it tax-exemption status.
This report will examine these two professional sports organizations and the tax policies affecting
them. I will argue that professional sports organizations engage in tax avoidance arrangements. This
argument will be presented using evidence from governments, the organizations themselves, and
stakeholders in society. This report’s primary focus will answer this question: Who can enact policies that
would solve the issue? I will then provide recommendations to the policy makers on ways to remedy
these issues.
The National Football League
American football as it is known today developed from rugby in the late 1800s. According to a
Harris Poll conducted in December, 2013, 35% of respondents named professional football their favorite
sport, and the poll notes that this percentage has been increasing since this particular poll was first
4
conducted in 1985.1 The NFL is composed of thirty-two teams dispersed across the United States, and it
brings in much of its revenue from the sale of television rights, advertising, tickets, and merchandise. The
annual championship game in the NFL is called the Super Bowl. It is played on the first Sunday of
February each year, and it attracts the attention of more than 108 million viewers in the U.S. alone. Due to
large audience size, companies are eager to purchase advertising space during the Super Bowl. For the
2014 Super Bowl played between the Denver Broncos and the Seattle Seahawks, a 30-second commercial
cost $4 million and a 60-second commercial cost $8 million.2 Each year, the costs of procuring a
commercial spot during the Super Bowl seem to rise. The NFL, thus, profits handsomely from advertising.
Logic would dictate that an organization capable of obtaining $8 million in 30 seconds must be a
successful for-profit business. The NFL, however, is considered a non-profit organization, which seems
ironic since it made $10.5 billion in 2013, and it paid its commissioner, Roger Goodell, $44.2 million.
Goodell’s salary is greater than the salaries of most chief executives overseeing for-profit companies. The
Internal Revenue Service (IRS) classifies the NFL under section 501(c)(6):
IRC 501(c)(6) provides for exemption of business leagues, chambers of commerce, real
estate boards, boards of trade, and professional football leagues (whether or not
administering a pension fund for football players), which are not organized for profit and
no part of the net earnings of which insures to the benefit of any private shareholder or
individual.3
To clarify, only the NFL League Office possesses this tax-exempt status. The thirty-two teams in the NFL
do not carry this status, and they do pay taxes on jersey sales, tickets, and television rights. In an article
written by Christian Schmied in the Villanova Sports and Entertainment Law Journal, he states that “the
NFL claims to be ‘a not-for-profit organization’ ‘whose primary purpose is to further the industry or
“As American as Mom, Apple Pie and Football?” Harris Interactive: Harris Polls. Nielsen, 16 Jan. 2014. Web. 17
Dec. 2014.
2
Siltanen, Rob. “Yes, A Super Bowl Ad Really Is Worth $4 Million.” Forbes. Forbes Magazine, 29 Jan. 2014. Web.
15 Dec. 2014.
3
“IRC 501(c)(6) Organizations.” The Tax Lawyer 42.4 (2003): 1273-303. Web. 16 Dec. 2014.
1
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profession it represents.’ Specifically, the NFL asserts that it is a trade or industry organization and should
be treated as such under the tax law.”4 This began in 1942 when the NFL was labeled by the IRS as a
trade association for its now thirty-two teams. Then, in 1966, when the NFL merged with the American
Football League (AFL), Congress amended the law to specifically list professional sports organizations
under the statute 501(c)(6). Although Major League Baseball decided in 2007 to forgo its status as taxexempt under the 501(c)(6) statute, the NFL has not seen fit to do so.
The Audience
Congress has the ability to revoke the NFL’s tax-exempt status, and since its tax-exempt status
was granted in 1942, Congress has threatened to remove the status on various occasions. In 2007,
Massachusetts Senator John Kerry became infuriated with the NFL for its decision to blackout a New
England Patriots game. Additionally, the name of the Washington Redskins team, the team’s
unwillingness to change its name, and issues around player safety are often cited as reasons that Congress
may revoke tax-exemption.5
With the recent criticism related to the NFL’s handling of domestic and sexual violence
allegations against players, there has been an increasing call by the NFL’s stakeholders to remove this
tax-exempt status. “Efforts by ordinary citizens petitioning Congress to revoke the NFL's tax-exempt
status have yet to produce any noticeable results. Similarly, attempts by lawmakers to bring about a vote
in Congress on this issue have flatly been ignored.”6 Ordinary citizens and lawmakers alike have begun
demanding change, but Congress is the lawmaking body that would need to back this demand for change.
