This Is How the NFL Feeds Off the American Taxpayer
Super Bowl XLIX is over, and President Barack Obama’s budget proposal for the upcoming fiscal year has been released. There may seem to be little connection between the two events other than scheduling proximity, but actually the American taxpayer has large stake in both.
The $3.99 tillion spending plan the White House laid out Monday morning has already been labeled Obama’s dream budget. It pitches a package of policies designed to help the middle class. It ends the “harmful spending cuts known as sequestration, by cutting inefficient spending and reforming our broken tax code to make sure everyone pays their fair share,” as the release from the White House Budget Management Office stated. And by reforming the tax code, most notably by a one-time tariff on corporate cash held overseas, Obama wants not only to help the middle class but to fund infrastructure spending on upgrading America’s roads, bridges, transit, and freight lines. So where does the NFL play into this?
With the discretionary spending portion of the budget entirely in the hands of the Republican-controlled Congress, GOP lawmakers will no doubt trim down Obama’s spending requests dramatically. And the president’s budgetary aspirations are after all aspirations. As NPR’s Tamara Keith tweeted: “Presidential budgets always exist in the realm of fantasy.” The annual budget resolution does not require the president’s signature to be implemented, so Obama does not have the option to veto the bill. Still since 2011, Obama budget proposals have exhibited a pattern; an emphasis on what he now calls Middle Class economics, partly through easing the “mindless austerity” of the sequestration cuts implemented in 2013. Sure, portions of his fiscal plan appeal to Republicans. The party would like to see spending on defense grow, as would the Pentagon. Military leaders warned the Senate last week that further sequestration cuts would be harmful and impede the United States in its fight against ISIL. But they contend that the president’s budget spends too much and taxes too much. There is almost no chance Congress will adopt the tax increases Obama requested, but lawmakers are likely to agree to spend more than the sequester would have allowed.
Where the government allocates tax dollars is always a topic under great scrutiny. Republicans criticize the Obama administration for not making the cuts to entitlement programs like Social Security needed to solve the federal government’s long-term fiscal problems. GOP lawmakers want to implement no tax increases, to cut spending, to balance the budget, and to further decrease the debt. By comparison, the Obama administration has framed Republican opposition to his proposals as the obstacle to the security needed by the middle class to “get ahead in the new economy.”
But the conclusion of the professional football season warrants an examination of how the NFL benefits from the American tax code’s peculiarities.
2014 saw the NFL’s profits surpass the previous year’s record of about $1 billion, despite the damage to the league’s image wrought by its poor response to domestic violence charges against several star players, including the Baltimore Ravens’ Ray Rice. Attendance rose, as did ticket prices. However, it is important to note that the league is able to earn such massive profits, which make it the most lucrative sports organization in the world, in part, thanks to the billions of taxpayer dollars local governments spend on teams and the federal tax breaks given to the league, its sponsors, its teams, and the fans. “Professional sports organizations aren’t fooling anybody. Organizations like the NFL and NHL are for-profit businesses making millions of dollars each year. These are not charities nor are they traditional trade organizations. They are for-profit businesses and should be taxed as such,” Rep. Jason Chaffetz (R-Utah) said in a pre-Super Bowl speech introducing legislation to end tax exemptions for professional sports leagues. “Closing this loophole should be combined with closing several other loopholes in order to lower tax rates in a revenue-neutral manner.”
Chaffetz, a former kicker at Brigham Young University, has also said he will “probably” call Commissioner Roger Goodell to testify before the House Oversight Committee regarding the NFL’s status as a tax-exempt organization.
According to section 501(c)(6) of the federal tax code, the NFL and the NHL and the PGA Golf Tour, although not the MLB or NBA, are designated as trade associations like the U.S. Chamber of Commerce. The NFL receives a great deal of criticism for its status as tax-exempt organization, but it is important to remember that the league is not considered a charity as some of its denouncers claim. Although the NFL is officially a non-profit, a designation that is suspect as well, charities fall under section 501(c)(3) of the tax code, meaning the professional football league cannot be compared to the American Red Cross. The particular section of law that applies to the NFL reads: “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.”
