The 2015 NFL draft has come and gone, and now we’re stuck waiting until September for some football. In the meantime, let’s talk some taxes…and maybe a little football too.
When you think of nonprofit organizations, names like United Way, Salvation Army or Goodwill may come to mind. But, what about the NFL? It may come as a surprise that the NFL is (or was) a tax-exempt, nonprofit organization. Last week the NFL announced that it will voluntarily give up its tax-exempt status, ending a tax benefit it has enjoyed for decades.
How Did the NFL Become Tax-Exempt?
You may be wondering how the NFL – a league making nearly $10 billion a year and paying its commissioner $44 million a year – qualified for tax-exempt, nonprofit status in the first place. It goes back to 1942 when the NFL was struggling financially, and successfully filed for tax-exempt status with the IRS. The IRS ruled that the NFL was a trade association for the individual teams, and was therefore exempt from taxes under section 501(c)(6) of the tax code.
The league continued along those lines until 1966. Here’s a short history lesson for my fellow New Orleans Saints fans. Before the NFL-AFL merger in 1966, the NFL lobbied Congress for confirmed tax-exempt status for the league office and antitrust protection. At the same time, two powerful Louisiana politicians wanted a football team in New Orleans. As a result, Congress amended the law to specifically list “professional football leagues” as 501(c)(6) organizations, and also included an antitrust exemption for the NFL in an unrelated bill. The merger passed, and on November 1, 1966, the New Orleans Saints became the sixteenth NFL franchise. Good ole fashioned politics!
Why Did the NFL Give Up Tax-Exempt Status?
Make no mistake, tax-exempt status was a good deal for the NFL, and saved it millions in taxes over the years. So why would the NFL voluntarily give up the tax status it fought so hard for? The League’s tax-exempt status had attracted a lot of scrutiny over the past few years, and some members of Congress had vowed to revoke the status. The NFL’s tax-exempt status became increasingly controversial as people became more aware of the billions of dollars municipalities spent on stadiums, and as the league’s image suffered from the mishandling of concussions, domestic violence and other issues. In the end, the NFL decided that the tax-exempt status was no longer worth it -- calling the issue a “distraction.”
What’s the End Result of the NFL’s Decision?
The change in the tax status will not alter the function or operation of the League office in any way. However, relinquishing its tax-exempt status will cost the NFL an estimated $10 million or so per year in taxes. The League will file as a taxable entity beginning with its 2015 fiscal year.
In exchange, the NFL will get a few big benefits too, including the end of federal disclosure requirements which means the NFL no longer has to disclose its income or the salary of its Commissioner. Also, lawmakers can no longer hold the league’s tax-exempt status over its head during hearings on unrelated issues.