Schmied, Christian. “Official Timeout on the Field: Critics Have Thrown a Red Flag and Are Challenging the
NFL's Tax-exempt Status, Calling for It to Be Revoked.” Villanova Sports and Entertainment Law Journal (2014): n.
pag. LexisNexis Academic. Web. 16 Dec. 2014.
5
Barbash, Fred. “Why Congress Will Never Take Back the NFL’s Tax Break.” Washington Post. The Washington
Post, 15 Sept. 2014. Web. 16 Dec. 2014.
6
Schmied, Christian. “Official Timeout on the Field: Critics Have Thrown a Red Flag and Are Challenging the
NFL's Tax-exempt Status, Calling for It to Be Revoked.” Villanova Sports and Entertainment Law Journal (2014): n.
pag. LexisNexis Academic. Web. 16 Dec. 2014.
4
6
A petition was written on popular website change.org titled “Congress: Revoke the Tax-Exempt
Status of the National Football League”. The petition is directed towards Congress, and will be
specifically delivered to Senator Tom Coburn and Representative Paul Ryan. Written by Lynda Woolard
of New Orleans, Louisiana, the petition declares: “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.”7 This petition, which has received over 425,000 signatures, indicates the palpable
sentiments of the NFL’s stakeholders. They want change. On May 9, 2014, Representative Paul Ryan
responded to this petition, and he shared that “Representative Jason Chaffetz [R-Utah] has introduced H.R.
3965, the PRO Sports Act” which would “amend the Internal Revenue Code to remove professional
football leagues from the list of tax-exempt organizations.”8 If this bill became a law, it would quell the
current demands, but it is far away from being enacted. On January 29, 2014, this bill was referred to the
House Committee on Ways and Means.9 It would need to be passed in the House, passed in the Senate,
then go to the President before becoming a law. Although Paul Ryan did divulge to the petition signers
that there is a bill that would revoke the NFL’s tax-exempt status, he did not write about any direct
actions that he will take to address the petition.
Congress is the audience of this tax-exempt issue, and they do have the ability to enact policies
and laws to revoke the tax-exempt status of the NFL, and a bill has been introduced but has not gained
much traction since its origination. In addition to the bill written by Representative Jason Chaffetz,
Republican Senator Tom Coburn from Oklahoma has written a bill, S. 1524, similar to Chaffetz’s.
Senator Coburn has long criticized the notion that professional sports organizations can possess a taxexempt status. His bill would “amend the tax code to prohibit professional sports organizations with
annual revenues over $10 million from enjoying the same tax-exempt, 501(c)(6) status as industry trade
Woolard, Lynda. “Congress: Revoke the Tax-Exempt Status of the National Football League.” Change.org. N.p.,
n.d. Web. 16 Dec. 2014.
8
Ryan, Paul. “Paul Ryan's Response to Congress: Revoke the Tax-Exempt Status of the National Football League.”
Change.org. N.p., 9 May 2014. Web. 16 Dec. 2014.
9
“H.R.3965 - PRO Sports Act113th Congress (2013-2014).” Congress.gov. Congress, n.d. Web. 16 Dec. 2014.
