Bet you didn’t think one of the most profitable businesses in the country wasn’t actually a “business,” did you? The NFL is actually a nonprofit organization receiving tax exemption under code 501(c)6. What kinds of organizations fall under that classification, you ask?
“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…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.” –IRS, revised 4/24/14
Wait… what? Professional football leagues, specifically? Well that’s interesting. More interesting is how Roger Goodell’s $44 million in compensation somehow is not considered “net earnings which inures to the benefit of any individual.” Even more interesting is that, last I checked, operating a television network and licensing apparel are “ordinarily carried on for profit.” And could someone please explain how the League is able to pass the stadium construction tax burden to fans, who already pay taxes, when it earns nearly $10 billion annually? Perhaps this is why their DC and New York law firms earn the big bucks (more than $16 million last year, per the NFL’s 990).
Petitions keep popping up on Change.org to revoke the NFL’s tax-exempt status. New Jersey Senator Cory Booker has introduced legislation to declassify the NFL and other professional sports leagues as tax-exempt organizations. His bill, called the Securing Assistance for Victim Empowerment (SAVE) Act, is undoubtedly a direct response to the NFL’s poor handling of domestic violence cases over the past several months; it seeks to raise $100 million over 10 years for domestic violence assistance programs.
Now to that end, I’d have to disagree with Sen. Booker’s approach. First and foremost, the NFL’s tax exempt status should not be revoked on account of Ray Rice or any of the other players currently decimating the League’s brand image by way of domestic violence. It simply is not sound governance to go about restructuring entire corporations (exempt or not) because of employees’ behavior (egregious as it is). Though domestic violence prevention is and should be a national priority, quite frankly it makes zero sense–from either a regulation standpoint or an economic one–to start snatching tax exemptions and awarding dollars to the cause du jour. There are too many causes that could argue and prove their rightful entitlement to a piece of the pie, from battered women and abused children to drug and alcohol rehabilitation and… the list is endless. The League’s nonprofit status should be reevaluated according to the purposes for which an organization is awarded tax exemption in the first place and whether its business activities align with those standards. Period.
That being said, if tax exemption is going to be revoked, it should be for reasons that the NFL has a) suspiciously maintained tax-exempt status even when other pro sports leagues have not (including the NBA and MLB); b) generated significant revenue conducting ordinarily taxable business–with a goal of $25 billion in revenue by 2027–,the distribution of which is not in alignment with the standards held up for other nonprofit organizations; and c) done a disservice to the local communities in which it operates by passing tax burdens to citizens for facility construction and renovation.
Personally, I believe NFL communities would benefit most from the League maintaining its nonprofit status and actually acting like a nonprofit. First, the League should abide by the same comparable compensation standards to which other exempt organizations are held. Instead of awarding $40 million bonuses to say, a commissioner, those funds should be invested in the communities the NFL calls home. Many NFL teams play in some of the most economically disadvantaged cities in the country, with high rates of at-risk youth, crime, poverty, unemployment, lacking education resources, and other pressing issues. Its earnings, then, should be invested in community-based programs to address these social issues that impact the daily lives of fans and stakeholders nationwide.
I’d also like to see significant investment in player education on topics ranging from financial management to domestic violence. As we can see, the Rookie Symposium isn’t enough; the young men entering the League need much more guidance than any 3-day seminar can provide. Veteran and retired players can be integral to showing the rookies the ropes around the locker room, but subject matter experts are needed to provide ongoing support to players and their families at every stage of their careers. The League should invest in the overall development of its greatest assets, its players; from teaching them how to invest wisely, showing them better ways to give back and offering family support (in confidence) for critical issues like domestic violence and depression, to name a few. Greater emphasis should also be placed on professional development to help players cultivate their personal brands and prepare them for careers off the gridiron. These guys and their families give so much week after week, season after season; the League has a responsibility to give them the tools they need to succeed in their post-playing careers.
Now, it wouldn’t be fair to suggest that the NFL does nothing to support its local communities. In fact, quite the opposite is true. Its Play60 and breast cancer awareness campaigns have done a great deal to support youth and women, among the other causes the League supports. But imagine the greater impact our communities would realize if the NFL retained its earnings for the purposes of community development, as nonprofits are supposed to do! If “together we make football,” I think football could do a lot more to support “us” across the board, instead of just its top executives. That starts with closing the loopholes and owning the responsibility. So I say, either be a business, or be a nonprofit; name your values and priorities and stick to them. Put your money where your mouth is. We’re waiting…