Wednesday, September 2, 2015

Nonprofit Professional Sports: Really?

Nonprofit professional sports - it sounds like an oxymoron, doesn't it? And yet, these organizations are classified as nonprofit under U.S. tax law: NHL (National Hockey League), PGA (Professional Golfers' Association, and - until just a few months ago - the NFL (National Football League).

A little background on the IRS code: Section 501(c)(6) allows a tax exemption for business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues. All of these are supposedly not organized for profit, and no net earnings can be used to benefit any private shareholder or individual. The explicit inclusion of professional football leagues was part of a 1966 deal Congress made when it granted an antitrust exemption that allowed the NFL to merge with the AFL (a now defunct football league).

Here's a quick summary of revenues and salaries for these "nonprofits":
  • The NFL reported revenue of $327 million in 2013; Commissioner Roger Goodell's salary was $44 million; the average price for 2015 Super Bowl tickets was $2,600.
  • The NHL has annual revenue of $3.7 billion; Commissioner Gary Bettman's combined salary and benefits come to $8 million.
  • The PGA takes in $973 million annually; I couldn't find any public data for current Tour Commissioner Pete Bevacqua, but previous Tour Commissioner Tom Finchem received a salary of $5.1 million.
The NFL opted out of its tax-exempt status a mere 4 months ago; Major League Baseball did so in 2007, largely to avoid IRS reporting requirements - now they don't have to make public the salaries for their top executives.

Even former Republican Senator Tom Coburn (an ardent anti-tax Tea Party proponent) believes these organizations should be paying income and property tax. His proposed Marketplace Fairness Act would have ended the practice of allowing professional sports leagues to qualify as tax-exempt. According to Coburn, the result would be a gain of $91 million in tax revenues for the U.S.

And there's the sad case of FIFA (Federation Internationale de Football Association). FIFA is a registered nonprofit under Swiss law. Its 2013 revenue was $1.3 billion, with a net profit of $72 million. Its top 13 executives received $26.1 million. They've been in the news lately due to the arrests of top executives for bribery, kickbacks, and match fixing. The Mob Museum in Las Vegas - home of exhibits on gangsters, Mafia bosses, drug cartels, and all manner of corruption - just opened a new exhibit on FIFA called "The Beautiful Game Turns Ugly."

There's something rotten in the world of tax regulation in the U.S. and internationally when these bedfellows get to call themselves nonprofits.

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