7
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associations and public interest groups.”10 Coburn’s bill, however, has not yet been passed by the Senate
or House. On September 18, 2013, it was read twice and then referred to the Committee on Finance.11
Coburn recognizes that organizations like the NFL benefit from its non-profit status, but one primary
reason he is in favor of revoking that status is because each league could contribute $91 million annually
to the federal government through taxes.12 Although the exact amount of money that would be generated
is the tax-exempt status was removed is widely debated, the federal government would receive tax
revenues from the NFL that it is currently not receiving. In addition, a spokesman for Senator Coburn in
an interview with USA TODAY Sports, explained that this flaw in tax code is resulting in Americans –
primarily middle and lower income – subsidizing the salaries of multimillionaires.13
In addition to Senator Coburn and Representative Chaffetz, there are multiple New Jersey
Congress members who are also demanding the federal government to remove the NFL’s non-profit
status. Senator Cory Booker of New Jersey introduced a bill to the Senate entitled “S. 2816 – Securing
Assistance for Victims’ Empowerment (SAVE) Act.” The bill would revoke tax-exemption for the NFL
and other professional football leagues and would also disallow the tax-exempt status for sports
organization whose annual revenues are over $10 million.14 This bill seems similar to the PRO Sports Act
proposed by both Senator Coburn and Representative Chaffetz. However, the main difference in Senator
Booker’s bill is that it will used the money generated from tax dollars from the NFL to fund anti-domestic
violence programs around the United States. “We are determined to lobby to get that tax exemption
removed,” New Jersey Senator Loretta Weinberg declared, “in order to get that money into our state and
“Tom Coburn, M.D., United States Senator from Oklahoma.” Coburn Introduces Bill to Restrict Professional
Sports Leagues from Qualifying as Tax-Exempt. N.p., 18 Sept. 2013. Web. 15 Dec. 2014.
11
“S.1524 - PRO Sports Act113th Congress (2013-2014).” Congress.gov. Congress, n.d. Web. 16 Dec. 2014.
12
Dosh, Kristi. “Examining NFL's Tax-exempt status.” ESPN. ESPN Internet Ventures, 4 June 2013. Web. 16 Dec.
2014.
13
Schrotenboer, Brent. “To Tax or Not? The NFL's Relationship with the IRS.” USA TODAY Sports. USA
TODAY, 30 May 2013. Web. 16 Dec. 2014.
14
“S.2816 - Securing Assistance for Victims' Empowerment (SAVE) Act113th Congress (2013-2014).”
Congress.gov. Congress, n.d. Web. 16 Dec. 2014.
10
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indeed the nation to work to end domestic violence in the United States.”15 While both bills want to
remove the non-profit status of the NFL, the bill proposed by Senator Booker also includes a component
tied to ethical behavior.
Roger Goodell and the NFL’s handling of the Ray Rice domestic abuse issue and the Greg Hardy
assault issue have received much disparagement. Rice was suspended only two games following a video
purportedly showing him drag his girlfriend out of an elevator. Many critics thought his suspension
should have been originally longer than two games. Then, when the video from inside the elevator was
released and it showed Rice hitting his girlfriend, Goodell issued an indefinite suspension. Some do
wonder though if Goodell had access to the elevators footage and chose a light original suspension on
purpose. Greg Hardy was convicted of assault on his ex-girlfriend in July, but he was not suspended by
Goodell. As word of the shortcomings of Goodell and the NFL spread, change has been demanded.
Senator Booker’s bill would help foster necessary change in the NFL by appropriating more funds to –
anti-domestic violence programs.
The ongoing barrage of people and lawmakers demanding change has prompted NFL owners to
reconsider their non-profit status. “It has been a topic of discussion for several years,” states Greg Aiello,
NFL league spokesman.16 The NFL is aware that its status as a non-profit is controversial. The issue with
removing its tax-exemption, the NFL acknowledges, is that it may force them to restructure stadium
bonds. To finance the building or renovation of stadiums, the NFL sells bonds, and the interest paid on
these bonds is taxable. Bondholders, therefore, would not be affected if the structure changes. “If the NFL
wishes to change,” Frank Hawkins, a former NFL finance executive, said, “more of an issue is that the
league would need the consent of bondholders to alter the organizational structure and bylaws of the
entity issuing the bonds.” The NFL also knows that because only the league office is tax-exempt, it would
Friedman, Matt. “Group of Women N.J. Lawmakers Want NFL Stripped of Tax Exempt Status.” NJ.com. NJ
Advance Media, 30 Sept. 2014. Web. 16 Dec. 2014.
