You may not know it, but the National Football League is a nonprofit organization. It may seem absurd that a collection of teams that generated at least $9 billion in revenue last season would be given tax-exempt status, but the NFL is technically classified as a 501(c)6 organization. Here’s how the IRS describes 501(c)6 tax-exempt status:
Section 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
It’s obviously notable that only professional football leagues are included here, as opposed to all sporting leagues. The exemption for football stems from lobbying efforts by Pete Rozelle in the 1960’s to earn an antitrust exemption for the merger of the NFL and AFL. The antitrust and tax exemptions were cleverly attached to an uncontroversial 1966 bill to “suspend the investment credit and the allowance of accelerated depreciation in the case of certain real property.” The NFL-AFL merger language was included at the end of the bill that had nothing else to do with football.
Here’s the meat of the IRS’ explanation of how these tax-exempt leagues are supposed to work:
A business league is an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Trade associations and professional associations are business leagues. To be exempt, a business league’s activities must be devoted to improving business conditions of one or more lines of business as distinguished from performing particular services for individual persons. No part of a business league’s net earnings may inure to the benefit of any private shareholder or individual and it may not be organized for profit to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only enough income to be self-sustaining). The term line of business generally refers either to an entire industry or to all components of an industry within a geographic area. It does not include a group composed of businesses that market a particular brand within an industry.
It seems inconceivable that the NFL is not “engag[ing] in a regular business of a kind ordinarily carried on for profit.” How are their efforts to maximize profits any different than those of Major League Baseball, the National Basketball Association or the National Hockey League? As far as the NFL’s “net earnings,” the nonprofit was actually in the red in 2009, according to its latest available return. Virtually all of the leagues $192.3 million in revenue in 2009 came from “membership dues & assessment.” While the NFL doesn’t explain how much each clubs pays in dues, it averages to about $6 million per team. NFL owners don’t have to pay taxes on those dues, as they are considered donations to a nonprofit. Meanwhile, the NFL had $234.6 million in expenses in 2009, but the “nonprofit” paid $53.6 million to 8 individuals. NFL Commissioner Roger Goodell earned $9.9 million in 2009 (and will earn $20 million by 2019) but he wasn’t even the highest paid individual. NFL Network President Steve Bornstein was paid $12.6 million by the “nonprofit” even though NFL Network is part of NFL Enterprises, LLC. In other words, the only reason the NFL is operating in the red is because of the massive salaries it’s paying its key executives.
In 2010, Andrew Delaney, a Vermont Law School student, put together a fascinating paper examining the tax status of the NFL and found that the NFL was working like a “glorified tax shelter.” Delaney explains:
Through for-profit companies, the NFL sells licenses to use NFL intellectual property, broadcast games, etcetera, making a ton of money. That money is then distributed to the individual teams. The individual teams, in turn, pay their “dues and assessments” to the NFL. I don’t intend to mislead—some taxes certainly get paid here. The teams are considered for-profit and pay regular taxes. The teams’ tax liability is significantly reduced, however, when they pay their tax-deductible “dues and assessments.” How much and what gets taxed is just not publicly available. And it should be if the NFL is going to enjoy tax-exempt status.
Delaney ultimately concludes that “if the NFL isn’t violating the letter of nonprofit status, it’s certainly violating the spirit.”
The important thing here is that WE THE PEOPLE granted the NFL this tax exemption, even if it was decades ago. (Just as we granted the leagues the anti-trust exemption for negotiating television broadcast contracts.) As a result, we can revoke that exemption if the league blacks out its fans, forces fans to pay for personal seat licenses, extorts public money from municipalities by threatening to move teams, etc. The NFL may technically be a “nonprofit,” but it sure as hell isn’t acting in the public interest.
Brian Frederick is the Executive Director of Sports Fans Coalition. He holds a Ph.D. in Communication and is an adjunct professor at Georgetown University. Email him at email@example.com and follow him on Twitter here.