In 2013, league spokesman Brian McCarthy told ESPN why the NFL fits perfectly within that definition. “The NFL League Office is a not-for-profit organization. The NFL League Office receives funding from the 32 member clubs to cover its non-revenue overhead activities such as office rent, League Office salaries and game officiating,” he said. “In addition, the NFL League Office collects revenues on behalf of the 32 member clubs and distributes those revenues to the clubs. All national revenues (e.g. broadcast TV payments) collected and paid to the member clubs, as well as local revenues earned individually by the clubs, are subject to tax at the club level.” McCarthy is correct, as far as his argument goes; team revenues from ticket and merchandise sales are taxed. But the league office is tax-exempt. The money the office receives is no small change. In 2012, that total amounted collected in “dues and assessments” and “coach/club fines” was $326.8 million, according to the NFL’s 990 filing, a document required by the Internal Revenue Service of all non-profits. What McCarthy skips is the fact that the league administrators are compensated royally; the organization, which is not subject to corporate taxes, paid a total of almost $60 million to its leading five executives in 2011, although the IRS rules state that the non-profit status cannot be abused for personal enrichment. The NFL has defended the pay of its executives with the ever-useful capitalist claim that the free market rewards excuse whose organizations perform well, as the league undoubtedly has. Goodell himself took home about $30 million in 2011. By comparison, Goldman Sachs CEO Lloyd Lloyd Blankfein earned $16.2 million in compensation.
Repealing the tax-exempt status of the NFL’s league offices would raise about $109 million in revenue over a decade, according to the Joint Committee on Taxation. According to the Atlantic, annualized stadium subsidies and tax favors amount to as much as $1 billion. Plus local taxpayers shoulder a huge burden. When Santa Clara broke ground to build the new $1.3-billion stadium for the 49ers, the deal included $116 million in public funding, with the majority to financed through private capital. That private capital, which came largely from a consortium led by Goldman Sachs, was borrowed by the Santa Clara Stadium Authority. And the board members of Clara Stadium Authority were members of the city council, meaning the taxpayers were on the hook for the funds if anything went wrong. In New Orleans, Saints owner Tom Benson, whose net worth Forbes places at $1.2 billion, pockets nearly all the revenue from ticket sales, concessions, parking, and broadcast rights. Meanwhile, Louisiana Governor Bobby Jindal presents himself to be a anti-spending conservative, but uses $6 million in taxpayer dollars as an annual “inducement payment” to keep Benson and his team in New Orleans.
That may seem a small amount compared to the $79.7 billion per year the Obama budget proposes to spend on infrastructure projects. But really the magnitude should not be the primary concern when considering whether taxpayer dollars should be subsidizing an organization as profitable as the NFL. One question that should take more precedence is why the NFL was fit, and so specifically, into the IRS’s list of tax-exempt non-profits. The designation dates back to 1966, when Congress passed Public Law 89-800, its lack of a flashy name like the Patriot Act no doubt intended to keep it low-profile. That statute strengthened an earlier and limited antitrust law known as 1961 Sports Broadcasting Act, which gave the two pro-football leagues of that era legal permission to negotiate a television-broadcast deal that would have otherwise been considered price collusion. Public Law 89-800 paved the way for those two leagues to officially merge four years later, forming the current iteration of the NFL. That new entity was given a monopoly regarding television broadcasting rights. The only concession made by the NFL was to not schedule games on Friday nights, a slot belonging to high school and college games.
During negotiations, lobbyists managed to have the phrase “or professional football leagues” added to Section 501(c)6 of the tax code, a move that has saved the league uncounted millions. For reference, the NFL spent $1,220,000 on lobbying in 2014 and donated $561,275 in the 2014 election cycle — the majority of which went to candidates like Kevin McCarthy (R-CA), Mark Pryor (D-AR), Paul Ryan (R-WI), Mitch McConnell (R-KY), and Lee Terry (R-NE).
Jeffrey Tenenbaum, a Washington D.C. attorney who practices law dealing with non-profits, also mused in an interview with ESPN whether the NFL should be stripped of its designation because “it’s only furthering a segment of the industry and functions more like an exclusive club” instead of allowing “anyone who meets [the] requirements for who’s part of the industry has to be allowed to join the association as a member.” That may be a small criticism, but it serves as another example of how the league ignores tax code regulations.
Meanwhile, the Obama administration is “still reviewing the bill” proposed by Chaffetz, as White House spokeswoman Brandi Hoffine told CBS News. His bill would eliminate the federal tax exemption for top professional sports organizations with annual revenues over $10 million.
Follow Meghan on Twitter @MFoley_WSCS