16
Kaplan, Daniel. “League Examines Its Tax-exempt Status.” Sports Business Journal. American City Business
Journals, 29 Sept. 2014. Web. 16 Dec. 2014.
15
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end up paying only $10 million a year on taxes. Perhaps each year at the NFL owners meeting the topic
will be discussed, and perhaps one day the NFL will enact a policy to revoke its tax-exemption.
Recommendations
Congress is more likely to enact a policy regarding this issue than the NFL. There currently exist
multiple bills – in the House of Representative and in the Senate – that would remove the non-profit label
from the NFL, but these bills will not become law until they garner more support. The average American
today tends to be concerned with issues such as immigration, terrorism, healthcare, and education. Why
would the average American fight tooth-and-nail to see the NFL get stripped of its tax-exemption? While
this issue has been addressed by congressman and women, and several media outlets, it is not yet a
burning issue to the American people.
While grassroots movements can draw attention, they are not always the most effective. Lack of
support and leadership can hinder such movements. However, the notion to remove tax-exemption from
the NFL is supported by multiple senators and representatives and for good reason, particularly from the
members in New Jersey who advocate for using potential NFL tax dollars to support anti-domestic
violence programs. My first recommendation to Congress is this: During discussions in congressional
meetings, focus more on the ways that taxing the NFL’s League Office could help victims of domestic
violence. Structuring this idea as an opportunity to help victims in need would be effective. The events
that have recently blemished the NFL’s image could be used as a catalyst for change, and utilizing tax
dollars from the NFL could further this change. When an issue like domestic violence is mentioned, it
leads to serious discussions because it is a serious matter. Congress should make a difference by helping
anti-domestic violence programs, and taxing the NFL on profits that should be taxable.
A turning point in professional sports policy occurred in 2007 when the MLB removed its taxexempt label. The MLB, like the NFL, is a large organization boasting large revenues and profits. It too
faced criticism, and ultimately changed its structure. This is my second recommendation to Congress:
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Instead of proposing bills that directly cite “football organizations”, focus the bill more on “sports
organization[s] whose annual revenues are over $10 million.”17 If more emphasis is placed on the latter,
the bill’s perceived intentions become enforcing tax on all major sports organizations, not on attacking the
NFL. The continued rhetoric of ‘tax the NFL!’ is likely to annoy many in Congress, thus a bill that
broadens the issue to more organizations will be refreshing and more effective.
Broadening the audience of the bill may not be enough to have the bill passed, and Congress – at
this point – may consider directly contacting Commissioner Goodell and his cronies. To broker a deal
would be my third recommendation for Congress. If I were Congress, this would be my offer: We are
removing your non-profit status, but we will help subsidize your (the NFLs) corporate social
responsibility programs. This recommendation may result in further negotiation between the two parties,
but further negotiation could stimulate new mutually beneficial ideas. The NFL recently hired three
domestic violence experts who will be utilized to, “‘help lead and shape the NFL’s policies and programs
relating to domestic violence and sexual assault.’”18 This move indicates that Goodell wants to safeguard
against future mishandlings of domestic violence related cases. This recommendation would also align
with the sentiments of congressional members who advocate for more funding to women’s resource
programs.
If the decision to remove the NFL’s non-profit status were simple, there would no longer be a
debate on the issue. The bills introduced to Congress indicate potential, but may not be passed if they
have no support and target the wrong body of listeners. My fourth recommendation for Congress is: If the
NFL will not cooperate and broker a deal, Congress should threaten to raise taxes on the thirty-two teams
that comprise the NFL. Although these teams already pay taxes, whereas the NFL League Office doesn’t,
the threat of raising their taxes would likely cause uproar. Congress, however, must subtly hint that the
decision to raise team taxes stems from the fundamental problem that the NFL Leagues Offices’ status as
“S.2816 - Securing Assistance for Victims' Empowerment (SAVE) Act113th Congress (2013-2014).”
Congress.gov. Congress, n.d. Web. 16 Dec. 2014.
18
“NFL Hires Domestic Violence advisers.” ESPN. ESPN Internet Ventures, 15 Sept. 2014. Web. 17 Dec. 2014.
17
11
a non-profit. The subsequent quarrelling between the NFL and its team members would foster mistrust
between individual teams and the league office. The teams would ideally approach the league office and
demand a change, likely asking for the league office to remove its tax-exempt status, pay taxes, and allow
the teams to pay their own specified taxes. Collectively, the teams possess much of the revenue earned by
the NFL, so their bargaining power is high. Congress, though, has to first make this threat to the NFL,
then it can act based on the NFL’s reaction to this.
Conclusion
Even if professional football is the most popular sport in America, its organizing body has faced
continued scrutiny over the past few years. Some are angered by the mishandling of domestic abuse
allegations, others are upset over insensitive and racial motivated team names, and still others find
discomfort in the non-profit status of the NFL. The tax-exemption status granted to organizations, such as
the NFL, who incur billions of dollars in revenue annually, leaves many individuals puzzled. The United
States Congress is the audience of this report, and it should enact policies to remove the NFL’s label of a
non-profit. The ongoing efforts of Senator Chaffetz, Senator Coburn, and Senator Booker are admirable
and indicative that support within Congress is present, but it is not yet ubiquitous. With continued support
and adherence to the aforementioned recommendations, Congress could put an end to the NFL League
Office’s ability to avoid paying taxes.
12
Bibliography
“As American as Mom, Apple Pie and Football?” Harris Interactive: Harris Polls. Nielsen, 16 Jan. 2014.
Web. 17 Dec. 2014.
Barbash, Fred. “Why Congress Will Never Take Back the NFL’s Tax Break.” Washington Post. The
Washington Post, 15 Sept. 2014. Web. 16 Dec. 2014.
Change.org. N.p., n.d. Web. 16 Dec. 2014.
Congress.gov. Congress, n.d. Web. 16 Dec. 2014.
Dosh, Kristi. “Examining NFL's Tax-exempt status.” ESPN. ESPN Internet Ventures, 4 June 2013. Web.
16 Dec. 2014.
Friedman, Matt. “Group of Women N.J. Lawmakers Want NFL Stripped of Tax Exempt Status.” NJ.com.
“NFL Hires Domestic Violence advisers.” ESPN. ESPN Internet Ventures, 15 Sept. 2014. Web.
17 Dec. 2014.
NJ Advance Media, 30 Sept. 2014. Web. 16 Dec. 2014.
“H.R.3965 - PRO Sports Act113th Congress (2013-2014).” Congress.gov. Congress, n.d. Web. 16 Dec.
2014.
“IRC 501(c)(6) Organizations.” The Tax Lawyer 42.4 (2003): 1273-303. Web. 16 Dec. 2014.
Kaplan, Daniel. “League Examines Its Tax-exempt Status.” Sports Business Journal. American City
Business Journals, 29 Sept. 2014. Web. 16 Dec. 2014.
Ryan, Paul. “Paul Ryan's Response to Congress: Revoke the Tax-Exempt Status of the National Football
League.” Change.org. N.p., 9 May 2014. Web. 16 Dec. 2014.
“S.1524 - PRO Sports Act113th Congress (2013-2014).” Congress.gov. Congress, n.d. Web. 16 Dec.
2014.
“S.2816 - Securing Assistance for Victims' Empowerment (SAVE) Act113th Congress (2013-2014).”
Schrotenboer, Brent. “To Tax or Not? The NFL's Relationship with the IRS.” USA TODAY Sports. USA
13
TODAY, 30 May 2013. Web. 16 Dec. 2014.
Siltanen, Rob. “Yes, A Super Bowl Ad Really Is Worth $4 Million.” Forbes. Forbes Magazine, 29 Jan.
2014. Web. 15 Dec. 2014.
“Tom Coburn, M.D., United States Senator from Oklahoma.” Coburn Introduces Bill to Restrict
Professional Sports Leagues from Qualifying as Tax-Exempt. N.p., 18 Sept. 2013. Web. 15 Dec. 2014.
Woolard, Lynda. “Congress: Revoke the Tax-Exempt Status of the National Football League.”